ACI Worldwide Inc (ACIW) 2009 Q1 法說會逐字稿

Good morning, my name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to the ACI Worldwide financial results for first quarter ending March 31, 2009 conference call. (Operator Instructions). Thank you.

Ms. Tamar Gerber, Vice President of Investor Relations, you may begin your conference.

Thank you, Jessica. Good morning, everybody. With me here today I have Phil Heasley, our CEO; Ron Totaro, our COO; and Scott Behrens, our CFO. Our scheduled speakers today will be Ron and Scott, and Phil is, of course, available for the open question-and-answer session. Today, as in every event that we participate in, we are subject to the Safe Harbor language and forward-looking statements of the SEC, and full disclosure on that can be found in the beginning of our presentation. And before I turn over the conference to Ron, I just would like to note that we will be on the road at conferences in New York on June 3rd and on June 9th, respectively, with Stephens and UBS conferences. So I will now turn this over to Ron to begin our discussion of the Q1. Ron?

Thanks, Tamar, and thanks, everyone, for joining us today. I am going to address the ACI business and operating unit performance, and Scott will follow up with a discussion of the financial results. As you can see on Slide 5, we had a very similar business performance to our first quarter of last year. So the seasonality of our business did not change. This was something we anticipated in Q4 when we told you the phasing of the business would look similar to last year. Revenue was impacted approximately $6 million by FX shrinkage. Sales were fairly static, down about 2.5 million from last year's first quarter, but we are very encouraged by what we are seeing in the pipeline for the second quarter and the remainer of the year as we continue to look at very interesting and large deals across all of our geographies. The relatively flat sales year over year are mostly due to the lack of any significant terminals in the quarter. The fourth quarter was very terminal heavy, and it is normal that the first quarter thereafter is rather quiet.

We are pleased, however, by the growth in new account sales compared to last year; although we are the first to acknowledge that the slippage in EMEA deals was not where we wanted to be. We are hearing that some of the slowness in that channel is coming from longer procurement and budget cycles related to the partial government takeovers of many of the institutions in both the UK and the continent. Market factors aside, I also think that we have some further improvements on our sales management processes to get our EMEA segment operating on all cylinders. Alliance sales with IBM were higher than last year, and we are now fully in the swing of co-marketing and selling as opposed to Q1 2008 when the alliance was just getting off the ground. From a technology perspective, while we finish the retail enablement in 2008, we are still working on the wholesale optimization and expect that exercise to take much of 2009 to implement. We are also engaged with IBM in cross-training our sales organizations and targeting over 70 customers globally to extend our alliance efforts for selling our PRM Fraud Solutions on System z. Turning to Slide 6, this page highlights the segmentation of our quarterly sales performance. As I stated in my overview remarks, EMEA did not perform to par and we are dealing with improving how we execute there.

However, this slide also underscores seasonality in our business, as our top five customers accounted for just 27% of sales, whereas they achieved nearly half of all sales in the fourth quarter of last year. As we mentioned in Q4, we are seeing fewer term extensions as customers are negotiating and signing right up to their contract expiration dates. This leads to a more protracted negotiation period, but it does allow us to spend more time with customers hearing what their needs are while we ensure that we establish the right terms and economics of the deals. Slide 7 is a geographic look at sales with and without term extensions, and total sales in the quarter. Americas were certainly our leader this quarter, as they achieved an 86% rise in quarterly sales even when removing the impact of terminals from their numbers. They signed a new enterprise banker deal and several retail commerce server deals in the quarter, which all represented new clients. EMEA had a very large capacity deal in Q1 2008, so that drove most of the year-over-year variance in their performance, and they had a renewal occur last year as well. This year, they did not have those two drivers for their business.

The new sales in apps deals were down a bit over last year, but it was nothing of the magnitude of the term extensions change on a year-over-year basis that we saw. Asia also had a variance driven by a small number of deals in the year-over-year quarter. Last year, there was a substantial term extension and a new deal. Neither incidents repeated in this year's quarter. There was a deal which slipped into Q2 that we had anticipated occurring in Q1, and we had another nice transaction which still had a contract pending on it by the close of March. In general, we feel positive about the opportunities still out there, and in many cases penning in the Asia region. Even though on the top line, it appears that the Asia sales opportunity is smaller, that is really not the case with what we are seeing in our pipeline flow.

Slide 8 is a leave behind for to you track our performance for the past five quarters. As you can see, we were essentially flat in new applications and down in term and add-ons, which makes sense, as these two categories basically go hand in hand. Our better performance came in the growth of new accounts. Moving to slide 9, this is a recap of our Americas business performance. This channel had a very strong revenue quarter, up 6 million versus last year, while also growing 2.5 million in monthly recurring revenues as they successfully moved more contracts into recurring fee structures rather than initial license fee contracts. We are also doing a better job of billing and collecting for implementation and professional services. Those fees were up an equivalent amount to our monthly recurring fees, and Mastercard and Standard Charter Bank represent two strategic clients in that area. In terms of sales, Americas accounted for 64% of all ACI sales in the quarter, so they really turned in the strongest performance of our business.

While the U.S. accounted for $29 million out of the $39 million in sales, Canada pulled in a little over $4 million of sales, and Latin America contributed $5.5 million. We saw contracts with bank customers, retailers and insurers. All of this occurred even while we were impacted on a revenue basis by some Canadian dollar depreciation, and while we paired down our headcount numbers in this region. So overall, we are very happy with our execution in the Americas and how our sales and services capabilities are performing and delivering customer value. Also, we did not have a single significant customer loss to a competitor in the Americas in Q1, in response to some of the investor questions we have received over the past week. In fact, as far as our sales reporting tells us, no competitor has posted a real account from us in the quarter. We continue to watch the banks and their partner through M&A events in the fall; but as of now, these mergers have not yet moved to combined internal or external system solutions.

Turning to Slide 10, you can see that EMEA's revenue was contracted by 8 million year-over-yea,r led by the lower license fees related to term extensions. Remember that when we book strong term extensions and capacity, we receive a lot of front-end loaded GAAP revenue. This year, we did not have that 11 million of terms and it shows in our numbers. However, despite the latest media reports of a anticipated 4% GDP shrinkage in the economic union and Euro zone, we are seeing demand for new and improved payment systems and a good number of interesting RFPs, and we think that EMEA will perform better than its black Q1 performance would indicate going forward. In spite of the Q1 performance, EMEA did have sales with some new accounts and applications, even while their term extensions declined. And EMEA did receive over $17 million in new sales. While their overall performance, including terms, represented a reduction of 43% over last year's quarter, the channel sold into the Persian Gulf and into Eastern Europe, so they continue to harvest new market opportunities. Sales were evenly divided among Western Europe, Southern Europe and the Middle East at approximately 4.2 million apiece, with Northern Europe and the UK bringing in $4.7 million.

From a revenue perspective, the softening of the pound and Euro obviously hurt us, even while we benefit from the expense side of the equation. And as already mentioned, although we saw slower sales cycles resulting from some delays against European banks in finalizing their 2009 budgets due to the market turmoil of the fourth quarter, we do not see any structural reason why the EMEA market will not continue to represent strong opportunities for us. If you follow me to Slide 11, this highlights our Asian business. Asia achieved basically the same revenue on a comparative basis as they did last year. Their sales look worse until you notice the year-over-year comparison. Last year, they had large deals in Korea and in Malaysia, with both wholesale and retail projects; whereas this year, the only transaction of major note was a term extension and migration at the Metropolitan Bank of the Philippines. The Australian and New Zealand dollar also continued to weaken in Q1, so that did create some compression around the revenue totals; however, Asia still looks interesting to us. The Base 24 maturity does push some of the smaller customers into RFP status; but in general, we think that there are more opportunities than risks in this market region. Both China and India are demonstrating strong GDP growth and payments industry growth in general, and our IBM relationships are growing in China, India, Japan and Korea, and we are ramping up our sales efforts in these markets.

Lastly, before turn this over to Scott, Slide 12 provides you with more commentary on my management team rollout. I know I've discussed my recent prospective hires in February and March during year-end results and our Investor Day. Lewis Black, our Chief Product Officer, is now building out his product organization and leadership team by product discipline and is on his way to creating our next generation of product road maps and enhancing our innovation capabilities to stimulate future growth. On the services side, we have new services leaders in both Asia and in EMEA whom we announced to you last month. Mike Pottinger is running Europe Services, and came from i2 Technologies; whereas James Campbell-Grant in Asia joins us from IBM, where he was an Asian services leader. We have also hired Danielle Kirgan as our new Human Resources lead, and she is making upgrades to her team to provide ongoing support in hiring and onboarding, key resources as we continue to enhance our capabilities.

So a lot is going on in creating more discipline and competencies in both products and services, and this is part of my intent when I announced the reinvestment plan to return some money to the business from the restructuring exercise we engaged in last summer and fall. I expect these new managers to look at their markets, to identify new opportunities in terms how -- of how we grow profitably, as well as determine the best means to achieve more effective deployment of our services personnel throughout their respective regions. In sum, there's a lot of new and interesting opportunities in the marketplace, and we are making good progress in getting the right operational leaders in our business to improve our ability to execute.

I look forward to adding more to this conversation on our next earnings call. Now, I'm going to turn the call over to Scott.

Thanks, Ron, and good morning, everyone. I will be starting my discussion on Slide 14 in the slide deck. As Ron has already mentioned, we had a pretty flat quarter year-over-year. Revenue was a bit weaker at 88 million versus almost 91 million last year. But really a big driver of that, the decline in foreign currency, which had an unfavorable impact of about $6 million on revenue compared to the March '08 quarter. Other than FX, we did see a decrease in the initial license fee component of revenue. It declined a little more than $7 million over the last year. The ILF revenue is really a timing issue of new deals; that being primarily when we sign term extensions and when we sign capacity deals. That was offset a bit by stronger services revenue.

We do continue to see year-over-year increases in recurring revenue, which is up approximately $1 million compared to the March 2008 quarter, and that is really going against the headwinds of FX, so a stronger recurring revenue year-over-year. In terms of the types of deals sold, that obviously can vary considerably quarter over quarter; but this quarter, we had more robust new business sales, whereas this time last year I think we were discussing that -- the fact that we didn't book a whole lot of new accounts. So we see new account sales as a positive. The operating loss was basically identical to last year's first quarter. So while there were some operating differences around the edges, I think the overall picture looks very similar to the operating performance of the March quarter 2008.

Moving to Slide 15. Obviously, the biggest delta year-over-year was our change in operating free cash flow from the business. Excluding the impact of the IBM cash received in 2008, our organic cash flow declined about $11 million, really the main driver there being a decline of about $6 million in trade cash receipts. We did experience some delays, rather, on the quarter end with trade receipts. We had just under $6 million from a handful of customers; about five customers in total that we had expected to get cash receipts in March, but those receipts ended up rolling into the early part of April. So based on the timing of the receipts, I can only surmise that our customers were trying to manage their vendor payments until after quarter end. From an expense standpoint, we saw about an $8 million FX benefit from our foreign sourced operating expenses.

We saw $4 million of savings year-over-year resulting from the restructuring actions that we made in late 2008; however, and as Ron previously mentioned earlier in his presentation, we are continuing to reinvest some of those restructuring savings into both product management and services organizations primarily. I'll point out that this reinvestment not only includes investments in personnel and related costs, but also includes certain nonrecurring one-time costs along the lines professional fees and so forth. But I will go into that in a bit more detail on the expense log in my next slide. Just to finish up this slide, FX losses on the mark-to-market over monetary assets and liabilities, as well as the mark-to-market of our interest rate swap, contributed about equally to a combined $1.2 million loss, which shows up in our other expense line item.

Turning to Slide 16, we built this (inaudible) in order to really give you a sense of expenses and how they moved from last year's Q1. I mentioned already the FX and restructuring savings; but on the negative side, we did have higher professional fees in this quarter. The professional fees resulting from a number of sources; that being, one, third-party consulting for the development of our Corporate management office, which we talked about. Some recruiting fees associated with some of the headcounts we brought in. We also had professional fees related to restatement of the March 2008 quarter, as well as just some timing of other professional fees that we did not have in the March 2008 corridor. Also on the negative side, our IP -- our outsourcing of IP ran us about 1 million more in costs this quarter compared to last year when we were performing these functions in-house. We went live with the outsourcing in September of '08, so we're still in the early months of a seven-year deal.

Even though we did expect the outsourcing arrangement to be negative throughout 2009, we have incurred a bit higher cost there than we had anticipated on this one. We do think it will improve over the year and that the accretion from the outsourcing agreement should begin to come in 2010, as per our original plan. The business reinvestment column here relates mostly to headcount and related costs for the product management and services business. We are reinvesting some of those cost savings. And another item to highlight in this last bucket of costs is about $600,000 in bad debt expense reported this year. We didn't have any in the March '08 quarter; but this is really isolated to two specific customers, both in the EMEA region. On the positive side, we did have -- albeit very modest -- past-due recoveries in both the Americas and Asia Pacific. So I don't believe this is really indicative of any broader general market trends that we are seeing.

Turning to Slide 17, this is our standard depiction of backlog in sales and how each contributed to revenue in the quarter. As you can see, we drive nearly all of the revenue from backlog this quarter, which really underscores the importance of the steady state recurring revenue model. Really, the lack of any sizable term extensions is clearly what -- what is driving this quarter's nearly total reliance upon backlog. We did sell term extensions, but not the type terms of the size deals that you saw in Q4 of '08. Moving to Slide 18. This is an overview of what we believe will be more enhanced disclosures that we have made to the presentation of our operating expenses in our P&L. Historically, we have included the cost of product management in our cost of software definition. I know this has caused confusion among some of you as you compare us to others in our space.

So we have now conformed our definition of what we include in cost of software to be more consistent with others in the industry. Our cost of software is now defined to be the amortization of purchased or developed technology to resale, which is primarily IP acquired and past acquisitions, and our third-party product royalties we pay for those whose products are imbedded with our solutions. So you will see we have reclassified our project management cost component that used to be comp software. That has been reclassified primarily to R&D, and we have also expanded our disclosure by breaking out the non-cash depreciation and amortization into a separate line -- obviously with the exception of the amortization of acquired IP, which as I mentioned, will stay in cost of software. Obviously, it has no impact on total expenses or net income, but we do believe this provides a more enhanced disclosure and better comparability. Now turning to my final slide, it's a review of our guidance.

Slide 19 reiterates the guidance we gave for you in February. We think this is still a good set of metrics for the calendar year, even while I -- even while we keep a close eye on the performance of our EMEA operations, as Ron mentioned earlier. This business phasing really seems to be mimicking what we saw in 2008. Right now what we are seeing -- and we give you -- given what we see in our Q2 pipeline in terms of both committed and likely deals. We think that Q2 sales will comfortably exceed the nearly $100 million we achieved in Q2 of last year. So at this juncture, we don't anticipate any need to change our guidance for the year. So that really concludes my prepared remarks. We would be happy to take your questions now. Operator, can you please open the line for Q&A?

(Operator Instructions). Your first question comes from Gil Luria.

Thank you, a few questions. The first one is, on seasonality, what is different about your business than a couple of years ago that creates such a pronounced seasonality? If you look at the six years before last year, you had almost no seasonal pattern in any quarter; but the last couple of years you've had a very -- a much below trend Q1. What is it that is different about your business now that creates that pattern?

This is Philip Heasley. Let me answer it, because I took the Company through a lot of pain to get predictability. One is, we moved our fourth quarter to be in sync with our customers' fourth quarters. So we are now into the group that is spend it or lose it, versus us negotiate it or not get it, right? So we had our guys doing all kind of third-quarter discounting and what not to, quote, make their annual numbers. We are now sitting at the fourth quarter with our customers; and to the extent that we become part of that end of year decision, what they are going to buy and not buy, versus provide them a discount to spend the money 90 days earlier, and our customer base is notorious for spending a lot of their capital spending in the fourth quarter.

But the second reason is that the -- we told you the the elimination of toughing -- or these brought-forward deals that we take 60 months of revenue in one quarter on a highly discounted basis -- really was taking any rime or reason out of the annualization of our business. And by prohibiting that behavior, you are beginning to see a much more predictable annual cycle. Does that answer your question?

Yes, yes. And then related to that, the monthly license fee line, I think the number for this quarter is 17.7. I think last quarter -- in the December quarter was 21.3. Wouldn't expect to have seasonality in this line item. If you have somebody on a monthly recurring contract in December, why would they not be paying the same amount in March?

Well, it really depends, Gil. This is Scott. That is going to ebb and flow based on -- there are certain short-term license fees. So monthly license fees are going to be anything that span more than -- essentially more than one quarter. So there are certain short-term, time-based license fees that would -- that probably dropped off here. We also had for the March quarter -- it (inaudible) sequentially compared to December. We did have a lower prevailing foreign currency rate in the March quarter compared to December. The December quarter did drop off, but those early months were a bit higher.

Your next question comes from the line of Nik Fisken.

Hey, good morning, everybody.

Good morning.

Hey, Scott, I am trying to -- given the reclass, I am trying to get my arms around the run rate of that 90.3 million of expenses. When are the savings going to hit, and in what line items?

Well, if you are talking about the restructuring savings from last year, they are really going to impact probably across -- looking at the reclassified P&L, it's not going to have that much affect on the cost of software line. That's really amortized IP. That is kind of on an amortized run rate. So that is going to be pretty consistent as things drop off. In terms of the -- and I also have the third-party product royalties. So that's really contingent upon our sales mix.

D&A is going to be fairly consistent. You are not going to see much in terms of cost savings in that line; but if you look at the other line items, they were all -- they should all be seeing cost savings. Now, there is reinvestment in there as well; but if you look year-over-year, probably you are going to see the most dramatic change in terms of year-over-year comparisons when we look at the Q2 and Q3. When we action the Q3 -- when we action those restructuring actions in Q3, if you look at kind of where our expense levels were at (inaudible) in Q2 and Q3, that's where I think you're going to see your biggest change year-over-year.

And what line item will be the -- or two will be the biggest beneficiaries of that?

I think 2Q and 3.

I mean, is it going to be on the R&D line, the G&A line?

It's pretty much across the board.

Okay. Except for those two. And I don't know how to channel this one, but can we talk about the general sales cycle discounting competitive landscape now versus the last conference call?

I don't think the marketplace is any more or less competitive than it was previous to this. Of course, if you are talking about -- are you referencing term extensions or your business? Nik? Nik? Did we lose Nik? Well, I'll answer the question in the absence of Nik. In terms of term extensions, we have been saying for two and a half years -- almost two and a half years now -- that we were going to have a prolonged process in terms of term extensions. And that we would have to wait -- we should be looking at the second half of '09 as being -- getting through the critical mass of that and being on a more normalized basis. We are still 100% sticking to that; and to date, although we have had to wait for most of these contracts to come to their conclusion, virtually their concluding quarter, we have been very satisfied with the -- with getting them into very economic levels.

And like Ron said, we have not lost an account of any strategic or any real size size during this process. From a new account standpoint, there is always a lot of new competition out there. There is also a very strong outcome out there. I don't know if Ron wants to respond to that. But I don't think it's any more or less competitive than before.

Yes, I would just add quickly, Nik, that from a pipeline perspective, we are hiring on a year-over-year basis. And even when you look at the existing RFP process now, it's -- depending on the product type -- it is the usual suspects of competitors. But we feel very comfortable with our positioning relative to those RFP processes; and as alluded to already, we have not lost any major business whatsoever to any competitors.

Your next question comes from the line of George Sutton.

Hi, guys. Obviously, the challenge we are going to have in telling this story to investors is Q1 being disappointing and Q -- and for the full year, the comfort still being there with respect to the estimates. So if you could help us just sort of walk through the logic of how this year will roll out; and I specifically wanted to reference the point you made about, quote, very large and interesting deals, because I think that is how we get from where we are today to the full-year 2009. So could you help me about that a little bit?

Yes, this is Philip, then I want Ron answer it. There's two things that are happening. One is, I will tell you that the seasonality of this year -- we are getting into a seasonal. And so the most secure way of answering the question is, is that we understand our business a lot better than we did last year and the year before, and of course we have changed a lot of the drivers, and we did -- and we have much better and further visibility than we have had before. And we are in tremendously more control of the execution and expense of our business. And because of that, we are comfortable with our full-year projections. As it relates to -- and pipeline is even bigger than last year, okay? But in terms of the big deal comment, you are spot on. Last year and the years before, when we dealt with our mega customers, we would deal with them by region. We would deal with them on a fairly local basis. We would understand the global nature of what we were doing with them, but they would basically be doing business with us in parts.

Now there are maybe a handful or going for two handfuls of very, very large customers, who have reacted to this environment by saying we can't be an aggregated global business, we have to be an integrated global business; and we are truly dealing with them at the corporate level, and whereas we would be renewing 10 contracts over the next two years, we are looking at renewing all 20 contracts as a single relationship. Our world has gotten very much smaller in terms of how we deal, and it is good for us, because we are dealing much, much more at sea level -- -- at the corporate level -- in terms of doing these deals. That being the case, you are going to see these deals propogating the ends of the calendar year. They are not going to be propogating the front of it, because they tend to get capital budge one year. I spent 30 years in this business.

You get your capital budget first, and then you go and you plan, execute, and sign these relatively massive multi-year kinds of deals that are well-defined in terms of what each side is doing. And we are happily migrating into that kind of business model, and our relationship with IBM is only -- I think is only fostering that behavior even more so. Ron, do you want to add to that?

Yes, I think so. You touched on a lot of the bases. I would just add that ACI is very happy with our Americas' performance. And if -- I think if you look at -- if we were having this discussion in November and looked at a crystal ball and said where are we going to end up for the Q1 relative to all the things that were going on, and we basically exceeded revenues by 6 million and met our sales goals, we would have said, "Wow, that's a home run for us" and we do feel that way. In turn, the EMEA situation, there is some opportunities to close some deltas on how our ability to execute and how we are going to sort of go forward and manage our business and what not. But those are things that should be short-term fixes, not longer-term systemic challenges. The pipeline is still robust, and I think Phil touched on many of the issues that allude to how global customers are becoming even larger and they have more sophisticated needs, and this is really right up our value proposition in providing value to them. So it is just going to take the rest of the year and the next three quarters to have some of these larger deals in flight come to fruition.

One other question, somewhat off-topic. But you are part of a group or actually leading a group pushing a new security standard. Is this something that investors should be excited about? Is this something that ultimately will add some value to your business model?

Well, I think we have to. We are leader in our category and we have been the leader in security for probably -- for 30 years. The bad guys are getting smarter as well, but the good guys are getting smarter and what not, and this is something that is really important. And people always pooh-pooh us because we are not that interested in selling mega customers Windows-based kinds of software and what not -- open and a different level of security. And then we find out our entire electric grid that uses Windows has got Chinese and Russian software attached to it. This is a big deal. It is a big deal for the financial system, and someone has got to take the lead; and with our install base, it only make sense that we would be working with -- that we would be part of that lead.

Your next question comes from the line of Tom Mccrohan.

Hi, Ron. Just trying to get a feel for the -- kind of the granularity behind sales. And kind of -- is there an 80/20 rules as far as, do 80% of the sales for this quarter relate to like 20% of the deals? Do you know what I mean? So was that a couple of bit deals hit and that kind of hits the number? I was just trying to get a sense -- or is it an amalgamation of a bunch of small deals that kind of roll up into that $60 million sales number this quarter?

Thanks for the question. I would say this is a quarter that was more represented by more run-of-the-mill deals that were of average deal size. Some of the things that we have in the pipeline, and perhaps were delayed a quarter due to some of the -- again, the turmoil that we experienced at the end of '08 and pushed things out a little bit further still on track, albeit perhaps a quarter behind two quarters behind. But the larger sized deals are in the pipeline that we are working aggressively on to move forward and make happen on a timely basis. So again, from a quarter perspective, if you look at just how we budgeted our year, frankly, we look at Q1 as pretty much sort of being where we need to be. And we just need to continue to execute and do what we think we can do over the next three quarters, and we will be just fine.

And as far as how the sales layers in by channel, by geographic channel? I mean, given the difference in trends this quarter where America was very strong, outside the U.S. was relatively week versus last year. Does your expectation, when you talk about Q2 coming in comfortably above kind of the $100 million number, does that make an assumption that the non-U.S. regions are improving, or any change to how -- the trends we saw this quarter?

Well, I think -- some of the things that are in the pipeline truly have a global reach. So we are talking customers who have operations in all three channels, and the goal would be if we get these things done the way we hope to, that there will be benefits sort of spread about each channel, so to speak, but will be done at a global level. In turn, we have very large regional deals, if you would, in EMEA, Americas and APAC that are in flight. So, again, we talk about timing and how we are sort of spinning a lot of plates and trying to get these things to land in the right sequence, right, that is going to make our numbers work. So again, from a Q1 perspective, I think typically -- just again, to budget cycles and given the marketplace in general, that we sort of anticipated Q1 wasn't going to land a lot of these things and it was going to take another one to two quarters to get there. And we feel we are still on track for that to happen.

Your next question comes from the line of Franco Turrinelli.

Good morning.

Good morning, Franco.

A couple of questions, I guess. The first one going to Asia PAC, I mean, I am curious to get a little bit more on your comments, particularly in the sense of what do you think needs to happen, either by you or externally in terms of your environment, in order for that opportunity in Asia PAC to really materialize?

Well, Franco, I think that in the case as of Asia Pacific -- I don't want to be overly specific, but I think we have done an awful lot of what we need to do to have a good year in there. We could have a lot better year, depending on how quickly things come in PRC, the Mainland China and Japan. I think everyone knows that the Australian banks are actually fairly healthy and they've got tremendous amount of integration going on. The number one bank bought the number five bank, the number three bank bought the number six bank. There's a bunch of stuff going on, and that's a fairly healthy banking economy and they understand what they have to do. We have had good success in the [Avion] area already. So I don't think that we have to go and -- other than improving our execution, which we have done a lot of work to get us there in terms of the hires and what not -- I don't think there is a lot of work that has to be done in Asia PAC. I think it represents -- it's just -- we have to invest in growing at a moderate enough level that we don't get ourselves out of whack. But let -- Ron, you want to say something?

Yes, I was just going to add, Phil, that, Franco, in regards to some of the dollars that we freed up during our restructuring last year, we are investing both in our implementation services and professional services. We have a good number of our Asia PAC customers who are PAN regional, so to speak, who are looking to extend some of their wholesale and cash management solutions out to other markets like China, for example. So we have been reinvesting in that business to build these services capabilities, and certainly our new services leader has his hands full, and as we are sort of midway through ramping up the resources to do that. But we have a fair amount of pent-up demand that is not being recognized yet, because we frankly haven't had all the bodies in the seats at the right geos to get the work done.

That is helpful, thank you. And then j ust going back for a second to the sales pipeline; and there seems to be some debate on this call about the visibility into the pipeline versus the first-quarter numbers. I guess -- I think what I am hearing you say is that there are several large deals that give you confidence in that full-year outlook, and the signing of those deals is not a competitive matter as much as it is in negotiation between you and the prospect. Is that kind of a fair way of characterizing it?

Yes, and I will let Phil also add his thoughts. But I would just add, too, the complexity of these deals -- especially some of the global deals I alluded to -- has just gone up exponentially in our business over the last couple of years. So again, from -- yes, there's a technical sort of complexity to that issue; but just from getting by on a global basis with very large global players is a longer sales cycle, right? So again, if you think of how distracted they were with what has been going on -- I will be candid. I think the amazing part is the level of focus that they do have on moving their payments businesses forward based on the challenges that many face internally. So again, we feel more comfortable that with the large things in the pipeline, should get us to where we need to be.

I think the answer to your question, Franco, is yes.

You have a follow-up question from the line of Gil Luria.

Thank you for taking the follow-on. Just a couple of quick ones. You reiterated your guidance for a few line items. Are you also reiterating items for the cash flow for the year $25 to $30 million?

Yes, we are reaffirming the guidance we gave in February.

Which includes the cash flow guidance?

Correct.

And then you reclassified some costs. Are those still all going to stay on the income statement? Because I saw that on the cash flow statement, you had a relatively big purchase of software number, or are some costs now going to go to -- into that line item, (inaudible) get capitalized?

No. In terms of the cash flow, that was just the timing of an acquisition of a particular -- or a cash payment on a software tool, but that -- I don't see that having a real significant change in our run rate in depreciation and amortization on the P&L.

Your next follow-up question comes from the line of Nik Fisken.

Gil just asked it. Thanks.

You have another follow-up question from the line of Franco Turrinelli.

Are you going to be able to make -- Scott, are you going to be able to make the reclassification of expenses for prior periods available to us by any chance?

Yes. Yes, but we are focusing this one on the March quarter of last year. Hopefully between now and the end of June we will be able to provide all quarters of '08. That is the plan.

Great. Yes, that will be very helpful. Thank you.

Sure.

(Operator Instructions). At this time, there are no further questions. Are there any closing remarks?

Yes. I would -- I would like to make a -- just one final comment about EMEA. EMEA has triple or quadrupled in size in the last five years, right? It has gotten large. And we do have some -- we have some growing -- we have some process changes we have to put in place as it relates to that fantastic growth that we have experienced there. I don't think we necessarily did a -- I am not sure that everyone -- I think everyone is viewing the drop in EMEA in a non-FX kind of way, and EMEA's profits -- yes, we didn't have some things happen last year, but on a non-FX basis, it really changes. It really changes. The U.S. dollars are U.S. dollars, and the EMEA dollars are the biggest ones that change. Asia-Pacific is largely a dollar business, so we have less impact there.

On a bottom line basis, we recover, because the globalization of both our variable and our G&A expenses. The FX coming down in Europe doesn't impact the bottom line, but it does impact sales, back log and revenue. And so when we talk about the results, we have to say that on an after-FX basis, we haven't changed the economic model. The quarter wasn't what we wanted the quarter to be vis-a-vis last year, but there's reasons for that. We are not going to -- we are going to renew our contracts the way we have been doing them for the last almost two years in economic kind of -- an economic kind of fashion. So I wouldn't put any real doom and gloom. We've got management task in terms of addressing the size, but I wouldn't put the gloom and doom that just looking at the nominal numbers would have as it relates to EMEA, because it's not -- we have, in terms of total growth opportunity, more opportunity in EMEA than we have any place else in the world.

Well, thanks. We are done, right?

This concludes today's conference call. You may now disconnect.