ACI Worldwide Inc (ACIW) 2010 Q1 法說會逐字稿

Good important, my name is Stephanie, and I will be your conference operator today. At this time I would like to welcome everyone to the ACI Worldwide financial results for Q1 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 session. (Operator Instructions). Thank you. Tamar Gerber, Vice President of Investor Relations, you may begin your conference.

Thank you, Stephanie. And good morning everyone, and thanks for joining our Q1 earnings call. Before I turn the call over to management, I wanted to remind investors that ACI will be participating next month in the Davidson Conference in Seattle, as well as the Stephens Conference in New York, and we look forward to seeing you at one of though owe.

Turning to this morning's call, the substance of today's call, like all of our earnings events, is subject to both Safe Harbor and forward-looking cautionary statements, you can find the full text of both Safe Harbor and forward-looking statements on the first and final pages for our presentation deck today. And a copy of that is available on our website, as well as filed with the SEC this morning. Our management speakers today will be Phil Heasley, our CEO, Louis Blatt, our Chief Product Officer, and Scott Behrens, our CFO. All three management members will be available for Q&A following our prepared remarks, and will be joined by Ralph Dangelmaier, our President of Markets and Services, as well as Tony Scotto, who is responsible for application development.

I will now hand the call over to Phil Heasley for his opening remarks. Phil.

Good morning, and thanks for participating in our call. I am going to commence today's earnings call with some general comments on our performance before turning it over. We had a strong business sales performance in the first quarter of 2010. It a significant improvement over 2009. This is mainly a function of selling larger term renewals combined with add-on products to our existing customers. We continue to move customers out of project implementation, and saw 26 smaller EMEA projects go live. While these were mainly second Tier-sized client projects, it underscores the improvement in the EMEA channel. The higher level of integration between our products, which is a direct outcome of our Agile Payment Strategy has also led to an improved ability to cross-sell new products to existing customers.

Our business process improvement programs continue to manifest themselves, and more disciplined around expenses as well as better cash collection. We had lower operating costs than last year at this time, as well as stronger operating free cash flow as compared to last year. The key metric with which I am most pleased remains our better recurring revenue in the quarter. We have grown maintenance fees by $3.5 million to achieve nearly 38% of the quarterly revenues. This type of revenue is inline with the revenue of more mature software companies, and also demonstrates our success in renegotiating renewals with our customers. And finally, we are tracking to the full year guidance we provided to you at year end.

In summary I think we delivered a very solid first quarter. We still have revenue seasonality typical to our business, but more importantly we saw disciplined metric management throughout the organization. We are delivering products to the market directly and with partners. We have reviewed our strategy globally, and are investing directly in high growth markets, such as India. As a result of that review sales dollars grew significantly over the last two years of comparative first quarters, so we continue to show that we can add product enhancements features to our existing relationships. I think we really understand our marketplace, and we are ready to respond to our customer needs.

At this time I would like let to Louis share with you some of the observations of the first quarter's business performance. Louis.

Thanks, Phil. Good morning everyone. I will he be presenting the operating report which includes an update on ACI's market strategy and business operations.

On slide eight, I would like to briefly explain the macroeconomic environment in which we are operating. We have seen real market stabilization as banks move beyond the structural issues that were impacting purchasing decisions over the past 18 months worldwide. Now financial institutions are driven more by the need to reduce their costs and reinvent their offerings, and that has been a major factor in our discussions. Upgrade and consolidation pressures being driven by antiquated infrastructure, the older infrastructures increasingly unable to sustain the performance and enable the agility needed, to respond to higher transaction volume and newer regulatory requirements.

Customers are making bold consolidation choices, inventing new services, integrating channels, and cross-selling products to drive profitability. This creates an interesting opportunity for us, as our products represent the broadest, most integrated solution in the market. Providing the broadest most integrated solution in the market will address the consolidation, channel and cross-selling market requirements described just previously.

If you join me on slide eight, this page depicts a snapshot of the quarter. We are already seeing larger deal sizes and an improved ability to cross-sell our products as a result of our strategy. To understand that we are making progress against this strategy we manage business operations from three perspectives. The type of revenue, the geographic territory, and the product type. Many of you have heard me discuss the Agile strategy and our plan at our Investor Day in Boston earlier last month.

On slide nine, I point out that we are continuing to drive a single strategy that unifies ACI to focus on the single vision. The vision is to be the leading provider of a unified solution, that initiates, manages, secures and operates payments to maximize the total economic impact for our customers. Our immediate focus is a strong pipeline of significant deals related to cross-selling. As you know, ACI's deal lead time is very long. One is a very long one, but we think that the combination of cross-selling and integrated solution sales is one which is beginning to gain traction.

When we talked about 2010 guidance in February, we clearly expected to see some of the sales activity in new accounts or clients. That assumption is predicated upon the pipeline still in progress, and while Q1 was not a new account heavy quarter, we expect to see more new customer sales later in the year. Short to intermediate term we will expand our focus to higher growth markets in addition to our existing markets. We have concluded that our Agile Payment Strategy conceived of almost one year ago continues to be a very timely strategy to meet these customers' needs. While we still examine customers by geography dependent upon regulatory demands or other regional specific factor, the product themselves are dictating the way in which we deliver and invest in our business.

The geography specific notable sales and revenue will be discussed on the following slide, on slide 10. America sales performance was largely driven by strong term renewal business with add-on products. Significant deals in the quarter including a risk system at TD Canada, BASE24 at Benemex, applications infrastructure for a large US bank, and a partnership deal with Bell ID, for a Canadian financial services company. The Americas year-over-year revenue variance stemmed from non-recurring project milestones last year with Master Card and Standard Charter Bank. In our EMEA business, we are experiencing a significant sales rebound after a lackluster 2009. Deal pipeline currently looks strong, even in the face of macro issues discussed earlier as the old Payments infrastructures are in needs of upgrade and replacement.

Large deals in the first quarter included a BASE24-eps migration customer in South Africa, and two BASE24 renewals, one in the UK, and one in Kuwait. EMEA revenues grew 10% on modest increases to both licensed and maintenance fee streams year-over-year, as well as professional service project completions. As announced earlier in the quarter we have concluded the build-out of our new EMEA management team with the hiring of Paul Thomalla. Sales in Asia rose from a smaller base, but were generally related to the size of the term renewals in that region. We had notable renewals occur in New Zealand and the Philippines.

As Phil mentioned in his opening remarks, we invested in a go direct strategy in the Indian market. We remain in a holding pattern on the Chinese market, as we continue to monitor its development, and any potential regulatory guidelines coming out of Beijing. However, we think India should keep us quite busy in the near term. It is a high growth market and therefore strategic in nature. We believe this should drive more business in India, and prepare us better for managing implementations as well. Asia revenues were up mainly related to the ILF fees in the quarter, that stemmed from the aforementioned sales deals.

Turning to slide 11, to sum up the geographies marketplace we are seeing that our new Assentive technologies and BASE24-eps are very attractive to the banking market. The Secure division is being propelled by concerns over financial crimes, and the more streamlined approach we have taken to the tools product that we call Operate,has resulted in better implementations. The more positive implementation experience is a factor in driving these cross-sell opportunities.

If you turn to slide 12, we reviewed the sales business by both product type and sales type. Indeed, you have seen these tables in prior presentations of ours, and there are other sales cuts that you can reference in the Appendix to the slide deck as well. To achieve an even higher level of integration we have organized the company into four business units that are focused on developing software products dedicated to each of the life cycles of a single-payment life cycle. That is Initiate, Manage, Secure and Operate. We still have separate business units focused on the wholesale and retail aspect of managing the Payments until convergence across retail and wholesale becomes more common in the market.

We have reduced our strategic products from 27 to 13, including the recent acquisition of Essentis, and the partnership with Bell ID, in order to free up resources that we can dedicate to the development of new products, as well as to the integration of the 13 that remain the strategic focus. The only real change in the charts below is the conjunction with the Initiate, Manage, Operate and Secure segmentation. The former wholesale business now contribute to both Initiate and Manage categories. We experienced stronger than expected performance from our managed retail and Operate units. This better than expected performance was driven by the increased adoption rates of BASE24-eps, as well as our improved ability to cross-sell monitoring, testing, and high availability tools to current customers. Year-on-year we have experienced a 36% growth rate increase in the sales of products of focus of the Agile Payment Strategy. Our key focus for the remainder of the year will be to increase the sell of these products to new customers, or to sell new applications to existing customers.

Slide 13. We were quite busy in Q4 on the alliances and partnership front with Bell ID and the Essentis announcements, this quarter we were introspective, and examined what opportunities could arise from investment of ACI capital in high growth markets and go direct strategies. We selected India as a strategic market for reinvestment of ACI personnel and capital. We announced our first transaction within the context of the new Bell ID relationship, and are also in process of examining alliances with several other potential partners. The IBM alliance continues to deliver interesting pipeline, as well as several solid new relationships in both Canada and Latin America.

Slide 14 is a backlog composition page and underscores the significance of our maintenance revenue stream over the 60 month backlog horizon. Some investors have noted that the maintenance comprises 46% of the five year backlog, where it was 39% of 12 month backlog. This makes sense because the investment in new customers or applications requires more immediate term investment and implementation and services, and our backlog corroborates that trend. There is a 16% revenue contribution from services, implementation on a one-year backlog basis, and a mere 6% on a five-year basis. Obviously the maintenance stream is a richer margin business, and we thought it bears repeating to show this breakdown here.

My final slide on Slide 15 is really a reminder of how we are now benchmarking and managing our business. In line with the Agile Payment Strategy we are manage the Company's profitability through the four P&Ls that we have begun to build out throughout business. These P&Ls include maintenance, application, service, and hosting, what we call on demand. Each of these businesses has somewhat different drivers and margin. We think it makes be sense to isolate these categories into their own groupings, and at this point, I will turn it over to Scott's section, where he can take you through the numbers and guidance.

Thanks, Louis and good morning everyone. I will he be starting my comments on slide 17 with key takeaways from the quarter, starting with revenues. Revenues were essentially flat compared to Q1 of last year, but consistent with our guidance, we do expect the performance this year to look similar to the seasonal quarterly phasing in our performance that we have seen in recent years. So that trend is tracking to our expectations.

With that being said, however, within revenue we did see strong growth in recurring revenue. Rising $5.9 million, or more than 10% growth over last year's first quarter. That growth driven primarily by maintenance, increases in maintenance revenue, in particular in our EMEA region and that growth is coming from a combination of the number of "go live" projects that we had in the latter half of 2009, that are now contributing to our recurring maintenance fee stream, as well as just better economics on term renewals. Sales deals were significantly stronger than last year's first quarter, up nearly 33% driven again primarily by a strong rebound in sales in our EMEA region, and finally our continued operating expense management led to an operating earnings improvement of $1.2 million over prior year's first quarter.

Turning to slide 18 operating free cash flow improved almost $11 million over last year's Q1, driven by very strong cash collections in the quarter. As I said, we saw operating expense improvement just under $2 million compared to last year, and finally we really didn't see a significant amount of foreign currency movements. We eecked out just a slight gain of $50,000 in the quarter. We also saw a couple hundred thousand of loss on our interest rate this quarter, but as a whole the other income and expense, we didn't see a whole lot of noise. Both the FX and the swap saw improvements over last year.

Turning to Slide 19, this is our normal depiction of the ratio of revenue that is derived from backlog versus revenue that is derived from current period sales. As you can see the mix is consistent compared to last year, and just overall we are very pleased with the amount of recurring revenue coming out of backlog, which continues to provides us a stable predictable and solid base of our revenue stream.

Moving to Slide 20, and you will see this more in the Q, but this is an overview of what we believe will be more enhanced disclosures we have made to the presentation of our revenue in our P&L. We are now breaking out as a separate line item in our revenue section the revenue from our ASP hosting arrangements, so our online banking or on demand revenue streams. Historically these revenues were primarily included in our services revenue, and to a lesser extent in our license fee revenue and maintenance revenue. We have also reclassed our prior year numbers to conform to this new presentation. Obviously, it has no impact on total revenues or operating income, or net income for that matter, but we do believe it is going to provide more enhanced disclosures about our sources of revenue.

Lastly on slide 21, at this point in time we are tracking to our expectations for the full year, and so we are reaffirming the guidance that we laid out in February for our full year 2010. So in summary on a comparative basis Q1 of last year we saw improvements in operating earnings, improvements in net earnings, stronger cash flow, stronger sales, we saw healthy growth in our recurring revenue base, and we are tracking to our full year guidance expectations at this point. So that concludes my prepared remarks. Operator, we are ready to open up the line for questions. Thank you.

(Operator Instructions). Your first question comes from John Kraft with DA Davidson. Your line is open.

Good morning, guys.

Morning.

Scott, while you have got the floor, I guess the first question is as a look at just the total expense line, you were running in the 90s, low 90s all of last year and this quarter you are down to 88 or so. Is that a new floor, or do you expect that on an absolute basis to kind of particular back up to what we saw last year?

Well, I would say we have been tracking kind ever plus or minus 90 million for the last, this will be about six quarters now, and I think that trend will continue throughout the year. We did expect expenses to pickup this year compared to last year, just based on our full year guidance, but we are starting off the year in a positive, I guess positive variance position with respect to our expenses. So we were expecting somewhere on the plus or minus 90 million this year as well.

Okay. That is fair. And then just a couple quick follow-ups if I could. Remind me, had you provided free cash flow guidance for 2010? I know you did for '09.

No we didn't this year or last year for that matter. We just said the growth would be consistent with our growth in operating earnings.

Okay. And then just a quickie for Louis. Just remind me, I mean obviously the success in the Secure product group was very impressive. Is that simply the Proactive risk manager?

For now, yes. The only product that is generally available is PRM, our Proactive Risk Management.

Great, thanks, guys.

This is Ralph Dangelmaier, and we had a very good quarter in Secure, and some of that relates to a large renewal and some add-on business we did with a large client in Canada as well.

Thanks, Ralph.

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

Good morning, guys. I had a question that relates to timing. So we had the Analyst Day just a month and a half or so ago and, Ralph, you had mentioned at that time that it was arguably the most difficult time to ever sell to banks that you had seen in your career, and I just wanted to tie that with Louis' statement that you have seen a real market stabilization, and I would say actually some fairly encouraging dialogue with respect to the demand that you are seeing. So has anything changed over the last month and a half, or if you could just kind of help bar those two for me?

Sure. George, Ralph Dangelmaier again. Just to make sure we put that question in context, what I was referring to is I think we still feel that it is difficult to sell to banks. What I was referring to was that it was harder, you had to work harder, but the opportunities were still there. So we're working harder to close the opportunities within the financial institutions, but a lot of the consolidation, and a lot of the regulatory pressure has created opportunities for us throughout the world, and that is what Louis was referring to.

Okay. Thank you. And with respect to maintenance obviously you are seeing reasonably good maintenance year-over-year growth, and I know, and certainly the 60-month backlog suggests that will continue to be strong. Could you help me understand how maintenance schedules may be changing over the next 12 to 18 months, related to the migration of BASE24 from a modeling perspective?

From a modeling perspective as our customers go into their I guess sunset period, post in late of 2011, we will start to see a ramp-up in our maintenance revenue, if that is what you are referring to because we do have uplift provisions for all of those customers that remain on Classic, and/or remain on some portion the Classic product. So we will begin to see that in 2011, and probably more so full year 2012.

Okay. Great. Thank you.

George.

Yes, Phil.

I would like Ralph to talk to you a little bit about pipeline in terms of that question, the first question you asked also.

Sure. George, just as we were talking about the opportunities throughout the world, one of the things that we have seen is we have one of the strongest pipelines that we have had in years, and we feel very, very confident with our sales plan this year. So I just don't want to leave the impression that that is negating any opportunities that we see there. There are a lot of opportunities outs there and we do have a strong pipeline.

What I think is true, George, is that another way of saying what Ralph is saying is what I have said for several quarters, is that we always saw this as a 270 to 450 day kind of closing, selling cycle and what not, and we certainly are seeing, we have seen that get closer to the 450 than the 270. So it is really a lot harder to sell out there, but the opportunity is also larger than it has ever been. So instead of going through three reviews and two procurement officers, we go through seven reviews and five procurement officers.

That is right.

Perfect. Thanks, guys.

Your next question comes from Wayne Johnson with Raymond James. Your line is open.

Hi. Yes. Good morning. I was just wondering if we could break out the new BASE24-eps sales in the first quarter, just so I am clear how many new sales did you make in the quarter, and how many do you have baked in the 2010 guidance?

I don't think we have historically broken that out. We just provided the total sales, and sales by whether they are new applications, new accounts, add-ons. I mean from a retail payment engine perspective everything that is, most of what is new is being sold on EPS. We are not selling Classic. So I mean there are other retail payment engines in there, but that is going to be primarily on your retail payment side.

Okay. And then how should we think about the conversions of Classic to EPS? You mentioned I think on the last call that there have been six or so, and where does that stand today, and how do you think about that for this year?

I think what I said last time was that we have about six dozen EPS systems, and a half dozen, or six of those 72 are conversions. I think we have stated so I will restate, that one of the sales we had this quarter is another one of the migrations and what not. So still the vast majority of our sales are new sales in EPS, and still a relatively small number are migrations at this point. And what I also said last call was that I thought if we were to try to be visionary, and look out five years that I would not at all be surprised if 50% of our Classic customers are still on Classic. We still support several other engines that we have had in the past, and we will be supporting Classic the way we support those engines for a long time to come.

Right. Okay. Thank you.

Your next question comes from Brett Huff with Stephens. Your line is open.

Good morning. Congrats on a nice sales quarter.

Thank you.

First question is, Scott, can you give us an idea of sort of the seasonality, or what to expect up or down per quarter on free cash flow?I am getting the sense that you guys had a particularly strong quarter. Can you give us a sense of is that a repeat, or kind of what anomalies you might see going forward?

Well we are the guiding to cash this year, but we did see, obviously we did see stronger cash this first quarter than last year, but I think if you go back to last year's first quarter we had said we had some slippage that slipped into Q2. So Q1 with strong sales coming out of our fourth quarters and our annual maintenance billings and so forth that go out in the first quarter, we do tend to see at least strong billings in the early part of the year, and we have actually in turn seen that as strong collections, but for the year again we are tracking now to, consistent with what we said before, is that our cash flow for the full year would be consistent with our growth and operating earnings. We really haven't provided any sort of phasing on that.

Okay. And then can you tell us a little bit more about the IBM progress. Louis I think you talked a little bit about that, something you closed a couple of deals in the pipeline. Can it continue to get better. Can you give us more color on those deals?

Yes. I will do that. This is RalphDangelmaier. How are you?

Good.

Good. Yes I think we had a good quarter on renewals and with some of the add-on business with IBM, and the partnership we think is strong, and I feel like we are going to have another good year with them.

We are really doing a lot of business with IBM all around the world at this point, and IBM is probably more present in pipeline than they are in bookings, but we are doing more business than ever with IBM.

That is correct.

Okay. And then last question. Can you talk a little bit about the project discipline that you all worked on last year, and how that might contribute to margins going forward, or did you see additional sort of bad projects, I think is how you were calling them, or red projects coming off, detail that process for us? I am more interested for Q1?

Yes. I will start and then I will let Ralph say something also. Yes. We went into last year with 100 red projects, and we came out of the year with less than 20 red projects. So just from a pure math standpoint, that is true. Execution is still king. If we really want to do the amount of business that we are doing around the world, we have to constantly work and improve our processes, and whereas we have made great improvement I think we feel that there is an awful lot more improvement that we can still make, and you might want to say something, Ralph, and Tony you my want to say something.

Sure. We have actually come up with a standard way of implementing some of the projects around the word recall we have put some processes in place. We have also created a global group of services where we can interchange people from different regions in the country. We have augmented some of our people in different areas. We have done quite a about the of training. I think we have also gotten a lot better at signing contracts, making sure we understand some of the requirements before we sign contracts. So we have put quite a bit of processes in the beginning of a project, to be more predictable on the outcome for us and the customer.

This is Tony Scotto. I think in addition to focusing on just what we can do within the development organization I also have an objective to work more closely with the services team, to look for opportunities for things we can do in the product to help them more efficiently be operationally efficient in the field when they are doing implementations. So there are clearly opportunities for us to do some things in the product to help that as well.

Great and one last question, Ralph for you, I know that your are bringing some of the discipline in the sales process that you brought to Americas to the rest of the world now. Can you comment on when you guys look forward in the hope for some stronger sales, what percentage of that, or what group of that do you think will come from banks finally getting past the crisis mode, and what part of it do you think it is more just a process driven, being more thorough and more systematic going forward, or what kind of mix?

Yes. And just to make sure I end stand your question the mix of what, the sales?

Just the sales. The sales drivers I guess. Is it bank tech spending lifting a little bit, and/or is it some of the just maybe more thorough processes that you are bringing, or kind of give us some color on that?

Yes. Sure. I think honestly to answer it more directly I think it is both. I mean I think by having a consistent process, a standard process we are in a much better position to evaluate the deal, and looking at renewals and looking at add-ons, and looking all the new businesses, and so we are much more aware of what we are doing going into a situation, or renewing a client, and explaining to them our value proposition.

So we went that through some of that in the Americas, and those have been rolled out around the world, but also as we talked earlier, things are getting a little bit better out there, and we know we have work harder, and so we are better I think at planning. As Phil mentioned earlier, instead of one meeting with procurement, it is three, four or five, and we build that into our processes as well, and how to handle that. So I think it is really a mix.

Yes. And Ralph is being a little bit modest. Yes, there is an increase in demand, but I also expect that under Ralph's leadership we will have an increase in yields also.

Great. Thanks for the color. Appreciate it.

Thanks.

Your next question comes from Gil Luria with Wedbush Securities. Your line is open.

Yes. Thank you good morning.

Good morning, Gil.

Scott, you reaffirmed the guidance not year including GAAP revenue, but I wanted to get a sense how you are tracking to that. I think when with you talked about your first quarter GAAP revenue, you talked about things that were particularly, that were there last year and not there this year, but this first quarter is actually the lowest you have had in a while. What are some of the GAAP revenue items that you didn't have there, and where does the confidence come that they are going to come later in the year?What I am trying to get to, I think you used the word reaffirm for guidance. I am trying to get the sense of whether you maintained it because you think you are within the range, or whether you reiterate it because you still see all that GAAP revenue coming in?

Well, I would say two questions. We are still comfortable with the full year, and again what we have looking at the full year is we have what is in backlog, and we know what is in our sales pipeline, and if you look back at the beginning of the year, we came into 2010 with higher 12 month backlog, than we did going into 2009. So we starting in the year we are coming in with higher backlog, and what that means is that means it requires less sales to get to that revenue number. So we are still comfortable with what we see in backlog, and what we see on planning with pipeline.

If you look at Q1 last year to Q1 this year, I would say some of the anomalies are more in capacity revenue is down year-over-year, and that has its own seasonality, so I wasn't play anything into that because it is down. It could land in fourth quarter, it could land in the second quarter. So we still have capacity events. We just didn't have as many of those capacity events in the first quarter of this year compared to last year, and then from a service perspective, we had from an implementation service revenue perspective that was down, but again that is our lumpy revenue. That is going to come in when projects "go live".

So we are still seeing those projects coming in throughout the year. We are tracking to our expectation of where we except the revenue to be. And but if you do look at recurring revenue, that was up pretty song. So it is not the recurring revenue that is down. It is that lumpy kind of capacity and services implementation revenue that is that we are still expecting based on our backlog that we came into the year with. So we are not concerned with, we still feel we are tracking to full year.

Gil, this is Phil Heasley, I want to answer that question from a CEO perspective. I agree with everything that Scott said, and what I will add onto it, is that every year we go through this. Our year is a relay race, right and we have to hand off between the quarters, and we have to deliver, and we have to live within the cycle of how banks do their capital. How they do their capital purchasing and then how we implement those things. Every year we get this first quarter dialogue, and then second quarter says well, maybe they are right in terms of what they are talking about.

I am more confident than I was last year, and last year I was more confident than I was the year before, that what I am I saying is we are completely confident in the guidance that we are giving you at this point. There is always execution risk, but I think the capabilities that we have against execution are the best they have ever been. So I want you to really very directly understand what I am saying. There is no, this isn't well, gee, golly are we making it into the range. We are telling you we are comfortable with our guidance, and I am more comfortable with the guidance than when I gave it to you last quarter.

Great. Great. And then, Phil, while I have you on the line, could you talk, I think you mentioned in the release a couple of new hires that you have at the executive level. Could you just talk about where they fit in the mix, and whether you still have any large openings, any significant openings that you are still trying to fill in terms of your executive organization?

Well, one of the senior hires we had is Ralph is filling in his organization. Do you want to talk to that?

Sure. Yes. This is Ralph. We had an opening for a sales general manager over in EMEA, and we filled that position with Paul, and he has been with us for I guess a little over a month right now. So we are thrilled that he is aboard, and over the last year I know we have also added services leaders in each one of the new geographies, Asia Pacific, and over in EMEA, as well. So those positions are filled out. I think Phil from a CEO perspective.

I will go for the CEO one thing more I will say with Ralph, is that we have also gone direct in India, and as part of that we have hired infrastructure, and I think you guys know that our application development services area, we have several hundred people. We have almost 300 people there right now, so we are continuing to build this out. I think the hiring of Tony who is here was absolutely critical.

One of the things that we have an in abundance is tremendous technical skill in this Company, and what I wanted to augment that with was somebody who had been involved in large and small environments, and had gone through the conversion of being a smaller to a larger business, and really felt comfortable and had kind of fallen into the, fallen into the trenches you fall into in these kind of efforts, and what not. So Tony is a very critical add, as we keep expanding our opportunities we may expand, key hires and what not, but I think we have an excellent management team, if that is the question you are asking at this point.

We already knew that. I was just wondering whether you had any other big holes to fill in terms of the org structure?

Yes. We are in the process of hiring a human resource director. Certain things, there is always hiring that is going on, but it is evolutionary. It is not revolutionary. There are no revolutionary moves.

Great. Great. Thank you.

Your last question comes from Tom McCrohan with Janney. Your line is open.

Hi. Is acquisitions still part of the strategy at all, in terms of filling out the product if you have any kind of product gaps you want to fill, and/or kind of new market entry?

Absolutely. I think the purchase of Essentis is going to end up having a major impact in terms of what we do for, we didn't spends a fortune on it, and so it kind of went under the radar a little bit, and we didn't spend a lot of money going from distributorship to direct in India, and what not, but we are looking, we just went through our monthly review cycle yesterday, and we look at all dimensions, partnerships, alliances, acquisitions. We are very actively looking at what makes sense

Okay. And just a follow-up question for Scott on the revenue side for guidance as it pertains to 2010. Can you talk a little bit about, you expect the revenue growth, given that you expect fewer term renewals, I am just not clear?Maybe you could just conceptually just give us an idea of how the revenue recognition works with the term renewal, like why a term renewal would lead to revenue growth?That just seems like it would be a run rate already in the number?

Well, yes. I mean depending on how the renewal is structured, you are going to have revenue growth in the term renewal if we are good at increasing our pricing. So that is one aspect of it. And then the certain deals where they are structured as some of our deals have what is called an ILF component, which is an initial licensee fee component, and others are structured more as monthly license fees.

Just for example if we were to sign a renewal in a quarter and it had an annual license fee component, and we talked about this with respect to our fourth quarter pickup in revenue and margin, is the period in which that annual license fee is billable its recognizable in full, so you can have a pickup in revenue there as well. There are a bunch of different dynamics that would lead to revenue growth from term renewal signing. Price increases, and then also deal structure.

Yes. In the past that there was a lot of taking revenue up front, or large portions of the revenue up front, and you know that we very much believing in monthly license fees, and what not. So if most of the revenue of the contract that, or a large portion of it in the previous contract was in an ILF, and we bring it in as MLF, that increases our revenues almost immediately, even though we are taking it ratably over the five years, versus trying to get drunk in a single quarter.

Right. In the prior contract you weren't seeing it in the run rate because it was paid.

Correct.

At the beginning of that five years. Now your are seeing better economics, and you are seeing revenue from a license stream that wasn't there previously.

That is right.

Thanks.

Operator, are there are any further questions for us?

There are no further questions at this time.

Great. Hearing none. Thank you everyone for joining us. If you have any follow-up questions please don't hesitate to contact me directly, and we look forward to speaking with you on our next call or at one of our conferences. Good bye.

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