ACI Worldwide Inc (ACIW) 2002 Q2 法說會逐字稿

Good afternoon my name is Anthony and I will be a conference facilitator today. At this time, I would like to welcome everyone to the Transaction Systems Architects 2Q Earnings Conference Call. All lines have been placed on mute, to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I will now turn the call over to Mr. Leroy Peterson, Director of Investor Relations. Thank you sir. You may begin.

Thank you and good afternoon. The participants for TSA's 2Q Earnings Conference Call are Gregory Derkacht, CEO, Dwight Hanson, Chief Financial Officer, Jeffrey Hale, Senior Vice President, David Stokes, General Counsel, and Mark Vipond, President of ACI Worldwide. This conference call could contain forward-looking statements pursuant to the safe harbor provisions of section 21E of the Securities and Exchange Act of 1934. Actual results might differ materially from those projected in the forward-looking statements. Statements during the conference call that are not strictly historical statements could constitute forward-looking statements, which involve risks and uncertainties, which could cause actual results to materially differ from those in the forward-looking statements.

These risks and uncertainties include those contained in TSA's filings with the SEC. The areas covered on the call today that may constitute forward-looking statements include the following: The growth and worldwide debit transactions and in the electronics statement presentation and electronic bill presentation, and payment markets and the impact on TSA's business. TSA's business initiatives in the Internet, shift card, wireless commerce, and the e-commerce markets, and any statement dealing with the future prospects resolves with the company. We are pleased that you have all taken the time to join us today. Our agenda for this call will be as follows: Mark Vipond will give an overview of ACI Worldwide second quarter, Jeffery Hale will present an update on the and the IntraNet units, Dwight Hanson will present the financial results for the quarter, and Gregory Derkacht will then have some comments on TSA's business and its strategy going forward, and then we will open the call up to your questions. At this time, I would like to introduce Mark Vipond, President of ACI Worldwide.

Thank you Leroy. Good afternoon everyone. I am here to give you an update on TSA's largest operating unit, ACI Worldwide. ACI's results for the second quarter of fiscal year 2002 were mixed. While we were pleased with our performance in light of the difficult economic environment affecting information technology companies around the world, we were not satisfied with the overall results of our business. We continue to see cuts more than prospects, questioned and delayed project expenditures and our clients are scrutinizing every expense at the highest levels of their organizations. This has had an impact in all areas of ACI's business, particularly as it relates to new projects in the areas of electronic commerce, mobile commerce, and our e-career markets. In the final analysis of the quarter, we continued to see opportunities for our solutions, but the decision cycles continued to be extended as our customers managed our businesses very carefully.

In spite of these conditions, ACI still signed new business in the quarter. We added 7 new customers in the past quarter to sell the BASE24, WINPAY24, and smart card manager. New account sales include 5 financial institutions and processors, and 2 retailers. I would like to highlight some of the key success that ACI had in the past few months. We licensed our first enterprise payment system running on the IBM's e-series platform to First National Bank of Omaha. FNBO has been a longtime customer of ACI and is one of the largest merchant and credit processors in United States. They will be deploying our enterprise payment system as a merchant processing systems and we will look to expand its use from now.

FNBO believes the flexibility of our system will allow them to further differentiate their service offerings and uniquely position them in the market. We saw a sequential increase in capacity upgrades during the quarter with over 20 customers licensing additional transaction volumes. These were associated with our BASE24, WINPAY24, and predictive risk management product lines. The predictive risk management capacity upgrades are particularly notable as they represent the first significant volume increases we have seen from customers using this product. We remain very bullish about the potential risk this part brings to our company as it helps our customers fight, prod, and debit, credit, merchant, and money loan or detection. The sales pipeline for this part continuously to grow and investments we have made to improve our offering are starting to payoff. We have also seen an improvement in our Asia Pacific business this past quarter.

This region has seen some difficult times for the past 2 years, but there has been an increase in activity in the past few months and this division of Asia has turned in its best performance in years during the second quarter. While many of our competitors decrease their investments in this market, we have maintained our presence and allowed us to improve our results in 2Q and has positioned us for better performance as the market continues to show signs of recovery. Looking forward, we continue to have strong activity throughout the world, but this past quarter is causing us to remain cautious about the business in the near term. We believe our core payment engine business will remain solid, our fraud detection opportunities will expand. Our customers' capacity requirements will increase and that will remain well positioned against our competition.

Speaking about competitors, we continue to see signs of distress in many of our competitors as they struggle to survive in this difficult economic environment. We believe that ACI's strong customer base and solid recurring revenue, places us in a more favorable position. With the actions we have taken to reduce our cost over the past year, we are positioned to sustain profitability and positive cash flow. This is allowing us to aggressively pursue new business and win market share by taking advantage of our financial and technological strength over our competition. While we remain cautious about our near-term business results due to the uncertainty in the economic environment, we remain bullish about our long-term prospects and our ability to grow business as spinning increases within our markets. One of the main reasons we remain confident about our long-term business potential is the continued execution of our strategy to deliver the ACI commerce framework to our customers and prospects. If you recall, the ACI commerce framework prescribes the end-to-end nature of our product set and its ability to manage transactions from acquisition to authorization, all the way to back office processing.

We believe no other software vendor provides throughout the breadth of the payment solution with the availability, reliability, and scalability of ACI. Everyday, we are investing on our solutions to make sure we continue to deliver on this strategy and positions our client to be able to support emergency requirements of the electronic payments business. In this past quarter, we continued to implement our BASE24, release , the 12 live customers on this new release. We delivered release 6.1 of our PRM products providing scoring and a web based user interface. We have completed in our finishing certification testing as we speak. We made significant progress in delivering on our open system's vision for payment engine software and we released a number of new versions of the software, crossed our product lines to ensure they meet the needs of our leading edge customers. These investments are allowing us to retain and grow our leadership position in this market. In summary, while the market continues to be soft for technology spending today ACI is doing the right things to manage our business, to position ourselves to win as our customers increase their electronic payment investments in the future. I thank you for your time and I will now pass the floor to Jeffrey Hale to review his results from Insession and IntraNet.

Thanks Mark. I just want to briefly update you on how we are doing in our other businesses, Insession technologies and IntraNet. Although they are certainly feeling some of the same market effects of ACI Worldwide, there are some key differences in those businesses that you should understand. First, Insession technologies, Insession specializes in infrastructure software. Turn areas of emphasis includes system connectivity, cross platform, day emolument synchronization, a tool to environmental testing, systems management, and business process management. Even in a very tough spending environment Insession was able to add 11 new customers and saw particular strength in the connectivity and application areas. We are working to transform this business from what has been a compact cumulative business to an open systems business and have some products just coming to market we think will help that transformation, if new products will compliment TSA's overall strategy to move to open systems based technology.

Second IntraNet, IntraNet provides mission-critical e-payment solutions for the corporate banking market. IntraNet is the clear market leader in the US wire transfer market, has moved in to secure a stronger position in Western Europe. IntraNet is in the midst of the process of migrating its current customers from a proprietary platform to an open systems based product and we are able to contract for upgrade this quarter with Eighth Street, PNC Corporation, South Trust, and Bank of Bermuda. The IntraNet business grew over 30% of the prior year's quarter. In addition to working hard to crack the European market, IntraNet is working to find new product offerings to cross sell into its high-end customer base in the United States. Thanks for allowing me to give you a brief glimpse into those 2 businesses. Now I will turn over to Dwight Hanson.

Thanks Jeff and good afternoon. I will start off by recapping some key financial items for the quarter. Revenue for the quarter was $65.7m. Pro forma operating expenses were $62m. Pro forma operating income was $3.7m and our pro forma earnings per share was $0.08. These pro forma results are all in line with our previously issued guidance. On an actual basis, net income was $4.5m and earning per share was $0.13. Operating cash flow was a $11.3m, and our ending cash balance was $47.3m. Our backlog is $169.7m and we completed the sale of Regency Systems in mid February. In general, our results for the second quarter continue to reflect the tough environment in the IT spending marketplace.

Customer buying decisions have continued to be either reduced or deferred until such a time as the underlying business environment for these customers improves. To help us manage through these times, we will continue to adjust our cost rates to a level that will allow us to maintain profitability and cash flow. The sale of Regency Systems to S1Corporation was completed on February 14. The sale was for $12m of which half was cash and half was S1common stock. This transaction generated a $4.1m gain, which has been excluded from our pro forma results. Next, I would like to provide you with some detailed information regarding our second quarter results.

The $65.7m of revenue is comprised of the following: License fees of $35.6m of which $19.6m is initial license fees and paid upfront fees, $2.8m is license fees with extended payment terms beyond 12 months, $11.3m is monthly license fees, and $1.9m is custom development fees. Our maintenance revenue was $19.6m and our services revenue was $10.4m. On a year-over-year basis, license fees declined 21%, maintenance fees increased 13%, and services declined 25%. The declines in license fees and services were tied directly to the overall market conditions in the IT industry that I mentioned previously. These year-over-year market conditions are causing us to receive fewer transaction volume upgrades, which are typically the bread and butter of our nonrecurring revenue sources as well as fewer sales of our core products to new customers. Likewise with fewer new installations and customers tightly controlling their discretionary IT spending we have also experienced a decline in our services revenues. The increase in maintenance revenues is a result of our continued strong customer retention rates as well as the impact of new customers going alive during the last 12 months. Revenues for each of our geographic channels are as follows: United States $28.4m, America's International $9m, Europe, Middle East, and Africa $18.6m, and Asia Pacific $9.6m and revenues for each of our business units are as follows: ACI $46.4m, Insession $9.3m, and IntraNet $10m. Pro forma operating expenses for the quarter was $62m, a decline sequentially of 3% from the first quarter of this year and 14% from the second quarter of last year. The change on a sequential basis is primarily due to the sale of Regency in February as well reductions in our travel, contract labor, and advertising and promotion cost manners.

Offsetting these reductions were few increases that being our payroll tax expense, which is due to the start of a new tax year and third party loyalties. Our head count as of March 31 was 1745, which is down from 1850 as of December 31. Of this reduction, approximately 7 are associated with the sale of Regency. The resulting pro forma net income for the quarter was $2.8m and earnings per share of $0.08. In the calculation of our pro forma results, we excluded $2m of software amortization associated with acquisitions as well as the gain of $4.1m generated from the sale of Regency. The pro forma results were computed using an effective tax rate of 39%. Our actual results for the quarter were net income of $4.5m and earning per share of $0.13. These results include software amortization and the gain on the sale of Regency. Our backlog is $169.7m, which is comprised of recurring backlog of $123m and nonrecurring backlog of $46.7m.

This is an improvement of $2.1m after adjusting the beginning of the quarter backlog for the sale of Regency. From a cash flow perspective, we had another excellent quarter. We generated positive operating cash flow of $11.3m and our cash balance at the end of the quarter was $47.3m. I am also pleased to note that we have fully paid off our line of credit. Our day sales outstanding is a 138 days and our days billing outstanding is 56 days. I will close by giving you guidance on our expected third and fourth quarter results. First to remind you that these results now fully exclude the operations of Regency system. For the third quarter, we are forecasting revenue to be in the $61m to $66m range and pro forma earnings per share of $0.03 to $0.09. For the fourth quarter, we are forecasting revenue to be in the $62.5m to $67.5m range and pro forma earnings per share of $0.08 to $0.13. As I mentioned previously, we have diligently managed our costs and we will continue to do so in the future. Our third and fourth quarter earnings expectations reflect the continued downward trend on our expense line.

These reductions come with one-time costs, which have been factored into our expectation. We estimate that we will have approximately $1.7m in the third quarter and $500,000 in the fourth quarter of these one-time costs. We have also factored into our guidance the effects of reduced revenues out of a couple of South American countries that are currently facing severe economic difficulties. Thanks for your time this afternoon. Next, Gregory Derkacht will provide you with his comments.

Thank you Dwight. Hello everyone thanks for taking your time to attend TSA's call via the Internet or telephone. We appreciate your interest in TSA. First let me say I am very excited to be on board of TSA. This is a great company with great prospects for the future. Over the past 120 days, I have examined many business components of TSA. I have visited a number of customers and operations around the globe. This has led me to several observations about the business. First, TSA's products and people are second to none in the market and are highly valued by our customers. The customers value the contribution of our solutions offered in support of their complex e-payment needs and are appreciative of the company's efforts to meet those needs. However, the same customers are expensing times to their own in their business. Many years of severe cost constraints and IT expenditure cutbacks are all documented. Customers are seeking to spend only on technology solutions with very quick returns on investments and are deferring more buying decisions.

Many of these companies had spent million of dollars on innovative technology over the last 2 to 3 years and have yet to see a payoff. They are not prone to making the same spending decisions any time soon. Having said that, they all realize that over time, they will need to reinvest in their core e-payment infrastructure and are telling us that they expect to place their bets with those providers with a vision in financial staying power to work with them over the long haul. We believe TSA absolutely fits that bill. TSA has got a great product portfolio. Unlike many other software companies, we have invested in some solutions that will need to see much higher market options before they try providing profit to TSA. We are evaluating every one of our product lines, ensuring that we focus on those that need our customer demands and offer the best power for TSA. TSA has a good financial model, but like most companies, which we can be more efficient in our leverage of that model. The management team is working diligently to ensure that we are as efficient as possible, which will allow us the flexibility to achieve 2 main financial objectives. 1. As the current IT market improves, we should grow our recurring revenue base creating better long-term earning visibility and greater profitability. Even in the current market, we should deliver better operating margins and cash flow positioning, better performance once the market rate strengths increase.

My long-term strategy for TSA is as follows: 1. Deliver products and service that our customers want and we could money at. We have excellent new products in the market including enterprise payment systems, our one and the only solutions. We will also seek third party who can incrementally improve our value proposition of the ACI commerce framework. In all cases, we will apply strict to the business case, for each new initiative with also ongoing profitability and market adoption. 2. Leverage of market position to create cost efficiencies to drive higher operating margins. We are continuing to work hard to improve the efficiency of our business, leveraging our global distribution channel and core product development groups. This includes re-engineering our global market, delivery, customer support processes, and improving our overall responsiveness. 3. Build our cash position and currency position to give us more flexibility to consider new strategic products and markets.

Clearly this isn't the greatest time in which deliver new products to the market. That said, this is an industry of change and change will precipitate the need for new products in our core market. We want to be as responsive as we can in findings new ways to drive profitability growth and entering sensible new product lines and markets. A strong balance sheet will give us the most options in terms how we execute in this area. 4. Seeking markets that offer synergy in terms of top line growth, recurring revenue, and earnings. I have always viewed the financial services industry in broad terms while e-payments marketplaces certainly exit market. There may be others of interest that can create additional growth and earning potentials for TSA. So how will we do this?

Consider the following. 1. We believe that in general we have the right pricing structure for an enterprise software company combining elements of new features, volume sensitive pricing, and term-based licenses. Once our market begins to improve, we can trim the pricing model to achieve our objectives and increasing recurring revenue. 2. Unlike others, we have proved that we can build a significant recurring stream, combining and recurring licenses. Half of our revenue for this quarter came from recurring sources and our current run rate of recurring revenue is $530m per year. A key goal of mine is to accelerate the growth of our recurring revenue basis over a period of time, this will not happen overnight especially in the tepid spending environment, but it will get done. 3. Operating cash flow for the last four quarters is a positive $49m. The four quarters prior to that was a negative 8 million.

Our revenue is not certainly growing the way we would have liked it to, but it may be a fact of light for some time to come even with more revenue base our EBIDTA margin improved over 11% this quarter. Accommodation of our work to drive more internal efficiencies throughout the organization and some growth in the market spend can dramatically improve this metric. This is not an if, but a win. 5. We have reduced our quarterly operating expense run rate by over $10mover the past four quarters and expect to continue to drive it down through the balance of the year. We must be more efficient how we run this business and we are getting there. I would personally like to take the opportunity to thank management and employees for helping this process. It is a difficult, but critical initiative. 6. Along with a high-differentiated solution portfolio, we have an unmatched global infrastructure in our space.

We believe that similar structure can give us significant leverage in terms of potential consolidation or new market opportunities once we have further improved our cash position. There is no lax of potential new market solutions opportunities for a company with our worldwide distribution system. As I indicated earlier, we have new products in the market now. The ACI commerce framework team resonates with customers and we are seeking to expand its capabilities through a combination of R&D and partnerships. Like others in the technology sector I would say that we view the market as it is not turning any time soon, but we do expect to have some visibility to our customers' investment plan as they begin to prepare the 2003 budgets.

Given that, I have asked the management team to focus heavily on operational efficiencies and a few strategic product areas such as our new enterprise payment system roll out. We are currently involved in some very significant new enterprise system sale opportunities that we would hope to close in this fiscal year. In addition, we continue to have the traction in our retail space, broad money detection market, and in our corporate banking business. As always we continue to see growth in e-payment volumes around the world, effective driver of all (indiscernible) business. Europe and Latin America are currently rough spots for us and we are making sure that we address the cost aspects of those operations, as we look for rebounds in the next several quarters. Also as previously announced, we sold Regency to S1. Regency was diluted to operations and we looked to put close seeds from the sales to good work and support of our strategy outlined earlier. I look forward to meeting with many of you over the coming months and further outlining my business strategy, again thank you for your interest in TSA and thanks for your time. To Leroy.

Thanks Greg. At this time, we would like to have the operator come back on line so that we can open up the conference call for any questions.

At this time, I would like to remind everyone in order to ask a question, please put star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from Arthur Bender from Credit Suisse First Boston, Inc.

Good afternoon guys. Could you talk a little bit about the competitive environment and ACI and who are your main competitors that you are seeing both domestically and internationally?

Sure. It does vary by the product line that your are talking about, but for our payments engines base, which is the BASE24 and Enterprise Payment Systems, our primary competitors would include , Oasis, and S2 on a global basis, and you have some players in different parts of the world. I would also add Mosaic to that, as we see them more often than we used to in the past. In the back off of the people, we call the Payments management area, we do not have many competitors. Efunds have some products that compete with our solution set. In the predictive risk management products, the PRM products, our primary competitor is Agency, which was just bought by (indiscernible) yesterday, is announced. On the first trial of what we call as Secure Commerce Suite, which will be our wallet technology commerce gateway, mark products. There are 50 small competitors, people like TrimTech. There would be people like Arkott, Cards etc., in the smart chip management areas, there is quite a few. On the payments engine side, I would I also be (indiscernible) if I didn't say relative to also outsourcers that compete for that business with our clients by convincing them to use their services proven environment as opposed to putting in their own solution in their respective organizations.

How do you say that your competitive position has may be changed the guidance better or worse. Versus these competitors is your win rate getting better or worse?

I would say our win rate is about the same. The difficulty we are finding in this market place is there is not a lot of new deals being done right now. Especially that relates to new projects. I would say our historical win rate remains about the same and that is the comment about our competition suffering. They do not have the recurring revenue and the customer base that we do to pull on for revenues and that is why we see them being a bit distressed and we signs of that and we see some are being very aggressive on pricing in order to get cash flow into their businesses.

Speaking of the current revenues, you mentioned in your press release that your are taking some steps to increase your recurring revenues without a change in your pricing model or a change in your product mix?

There will be a change in pricing on a go-forward basis. What we are trying to do is to get ourselves positioned as Gregg mentioned to be able to try to more aggressively go after the recurring revenue sources. Big part of that is making sure we have got a cost in line to allow us to do that in the future.

We are going to see that occurring over a period of time, as there is a spinning uptake in the market place. It is very difficult from this environment at this point in time until we do the see spending increase.

Are there some products that you are offering on a license basis that you are now offering under a different pricing model or is that what you are trying to do?

For our core products, as we talked in the past over the last couple of years we have aggressively pursued upfront pricing versus spreading it out over time in what we call the monthly license fees or so. The more matter of reverting back over a period of time as Gregg said and as demand reruns to a higher level, our initial license fee, monthly license fee, model versus all upfront. .

Okay. Just one last question. Can you give us an update on your electronic billing initiatives?

By that you mean our e-career product line?

Yeah.

Yeah. It falls in same category of (indiscernible) spins from clients. We did not have great deal of success in the last quarter in terms of securing new clients much like our competition in that area. We did see some more clients, we have 4 live users they are increasing their billing rates quite dramatically relative to the number of users, one in Australia, 2 of them here in the States, and one over in the European community. They are doing service (indiscernible) type business. So we are starting to see some more adoptions, but it is certainly not the level that we are doing cartwheels over right now anyway and we hope that it continues to pick up overtime, but we are not seeing a lot of (indiscernible) done by the marketplace right now in this place.

Have you released the names of any of your domestic customers for that product?

I think we did announce BillServe as being one and that is one of them that is starting to see some adoption within their marketplace. down Australia is the other one we did announce that one and they are also doing billing for (indiscernible) clients on the system right now.

Your next question comes from John from Goldman Sachs.

Good afternoon Greg and Dwight's. Just 3 quick questions. First one is, may be Greg can talk about what the leading indicators would be for what might signal a demand starting to return?

I would say it is relatively simple. I mean we would start to seeing sales activities pick up in that arena and prospects and then we would say that market is picking up. Right now all indications in the software environment continues to be very tepid and in fact decreasing. There was a just an article today that is the software, there had been about a 5% decrease in software spending in the last quarter and so we reduce the customer basically as barometer for that and at this point in time we just do not see anything occurring. There is a tremendous amount of interest in some of our products, but they are very concerned about their own business environment and large capital expenditures.

Okay and Dwight can you talk about what you expect the operating expense run rate would be for the next 2 quarters and I guess (indiscernible) mentioned some of the works you are doing on that go to market and customer support. What are other sources or steps you have taken to bring expenses in line?

Well obviously we don't comment specifically about an operating expense number, but if you look at the revenue and earning guidance that we provided, the revenue guidance was flat to down relative to the first part of the year and we have earnings being pretty much neutral to up towards the end of the year, so you can so you can tell that overall the trend line on expenses is for it to continue to go down, John.

Okay, I go to marketing and customer support or there any other initiatives underway?

At this point of time, we are looking at all portions of our business every GO, every specific in the product line etc., etc., to determine first of all market adoption and acceptance of the product to make sure that are there. If they are then we are giving the opportunities to decrease cost and increase efficiency, so we are just looking at every piece of our business right now to make sure we are running at the appropriate rate for the organization to maintain profitability or increase profitability over a period of time.

Okay and lastly can you size may be the enterprise systems opportunities from this year. How big are these deals?

Enterprise payment system?

Yes sir.

Well it varies by customer. It is the price seen when that system is consistent with our payment engine products and our philosophy which is their capacity base. So depending upon the size of customer it can vary from very small quantity to a very large one, so it could have a huge differential, but it is similar to BASE24 pricing and I think we probably typically answer that on tradition, an average customer is probably worth from a half-million to a million dollars in terms of the sale.

Your next question comes from Franco Turrinelli from William Blair & Co.

Good afternoon everyone. Just a piece of housekeeping if you would you historically be kind enough to give me the backlog breakout facility and license and services?

Yeah. One second I will get to that. Backlog in total as I said is $169.7m, the recurring of 123 is made up of monthly license fees of 42.2, maintenance of 76.3, and facilities management 4.6, the nonrecurring is license fees of 20.4, and services of 26.3.

Thanks. Couple of more, kind of general questions for you. I was a little surprised to see the component of software go down sequentially. Can you help me understand how much that might be related to Regency?

Part of that is tied to Regency and part is also tied to what we have seen in past quarter spike that is as have gone out and pursued it. Upfront pricing for those customers, where we have terms that are often renewing terms and we put them on upfront pricing we feel the impact of that also. I think it is those two pieces that are really driving that downward trend on monthly license fees.

Just to make sure that I understand, so some of the MOF renewals March quarter over the December quarter were converted to (indiscernible) or paid upfront transactions?

Actually we had, it has been more than just the last quarter, it has been a number of quarters were we pursued the upfront pricing and there is a kind of lag time affect on the monthly license fees. If you are doing that, at the end of the quarter, you may not see the impact on the monthly exact quarter, but in the subsequent quarters you will. That type of pricing does impact our monthly license fee run rate.

You are absolutely right. I apologize for implying, but it was a new trend. I just wanted to make sure of this. The updated guidance does imply a little bit of, you know, it is a little bit of a cut from what we had back in December. What I am curious about is, you know, you guys were already pretty cautious in December. What did you see may be this is something particularly for Mark, what did you see that made you, you know, more cautious apart from a long hard winter, you know, up in Nebraska?

What we have seen is, I would say the most strenuous buying situation I can remember since about 1989 and 1990, but it had been a long time, I have not seen it. We are customer to this cautious and even when you get a decision made and yes I want to go forward then the CFO could step in and say, we are not spending any money. we have seen more signs of that. I have not seen it like this for since like I said 1989 and 1990. Last time when we went through this kind of a phase and that is consistent. We just see it all around the world and in certain areas, where it is a little bit better, but America I believe has somewhat stabilized and Europe as Gregg told a little earlier has been a real difficult area for us specifically during the last quarter. So we are just very cautious based upon the closure rate of business.

Mark I think you are, you know, you were real cautious back in December already. I think what I am hearing you say was, but think that spending high (indiscernible) is likely to last a little bit longer than you previously had hoped, let's put it in that way?

Yeah. In the last few months we have had several clients, some to us privately and some publicly, state that they are killing all projects or stopping all things are critical and that trend we still see somewhat happening in the last couple of weeks, we have seen some big name customers announce the fact that they are going to stop all noncritical projects. So I do not think it is changing or not changing within our customer basis, so we have not seen any positive signs that would make us feel bullish about anything right now.

Right and again Mark and Gregg can kind of chip in on this, in this environment, (indiscernible) wouldn't it almost be easier to get people to sign up for to do the capital of a software license fee coming out of a capital budget. I mean, you know given, I think we all appreciate what kind of environment you are working and I mean it is now the time to really content the scores on getting that recurring revenue up and you have got the cash position, you can cut away from the storm out, I mean, does the near term really matter much for you?

Well. You know, quoting you, near your term always matters, but the point being, I think your point is well taken and that is our strategy base with this (indiscernible) generate recurring revenue in the organization. Now as I said, it will take us some period to start seeing the impact of that recurring revenue model, but it is very much our intent to start turning in that direction, also we feel that it will generate the opportunity for less discount basically as a pricing model. So, we think there are a lot of things here, we do have the cash and we are in a good cash position, basically start as you said turn (indiscernible) improving that model or so. We will do it over a period of time, but we are going to be very diligent about doing it.

There are some situations Franco where we have already made decision quite obviously for competitive reasons to go that route because we do not believe some of our competition is in a position to offer those kind of the (indiscernible) but we can do it across the board, but we are picking up our spots.

Let me hand it back. And may be I will come back with a couple of follow-ups. Thanks.

Once again I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from Kevin McLaughlin of BTF Investments.

Thank you. I just wanted to ask, everybody seems to be kind of nervous about the outlook over the next couple of quarters. What if things did start to turn and you did begin to witness any kind of significant demand, would you be able to handle it or would you have people out there who aren't seasoned or experienced to take care of customers?

My answer to that would be yes we are equipped to handle it. the area that we might have to go out and seek some outside assistance with work force would be in the area of services doing custom work and such. For our products work, we have sufficient resources to deploy our products and support our clients. The place where we have the spikes in resources requirements more comes in light of any custom (indiscernible) or specific implementation services work and we do not have any concerns about our ability to attract and get those resources if you need them.

At this time gentlemen, there are no further questions.

Than you for attending TSA's 2Q conference call today and we look forward to the remainder of fiscal 2002. Thank you.

Thank you for participating in today's Transaction Systems Architect 2Q earnings conference call. You may now disconnect.