ACI Worldwide Inc (ACIW) 2005 Q1 法說會逐字稿

Good afternoon. My name is Derek I will be your conference facilitator. At this time I would like to welcome everyone to the Transaction Systems Architects 2005 first quarter financial results 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 followed by the number one on your telephone key pad. If you would like to withdraw your question, press star, followed by the number two. Thank you.

I will turn the call over to Mr. Bill Hoelting, Vice President of Investor Relations. Sir, you may begin your conference.

Thank you and good afternoon.

The participants for TSA's first quarter earnings conference call are Greg Derkacht, President and CEO; David Bankhead, CFO; 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 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.

Forward-looking statements include the following: any statement dealing with the future prospects or results of the Company, and the forward-looking statements identified in our press releases and form 10-K and 10-Q.

The agenda for the call will be as follows: David Bankhead will discuss the Q1 financial results for TSA. Mark Vipond will then discuss the Q1 results for ACI Worldwide. Greg Derkacht will then provide some closing comments, at which time we'll open up the call to the questions.

At this time, I would like to introduce Dave Bankhead, CFO of TSA. Dave?

Thank you, Bill, and good afternoon.

Today I'll be discussing our fiscal 2005 first quarter financial results. I'll start by highlighting some key milestones that we achieved during the quarter.

Total revenue was 80.6 million, representing an 8.9 percent increase over revenue for the first fiscal quarter of 2004.

Our operating income was $22.1 million, a 42.4 percent increase over last year's operating margin of 15.5 million.

The operating margin percentage of 27.4 percent compares with an operating margin percentage of 21 percent for the first quarter of last fiscal year.

Net income was 12.9 million or $0.34 per diluted share compared to 10 million or $0.27 per diluted share last year, increases of 28.7 percent and 25.9 percent, respectively.

Net income and earnings per diluted share included a $1.2 million foreign exchange loss compared with a $2.4 million foreign exchange gain during the same quarter last year.

Our effective income tax rate for the quarter was 39 percent and continues to be our assumed rate reflected in our revised guidance for the year.

Operating cash flow was $15 million compared to operating cash flow of 11.1 million for the same period last year, an increase of 35.1 percent.

Our combined balance of cash, cash equivalents, and marketable securities at quarter end was $186.5 million.

The $80.6 million of revenue is comprised of the following: Software license fees of 47.8 million; maintenance revenue of 22.1 million; and services revenue of $10.7 million.

The license fee revenue of $47.8 million was comprised of 29.5 million in initial fees and 18.3 million of monthly fees.

Revenues for each of the geographic channels were as follows: United States, $32.7 million; America's International, 8.7 million; Europe, Middle East, and Africa, 31.4 million; and Asia Pacific, 7.8 million.

Revenues for the three business units were as follows: ACI, $63.9 million; Insession, 9.5 million; and IntraNet, 7.2 million.

Our ending backlog was $230.4 million. We include in backlog all fees specified in signed contracts to the extent we believe at this time that recognition of the related revenue will occur within the next 12 months.

Backlog is comprised of recurring backlog of $170.9 million and nonrecurring backlog of 59.5 million.

The recurring components are monthly license fees at 69.6 million, maintenance fees of 90.5 million, and facilities management fees of $10.8 million.

Non-recurring components are license fees of 33.6 million and services of $25.9 million.

Thank you for your time this afternoon. I'll now turn the call over to Mark Vipond for his comments on the ACI business unit.

Thank you, Dave. Good afternoon, everyone. I'm here to give you an update on the first quarter results for ACI Worldwide.

ACI's revenue for the quarter was $63.9 million. Our strong financial results were influenced by a number of factors. ACI's company-wide sales were consistent with most recent Q1 sales results. However, variations in the mix of contractor business impacted our revenue results during the first quarter.

Some of the sales highlights include: system and capacity upgrades over $100,000 at 11 customers, ACI licensed product to four new customers in the quarter. Those products included two BASE24 and two Proactive Risk Manager sales.

ACI licensed 8 new applications to existing customers during the quarter. These included licenses of our Automated Key Distribution System, Proactive Risk Manager, and Payments Manager applications to existing clients.

Sales in our immediate region were strong in the quarter. Results in our Americas operation were soft, and sales in the Asia/Pacific region were weak, as they were impacted by the tsunami disaster during the last week of the quarter.

Once again, having a worldwide distribution network allows us to overcome regional sales issues.

There were a couple of unique factors that positively contributed to ACI's strong revenue results during the quarter. First, the sales mix during the quarter was heavily weighted towards our BASE24 product line, which resulted in a higher percentage of our sales being recognized as revenue during the quarter.

Going forward, we continue to expect more of our sales to be generated from BASE24 yet, and our emerging products, which may delay revenue recognition, due to the relative newness of these product lines.

Second, during the quarter we recognized the licence fee revenue from a large BASE24-es customer. At this point, the customer intends to place the software in production in the spring of 2005.

It is encouraging to see one of our large BASE24-es projects coming to closure as evidenced by the customer's acceptance of our software after a couple years of stringent testing.

ACI continues to make progress with our BASE24-es customer projects and improvements in delivery of the product.

We have talked in the past about the chunkiness of our business and the results this quarter illustrate this point very clearly.

I am pleased with our results for Q1 and we continue to believe the opportunities and issues that may impact our business in the future remain the same. We believe that demand within our market space is steady and we are well positioned to respond to opportunities with our multi-platform ACI commerce framework solution set.

We do expect merger and acquisition activity among financial institutions to continue. How these deals impact us depends upon which institutions are involved and their selection of EFT processing systems. We believe that activity to replace in-house supported EFT solutions will continue, as financial institutions and processors respond to mandatory and market-driven changes.

In summary, we believe we are well positioned in the EFT software market, with our current product strategies.

Thanks for your continued interest and I will now introduce Greg Derkacht.

Thank you, Mark. Good afternoon.

This is one of the strongest quarters we've experienced, with solid revenue growth, which in turn resulted in strong increases in our operating margins and earnings-per-share.

Our balance sheet continues to reflect our financial strength with cash, cash equivalents, and marketable securities of approximately $186.5 million.

As we seek to utilize our cash balance, we continue to consider the external growth opportunities in addition to executing on our internal growth initiatives, including BASE24-es, our fraud solution PRM, and our back office suite, Payments Manager.

We also recently announced a stock repurchase program of up to $80 million.

In closing, based on our first quarter results and with the following assumptions, we're revising our revenue and earnings-per-share guidance for fiscal 2005. This guidance assumes an effective tax rate of 39 percent; no significant change in foreign exchange rates; additionally, our guidance does not factor any -- in any non-cash stock option compensation expense under SFAS123.

Finally, the guidance does not take into account any reduction number of outstanding shares as a result of our share re-purchase program.

With these assumptions, we're revising our annual revenue guidance from a range of -- oh, excuse me. For fiscal 2005, from $279 million to $308 million, to a range of $285 million for $308 million.

And our range of EPS on a diluted basis is being revised from $0.79 to $0.94 to a range of $0.86 to $1 a share.

Overall, I'm pleased with the first quarter financial results. We thank you for your continued interest in TSA and at this time we'll open up the conference calls for your questions.

Thank you very much, again.

At this time, ladies and gentlemen, I would like to remind everyone, in order to ask a question, please press star followed by the number 1 on your telephone key pad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Franco Turrinelli with William Blair & Company.

Gentlemen, good afternoon. Happy new year.

Hi Franco.

A couple of questions.

First, really, just a clarification on the guidance, or to understand the guidance a little bit better. You have ranged the -- you've raised the lower end of the revenue range, but not raised the upper end. But on the earnings front, you have raised both the upper and lower end.

So, is this just -- a set of different margin assumptions that you're bringing to the table? Really, just trying to understand that difference.

What happened, Franco, is -- Mark mentioned, first of all, we had a large ES account which closed and that went directly to the bottom line.

We also had a very strong capacity upgrade for the quarter, a series of ASCI upgrades, and so basically, it's causing us to basically look at our P&L from a different perspective, but not raise our revenue guidance.

So, it sounds -- it sounds like what you're saying, Mark, is that the mix of revenue is a little bit different than what you had previously anticipated

This is Greg, Franco, but that's correct.

Okay. Then you were remarking on [inaudible] being very strong, and again, just sort of as a point of clarification. Were you meaning more in terms of the results of the quarter or in terms of a forward-looking commentary?

I would -- the specific comment was in relation to the sales for the quarter. We had a very good revenue quarter. But I would also characterize it in terms of going forward, that it's still looks like a very strong market for us right now.

Now, Mark, in the past -- we've seen the first quarter of the year be a -- you know, be a weaker quarter in terms of both sales activity and also recognized revenue and I think we've discussed why that might not hold up anymore.

But, what are you -- what are you -- you know, you're reading the tea leaves here, of the sales activity. Is it too early in the year to tell how it's shaping up? Not necessarily in terms of what you're thinking for this year in terms of revenue. But really in terms of what banks are thinking about, what they're focused on. Whether or not they're feeling strain with their existing systems. Can you kind of give us a little bit more of a longer-term perspective here?

Sure. I would say our sales in Q1 -- you -- always our weakest quarter, because it's the start of our fiscal year and sales reps and Christmas holidays and all that stuff. It was on par with what we usually see in the year -- I mean, in past years.

The difference in this specific quarter, that did not anticipate, was the strength of BASE24 sales. As you noticed, we said we only had four new accounts and eight new applications. That's below what I would hope. I'm not worried about it. It's just a function of the vagueries between quarters.

In terms of the overall market demand, I would say, Franco, that we feel pretty good about it. It's about what we've seen, it's -- I think things are playing out the way we expect.

Europe is particularly strong. Has been for the last five or six quarters, I would say. I see some positive signs in Asia/Pacific, relative to our pipeline of activity. We have not had a great sales quarter down there for a couple of years, but I see activity levels improving.

The Americas outside the U.S. is pretty steady.

The U.S. is one that still worries me, simply because there are no new banks, we have M&A activity, probably the most competitive pressure that we have is in the U.S. with outsources as well as other software vendors.

That's a lot of words to say, basically, yes, it's going down the way that we think it should for the year. I don't think my view of the year and the activity has changed.

Thanks Mark. Let me let other people jump in and then I'll come back some more. Thanks.

Your next question comes from Shane Diamant with Stephens, Inc.

Good afternoon, and congrats on the quarter.

Thank you, Shane.

Mark, I just wanted to check with you first of all on the progression of BASE24-es installs for the rest of the year, kind of working through the remaining backlog. Have your thoughts changed there? Or do you expect progression, I guess, kind of steadily throughout the year?

Yeah, I do actually. It's -- we have some very -- we have some other customers expecting to go live. Over the next quarter, 3-6 months, I expect a good number of our clients or projects to go into production.

What we found, the ones that we signed very early on happen to be some of our biggest customers, in terms of complexity. Those have taken longer that we had hoped. Some of the relatively new customers that have signed in the last 3, 6, 9, months, are progressing much more rapidly. One, because the complexity of the systems is not as great, and two, we have made improvements relative to our delivery and the code in terms of getting it in and running much faster for those clients.

So yes, I do expect us to continue to make an orderly progression in actually taking more of those customers live.

And then for the new release of BASE24-es, is that still on target, I guess, for kind of the end of the first -- or second quarter, around April or so?

You have a good memory. Yes, it's still on target for our 5-2 release. Probably would be generally available early in May for the customers. There will be some customers that will take it earlier.

But it's basically just the progression. We're coming out with new releases every six months as it sits right now, with the BASE24-es product. That's the next version. While we have invested quite heavily in trying to position ourselves to more rapid deployment of that solution.

And yes, that is on track.

Okay. And then, just so that I understand correctly, make sure I have this straight: on the capacity upgrades in this quarter, there were a couple of -- would you -- you did characterize those deals as a little larger than usual; is that correct?

I think Greg made a comment that said we had some good sized capacity upgrades. I wouldn't say they were necessarily larger than usual. We sometimes get good trips and sometimes they're smaller.

As we said, we had 11 that were over $100,000. That's kind of average, I think. It just so happens a couple of them were pretty good size. But every quarter, sometimes we get good size ones.

Okay. And then switching gears a little bit. Greg, if you could provide us with an update on the CEO search and whether or not there has been any progress there.

Yes, I think we're making good progress, Shane. The board is actively involved at this point in time and I think the progress is being made.

Sorry. Any thoughts on when we might see an announcement?

I can't answer that.

Okay.

I mean, the board's going to take it's time and do what they consider to be appropriate and right and make sure it's the right selection. So whenever that time period is, it will be announced.

And then finally, if you would for just a minute talk about your approach for the buyback program and kind of what your thoughts are there as far as I guess how quickly or how aggressively you would be entering the market to repurchase your stock?

Yes. As you know, we announced the program in December and we had several weeks of trading blackouts. And -- but we intend to be aggressive about this program and get in and start repurchasing stock.

So, were you able to buy anything back?

Shane, we were blacked out almost immediately upon, basically, approval of the plan.

Okay. All right. Well, congrats on the quarter.

Hey, Greg, this is -- and everybody else, this is Nick. When could you guys start entering the market to buy back stock?

It was announced in December.

I know, but when -- when could you guys actively start buying back the stock? Is it, you know, Friday-ish, or whatever?

Oh, when could we?

Yes.

Oh. Three days after our earnings release.

Okay. And then, Mark, on the capacity upgrade question, if I look at the revenue number for the quarter, for the quarter just announced, was that about average?

Yes, that's about average. I mean, it's -- the biggest thing -- you know, the [inaudible] upgrades are pretty normal. The two exceptional items, as I mentioned at -- one -- I didn't know -- realize we'd get to that -- was the acceptance of that ES was a fairly significant number.

And the other, which I certainly hadn't anticipated, is the preponderance of BASE24 sales during the quarter, which went immediately to revenue.

Those are the two kind of exceptional items, I would say, for the quarter. Otherwise it was kind of a normal Q1.

Great. Thanks.

Your next question comes from George Sutton with Craig-Hallum.

Hi, guys. Nice quarter.

With respect to your selling and marketing expense line, that's been a pretty good predictor for us of your new sales. And that number was up nicely year-over-year, suggesting that either you hired a lot -- a lot of additional salespeople or you were paying higher commissions because they sold a lot. Can you give us a little picture there?

George, this is Dave Bankhead. A big part of that increase was really related to foreign exchange impact in our foreign offices where we're paying our salespeople at local currencies. It doesn't necessarily reflect a significant change in the size of the sales force from last year to this year.

Correct. I think the qualitative answer I would give, George, is our sales force is pretty -- is much the same in terms of its size. We did pay some pretty good commissions over in Europe last year. And in Q1.

We did not pay as much in Americas or Asia/Pacific. But, hopefully, that will change. But the sales force is about the same size. We've added a couple of people here and there where we see the opportunities. And there are some certain markets where we're looking to potentially invest some more, relative to distribution capabilities.

But overall it's pretty static right now.

In the past quarters, we've talked about the revenue recognition issue really being slower than you'd like. Now that you've begun to recognize revenues from the BASE24-es, is it as simple as saying now that you've received acceptance, other deals as they come will be quicker, or is it more complicated than that?

Yes. It's -- first off, you know, we have talked about rev and rec issues. Our categorization of BASE24-es has not changed. Our internal terminology, that's "category C" which means acceptance -- I'm sorry, revenue recognition -- is triggered by acceptance or first production use. So that has not changed.

We do have the ability as we get more customers live and/or accepting the code to recognize that revenue.

Any new contracts we sign [inaudible] today would still be held to those same standards of acceptance or production. I would say I feel better that our ability to achieve that and trigger that event is improved, because of the progress we've made with the product.

At some point as we've discussed before, at some point in the future, we will feel comfortable enough to say the product has enough -- is proven enough, has enough history, that we could call it a category A, which says you recognize it on delivery. We are not at that point. And my best guess would still say that's maybe sometime in FY '06, assuming things go according to plan for the next, you know, 6, 9, months.

Okay. With respect to the strength in Europe and the appearance that Asia/Pacific is starting to pick up, that is also -- suggesting that go EMV is having some impact, which, of course, starts in Europe and then moves to Asia. Is that a relevant thing to look at with for you -- with regard to this strength?

Well, actually, that -- it's a factor. EMB has been a factor for some 3 or 4 years, specifically over in Europe. It. by itself, is not an indication of the major change.

But it is a driver or catalyst for change, especially for in-house systems or other solutions that says, if I have to be compliant, what do I have to do to get compliant with that standard? It usually means change to your code, it means change your software vendor or your internal code, and it does cause the banks or the processor to say, what are our options at that time.

So, is that a catalyst for some of -- for some of the buying activity? Yes. It doesn't explain all of it. But it is part of it.

On the same note, in the U.S. Triple does, of course, help drive business a year or so ago. There doesn't seem to be any major mandate shifts from the Visa/Master Card folks.

Is that a true statement? And is that potentially why you're, you know, not seeing necessarily the same activity in the U.S.?

There is some truth to that since there are no impending catalysts in the U.S. marketplace or mandated changes. That -- you know, those things are always helpful to us, in terms of causing organizations to make decisions about what to change or if they have to change.

In the absence of those, sometimes people just sit still say, what I got is good enough.

Okay, and then lastly, we have talked in the past about extended backlog, given the vagaries of how you have to recognize backlog. Can you just give us a directional sense on extended backlog?

Tim, We don't give that number. George, I'm sorry.

But not a directional sense; up, down, left, right, over, under?

Actually, I will give a directional. This is Mark I'll give a comment that, you know, indicates why we don't provide that information.

The foreign currency movement in this quarter, a change in the weakening of the dollar had a material impact on what our five-year backlog looked like, is if you ripple that through the maintenance payments and the MLF payments, all of a sudden, you have -- it looks like a lot more revenue coming in over the next five years. Which is also a good reason why we don't disclose that information. Because it really could go the other way next quarter and all of a sudden we lose a lot of revenue.

So, it's -- it is a challenging number to -- it's a useful number as an indicator where things are going. But you can have a lot of things that influence it and aren't readily explainable.

Gotcha. Thanks, guys.

Your next question comes from Mike Christadalu with Inwood Capital Management.

Hi. Good afternoon, gentlemen.

You have talked a a bit about this license fee recognition on the BASE24-es, but I have maybe just. a couple questions to ask you to elaborate on, and [inaudible] was saying, I understand, this is just one customer, one license fee, and so I know you would discourage us from extrapolating, you know, forward across the -- the base that you'll end up having out there.

But I'm trying to understand, was this an initial license fee? Or is there also an annual subscription fee associated with this customer.

This customer was -- this is Mark Vipond -- was a unique one in terms of his licensing. It is a one-time license fee. They have on ongoing maintenance product support fee that they obligated to pay. But it is -- in terms of licensing it's a one-time fee.

Could you elaborate at all? What were the milestones that the customer set that, you know, he and you were all working on for the last two years? Was it -- you made some comments about code? Or was it fitting it to a particular hardware platform, or did you need to, you know, lavish more bodies, more SG&A on the situation to get them comfortable?

This has been a long-term project. It's been going on now for some two and a half, three years. What would I -- the commentary I would make is to what it is, is that we got to the point where the customer said, " I accept the code. Yes, you've done what you said you would do. You've delivered what you want. I still have some internal testing to do. But I have no reason to hold up my acceptance of your software. You've done what you said you would do and performs to the way you've said it would."

Are their other revenue streams or maintenance fees that you would begin to recognize as revenue, once the customer places it into production later this spring?

The maintenance.

The maintenance. Okay.

And I'm speaking quite frankly, because of Rev/Rec, where we had to reserve some of our revenue from the initial license fee until such time that the customer puts it in production for warranty provisions.

Without naming numbers, but just mentioning it, what is the maintenance fee as a percentage of the initial license fee?

20 percent a year.

Okay. Five-year deal?

Three

Three years. Okay.

Had -- with options to extend.

Right. And is -- is -- can you say which hardware platform this is put on? Is that germane at all to the issue? And does that give you either, you know, actual ammunition or just moral suasion?

It's -- I mean, I'll tell you. It's the Sun-Solaris implementation. It's a unique implementation. And I don't know whether it materially matters to anything. I mean, we're deploying the system on Sun and AIX as well as HPUX. IBM Z-series, as well as the HP nonstop systems.

Right. So you have one, and so you're -- you're saying it wouldn't be -- it's not -- it's inappropriate right now to begin to think that you can start shipping other similar codes on the Sun-Solaris, UNIX, and calling it revenue recognition from day one.

We do not -- we do not as a company feel comfortable yet that we have proven the software to be with the track record of payment from customers and delivery that we would feel comfortable saying we should recognize it on delivery.

That is obviously our objective. That's what we do with most of our -- all our mature products, when we get to the point of comfort. We're not there yet.

Well, I applaud your conservatism. Thank you, gentlemen. Congratulations.

Your next question comes from Tim Todaro with Rice, Hall.

Hi, guys. How are you?

Good.

I'm kind of -- been trying to square the guidance and the number you just reported. I mean, if I just back out the $0.34 and if I even add in the foreign currency hit that you took in the quarter, I mean, I come up with a large dropoff of course in the subsequent quarters of the year, in both earnings and revenue.

So, help me with what you see in terms of revenue you're going to recognize in the next couple of quarters. At least proportionally, do I divide it in a third each or something along those lines?

And then, if you could talk about the normal gross margin that you see. You had fantastic gross margin expansion. I think I understand why, with the licensing on the -es.

But help me with the gross margin, what you see in the gross margin and going forward this year.

Then finally, with the backlog was flat. It looks like deferred revenues were flat, quarter to quarter. Put that in relation, if you could, to the guidance.

When we go through the guidance. Basically we look at the, you know, many of the facts that you just talked about. And we have to take into the consideration, basically, the chunkiness, as Mark mentioned, of our potential quarters.

I think, you know, we've not -- I don't think we've stressed that the Company is very difficult to look at on a quarterly basis. And really, annual guidance is the way this company needs to be looked at. And then, after making all of the considerations that we see out there at this point in time, we based that on our backlog, we based it on pipelines, we based it on a lot of information, and we think the guidance is appropriate at this point in time.

So there's a lot of factors that go into it, but it's very difficult in some of these cases to see some of these large-capacity upgrades or other types of things.

They happen. We love it when it happens, but it's very difficult to determine and I don't think we can guide, basically, on the assumption that a bunch of those are going to happen until we know about it.

Okay. Well, as long as you mentioned the capacity upgrades, the last three quarters -- I'll go backward in time. We had 11 this quarter, 19 last quarter, and 13 the previous quarter.

How many of those got recognized? How many of those are sort of hanging fire and waiting to be -- to hit this magic trigger point, in terms of recognition?

Past upgrades are different. They get recognized as soon as they're contracted. Because basically, a customer saying I have a system in production, I'm licensed to a certain capacity. I need to license to additional capacity.

As a consequence, we do not ship any software. We just -- it's a contractual license to allow them to process more transactions, and as a consequence, the revenue was recognized immediately on those.

So, that's different than the discussion of BASE24-es in the delay effect when you go off and install a new customer on a new product, there is different parameters upon when you recognize that revenue.

Okay. Great.

Does that make sense?

Yes, I think so.

You mentioned the FX impact in the -- in -- theoretically in a five-year backlog. There had to have been an impact in the one-year backlog also, to the extent that it was flat. The recorded number was flat.

Can you help me with what X currency backlog, the 230 backlog -- million would have been?

This is Dave Bankhead. We don't disclose the backlog adjusted for foreign currency, but you're exactly right that while our foreign -- while the weakening of the dollar has affected our expenses on a negative basis, it also affects our -- both our current revenues and our backlog revenues.

And we feel pretty comfortable that -- for the most part, that represents a natural hedge and the two barely offset each other from quarter to quarter.

So, yes, there is some pick-up in the backlog. Always is. And -- it could turn the other way on us, which is one of the reasons why we don't disclose what that change is.

Okay. What about the gross margin question for the rest of the year?

Well, -- We're looking at 87.6, if my arithmetic is right, this quarter overall. You know, the whole thing folded in.

Is that a good go-forward number for the --

What number did you say?

I think I came up with a gross margin of 87.6, but you know, I did this real quick.

Oh -- just, -- I thought you were talking about operating margins.

No, no.

We tend to talk more about total operating margins and we -- whether you look at gross margin or operating margin for the quarter, obviously it was very high because of the mix of revenues in that we had a high percentage of license fees that really carry not a whole lot in directly incremental costs.

From an operating margin standpoint, if you look back at our latest 10-Q we finished last year just shy of 19 percent. If we're in the 19, 20, 21 percent range, we're -- historically we've been doing pretty well. This is -- we have very good margin for this quarter.

Right. Well, is the $230 million backlog carrying a 27, 25 percent operating margin?

That's not a fair question to ask. [ Laughter ] I mean, that backlog is pure revenue. And depending upon when you bring the revenue in and what our expense base is at any given point in time, that can translate to a -- to a -- different margins.

The backlog is reflective of the same kind of mix of revenue items that we've had in prior years. It's a good mix of license revenues, maintenance revenues, and services revenues. Nothing has changed within the mix of the backlog that we would expect to change materially -- that we would expect to translate materially into a change in our operating income.

Okay. Well, I didn't get a chance to look through -- you guys break out the backlog, segment the backlog. And I didn't go through a quarter to quarter analysis on that.

One more question, I guess, on the share repurchase. You've been blacked out and, you know, stocks sort of waffling in here. It's roughly where it was when you guys indicated that you were going to buy back stock. And I salute it completely. Totally fantastic idea.

What about paying the dividend?

Well, at this point in time, we think, basically, the best way to bring shareholder values is with the stock option plan. That most certainly -- the stock repurchase plan, excuse me -- it most certainly does not stop us if we don't accomplish what we think we're going to accomplish. Or if we continue to accumulate cash to look at other alternatives. It could be stock dividend or several other alternatives.

Thank you.

Once again, ladies and gentlemen, in order to ask a question, please press star, 1 on your telephone key pad at this time.

You have no further questions at this time.

Thank you very much for your attendance

This concludes our first quarter conference call. Thank you.

This concludes today's Transaction Systems Architects 2005 first first quarter financial results conference call. You may now disconnect.