Agilysys Inc (AGYS) 2010 Q3 法說會逐字稿

Welcome to the Agilysis fiscal third-quarter 2010 conference call. Some statements made on today's call will be predictive and are intended to be made as forward-looking within the Safe Harbor protections of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause results to differ materially.

Important factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in the Company's reports on Form 10-K and 10-Q and news releases filed with the Securities and Exchange Commission. Today's live broadcast will be archived and available on the Agilysis website. At this time, I would like to introduce your host for today's call, Agilysis's President and CEO, Martin Ellis.

Thank you. Good morning, everyone, and thank you for joining us today to review our unaudited third-quarter and nine-month results. With me today is Ken Kossin, our Senior Vice President and Chief Financial Officer.

In addition to the standard Safe Harbor language, we will be using non-GAAP financial data, namely adjusted EBITDA. Reconciliations to GAAP are provided at the end of the presentation, as well as in our press release issued this morning.

We will also be using a slide presentation that is the basis for today's review. If you have not already done so, we invite you to access the presentation from the Investor Relations section of our website.

Turning to the quarter, we were encouraged by the improving demand environment we have seen in the past two quarters. While a number of sectors continue to be challenged, project funding and CapEx budgets are starting to loosen.

More importantly, we were pleased to report the second consecutive quarter of solid profitability for the Company. Sales for the quarter were $220 million, up 41% sequentially and approximately flat with the $224 million reported in last year's third quarter.

The growth in the normal seasonality in the quarter reflected some easing of 2009 budget restrictions and the less than 2% year-over-year decline in revenue is the smallest we've experienced since the recession began in late 2007.

Gross margin contracted to 23.3% of sales compared with 26.3% in the prior year, reflecting a mix of higher hardware sales and lower services sales, as well as competitive pricing environment in the quarter. This lower margin drove gross profit down by $7.7 million, which was largely offset by the $7 million reduction in selling, general and administrative expenses.

Adjusted EBITDA was $13.9 million, up $6.5 million sequentially from the $7.4 million reported in the second fiscal quarter, but down compared to prior year due to lower gross margin.

We were also pleased to report significantly improved earnings from continuing operations, which was $0.64 per share versus last year's loss of $0.10 per share. The improvement is largely the result of improved financial performance, but also includes other income of $4.7 million attributable to a $2.3 million litigation settlement and a $2.4 million distribution from the reserve fund. Together, these two items contributed $0.18 per share.

The greatest improvement we have seen is in hardware sales where revenue increased 13%, driven by improvement in IT spending during the quarter in both our Technology Solutions and Retail Solutions segments. We believe some of the strength we saw in the quarter was the result of IT budgets not spent earlier in the year. Softness in services, both remarket and proprietary, led to a 36% decline in services revenue year-over-year and software was essentially flat, down just under 1% from a year ago.

This mix of higher hardware and lower services, as well as some pricing pressure, resulted in lower selling and gross margins for the quarter. We continue to focus on managing our cost structure. And SG&A, excluding depreciation and amortization, decreased $3.9 million primarily as a result of lower T&E and professional fees, which benefited from $1.6 million in recovered legal fees from litigation settlements.

Notwithstanding the improvement in cost structure, adjusted EBITDA decreased year-over-year due to the mix of products driving lower gross margins in the quarter. Income from continuing operations rose to $14.8 million, or $0.64 per diluted share, compared with a net loss from continuing operations of $2.2 million, or $0.10 per share last year.

Depreciation and amortization decreased by $3.1 million due to lower acquisition-related intangible amortization and restructuring charges decreased $12.7 million. As discussed, other income included a litigation settlement and the distribution from the reserve fund.

In summary, we are pleased with the solid performance in the quarter and are pleased to report that the turnaround remains on track. At this time, let me turn the call over to Ken to review segment results, balance sheet and cash flow.

Thank you, Martin. The Hospitality Solutions Group continued to show improvement in both gross profit percentage and EBITDA margin percentage despite a 19.4% decline in revenue compared to last year. The decline in revenue compared to last year was primarily due to the absence of a significant hardware transaction in the prior year, along with continued softness in commercial gaming and destination resort markets. This was partially offset by solid performance from the cruise line segment.

Gross margin for HSG expanded 950 basis points compared with last year primarily due to lower hardware sales and lower intangible asset amortization expense during the quarter. The $1.7 million decrease in SG&A, excluding depreciation and amortization, was attributable to lower T&E expenses and the capitalization of Guest 360 development costs of $1.1 million during the quarter, which were expensed in the prior year.

Adjusted EBITDA, excluding charges, improved to $5.3 million from $4.7 million last year. This represents an EBITDA margin of 23.4% versus last year of 16.9%.

Turning to our Retail Solutions Group, sales have improved sequentially from the quarterly revenue reported earlier in the year as business benefited from higher hardware sales. Sales in this segment were up 8.3% in the quarter versus the same quarter in fiscal 2009. As we've reported in the past, sales in this segment tend to be more variable related to the timing of large customer rollouts.

Gross margin decreased from 25.6% to 19.7% compared to third quarter last year. The decline in gross margin percentage was attributable to a mix of higher hardware sales and lower services revenue in the quarter. SG&A, excluding depreciation and amortization, declined $200,000 mainly attributed to lower bad debt expense. Adjusted EBITDA was down $1.2 million year-over-year as a result of lower gross profit.

We are pleased to see the 46% sequential sales increase from the fiscal 2010 second quarter of our Technology Solutions Group, which is higher than the normal seasonal increase we experience in the third quarter. We believe demand for IT infrastructure solutions has stabilized, as evidenced by the modest 1% decline in revenue for the fiscal 2010 third quarter compared to last year.

Uncertainty related to the timing of Oracle's acquisition of Sun continued to affect demand and product availability during the fiscal third quarter. Now that the acquisition has closed, we expect to gain better traction in these markets. The gross margin contraction in the quarter was due primarily to the higher mix of hardware sales, particularly a higher proportion of lower margin storage products combined with lower services revenue.

SG&A expense, excluding depreciation and amortization, increased $1.3 million from the fiscal 2009 third quarter. This was due to increased compensation associated with the hiring of additional sales and technical staff and an increase in bad debt expense primarily related to the aging of certain accounts receivable, the majority of which have subsequently been collected.

Intangible amortization was down $3.3 million due to certain intangible assets associated with the Innovative acquisition being fully amortized as of the first quarter.

In our Corporate segment, third-quarter gross profit declined $1.2 million as a result of recording miscellaneous pricing adjustments to the respective business segments. SG&A, excluding depreciation and amortization, decreased $3 million, reflecting cost-reductions implemented throughout the last 18 months, which the majority of these costs were employee-related.

In addition, outside services and professional fees declined $3.3 million, including a one-time $1.6 million credit received from settlement of litigation and year-over-year, our stock compensation increased $1.6 million as prior year included a $2.2 million benefit from the reversal of stock compensation.

Turning to the consolidated results for the nine months. While revenue for fiscal year-to-date is down 12%, the sequential sales declines over the fiscal year-to-date quarters have narrowed, the third-quarter revenue being essentially flat year-over-year. In the early part of the fiscal year, demand for IT across all three segments was weak as customers remained hesitant to invest in IT projects.

As the year progressed, we saw improvements in all three segments, particularly in RSG and TSG as customers invested in hardware in the third quarter. Gross margin as a percent of sales for the nine-month period declined from 25.1% from 27.2% of sales a year ago, reflecting a mix of higher hardware sales and lower services in the current year.

Notwithstanding meaningful decreases in sales and gross margin, having aggressively reset cost structure by decreasing SG&A by approximately $30 million, we generated $2.3 million in operating income, excluding asset impairment and restructuring charges.

For the nine-month period, net income from continuing operations was up significantly to $5.3 million or $0.23 per diluted share versus a net loss from continuing operations of $167.6 million or $7.42 per share a year ago.

Switching to the cash flow and balance sheet for the period ended December 31. We continue to remain debt-free and currently have no outstanding balances against our $50 million revolver. On a sequential basis, cash was $24.4 million at December 31, a $23.8 million decrease from September 30 and an $11.8 million decrease from the start of the fiscal year.

We currently estimate cash to be between $50 million and $55 million at March 31, 2010. The decrease in cash for the quarter was primarily due to cash consumed from accounts receivable of $57.4 million related to sequential increase in sales of approximately 60% of third-quarter sales occurring in the last month of the year -- in the last month of the quarter.

The cash consumed was offset by cash generated of $28.5 million from accounts payable, which was net of paying a vendor $16.6 million at the end of the quarter to take advantage of an early pay discount. DSOs declined slightly from 72 days at September 30 to 74 days at December 31, which is still a 14-day improvement from 88 days at March 31.

Capital expenditures for the quarter totaled $3.7 million and $9.6 million for the nine-month period. The majority of capital expenditures are related to the implementation of our Oracle ERP software, which is scheduled to go live in April 2010 and capitalized costs associated with Guest 360, which is scheduled for general release in the first half of fiscal 2011.

Additional information regarding our fiscal 2010 third-quarter and nine-month financial and operational performance is in the quarterly report on Form 10-Q, which we expect to file tomorrow.

Now I will turn the call back to Martin for his comments on recent business trends and our expectations for the balance of the year, after which we will open the call for questions.

Thanks, Ken. As discussed, sales have improved meaningfully since the lows reported earlier this year and we have realized our second sequential quarter of profitability. While our Retail Solutions business can show some volatility in sales, we're starting at a consolidated level to approach demand levels seen a year ago.

Before we open up for questions, let me talk a little bit about outlook. We were pleased to see the Oracle/Sun acquisition close and bring to an end much of the uncertainty that many customers faced regarding the future of Sun Products. Oracle is committed to increasing its investment in the development of Sun Products, which should bode well for both us and our customers.

We are also encouraged by the improving demand environment we've seen in the past two quarters; however, uncertainty remains regarding the macroeconomic environment and while Sun's economic indicators have improved, market conditions still reflect uncertainty regarding demand for IT products.

The good news is that the market is stabilizing and our pipeline has improved significantly in the last two quarters. We are also positive regarding our outlook for the fourth quarter of the fiscal year and expect demand levels to be similar to that in last year's fourth quarter. With a continuing focus on managing costs and working capital to drive cash flow, we expect to generate approximately $15 million to $20 million in cash for fiscal 2010.

In closing, while the past eight quarters have been tough, we've made great strides to strengthen our financial position. I believe we're now well-positioned to capitalize on and leverage the changes we have made to benefit from future increases in IT spending. With that, we will open up the call for questions.

(Operator Instructions) Brian Kinstlinger, Sidoti & Co.

Good morning, guys. My first question is really around your services mix both on TSG and the Retail segment as well. It seems you have hit some low points on gross margins despite some great volumes or at least returning volumes. So I am wondering is this something we should expect going forward, the mix is going to change? You are going to win a lot more hardware deliveries, but less of the services mix? Or is this a one-quarter phenomenon that maybe we should look at as maybe more the exception as opposed to the rule?

Well, I think firstly there's the components of revenue that is driven by changes in demand and in the December quarter, we certainly saw an increase in demand for hardware products late in the quarter.

As far as services are concerned, I don't think you should expect the trend in Q3 to continue; however, we will see from quarter to quarter mixes in products and we may have other quarters where hardware outstrips services demand.

Going forward, as it relates to Retail, as well as Technology, we still expect a strong services quarter in Retail going forward and our Technology Solutions business will continue to drive services as much as we can, both remarketed, as well as our proprietary.

I've never asked this question, but what percentage of the hardware sales did you guys make on TSG and RSG? Do you guys generally perform the installation of the services around it versus just drop ship for example? And then maybe how much lower was this quarter compared to a typical quarter?

Well, on the Retail business, we perform a significant amount of installation and integration services on the rollout of products for our customers. There may be some purchases in a quarter where a customer is procuring product where there may not be significant installation services work on our behalf.

As far as Technology is concerned, the services are in probably three buckets. There's presales configuration services. There is installation and implementation services, and there are remarketed services.

In pretty much every transaction, we have configuration services as part of the overall sale, which is included in the ultimate pricing of the product. There is, in a number of instances, ongoing implementation and integration services and then there are remarketed services that are attached to the hardware.

As far as implementation services are concerned, we have had a fairly steady track of demand for our implementation services over the last year and saw some softness in the Q4 quarter with respect to remarketed services.

And to circle back to the sort of attach rate that you are talking about, in our Technology Solutions business, we have about a 10% attach rate of services to hardware, but that masks in some sense the work that we perform upfront with respect to presales configuration and the work that we do for customers in designing products, both storage and service with respect to data center implementations.

And so on the Retail business, as you said, you generally perform services on most deals, not all. This happened to be a quarter, since gross margin is hitting a low point where you -- they were just procuring product more so than usual?

Yes, with less implementation and rollout services.

When you look at January, it started, whether it be bookings, whether it be what you are actually recognizing as revenue, has the mix changed back to a more traditional level, different than the third-quarter levels or mixes (inaudible) ratio?

Certainly for the Retail Group, our expectations for the March quarter are that services will return to historical mix. The Technology Solutions business, we will evaluate as the quarter continues given the significant mix of hardware in our total revenue for Technology Solutions.

And then I think, Ken, you had talked about this, but, sorry, I didn't get it fully. TSG actually saw SG&A increase year-over-year. I think you talked about bad debt. Maybe you can outline that and what's not going to recur, but maybe take us through why, with all the cuts you've made year-over-year, that segment happens to be up.

Brian, first addressing the accounts receivable or bad debt expense, that went up for the third quarter, but we saw some of those older receivables being collected at the beginning of the fourth quarter, so we should see some of that bad debt expense come back in the fourth quarter.

Meaning a reversal, you will have to take a reversal expense?

Yes.

And how big was that in the third quarter?

It was approximately $500,000.

And how much of that was collected?

The collection, I would say probably about 80% or 90% of that was collected.

Okay. And then do you want to talk about the remaining of the increase year-over-year?

Yes, the increased primarily was in compensation and that was associated with hiring some additional sales and technical staff to support some of our TSG business that we had previously reduced, but with the demand coming back started doing some more hiring in those two areas.

So year-over-year, you have more people in that business now?

No, I don't think we have more people. I just think the mix of people is different.

So when we look at at least that portion of it outside of the bad debt, this is sort of the rate we should look at going forward of where the expense base is or is that something fair to take a look at?

It's pretty flat.

Okay. And then the other question, then I will get in the queue and see if others have questions, it seems for the quarter you had in earnings as well as what sounds like a quarter similar to the third quarter -- I'm sorry -- the second quarter of this year of profitability, at least that's what I've inferred, suggests you should be generating a little bit more cash in the fourth quarter even than you've said and so I'm curious what has happened there to get cash level only really up $6 million to $7 million, maybe $8 million from where it was just two quarters ago, especially with the collections you made on the other income line for the two extra items.

I think, Brian, the two primary issues impacting cash are firstly seasonal increase in sales with the 41% increase from September quarter to December quarter, that drives an incremental investment in receivables for the quarter.

The other part is that we made some early payments to one of our primary vendors to avail ourselves of an early pay discount, and that was approximately $17 million in early payments to one of our primary vendors.

So we take into account the early payments in this quarter, as well as the higher sales, those two items were the primary drivers of the change in cash flow. We would expect as we return to normal seasonal revenue levels in Q4 to turn much of that receivable investment back into cash here in the fourth quarter.

Right, but the question I am asking really is based on -- you expected at the end of March to have $50 million to $55 million. At the end of September, you had 4.8 -- $48 million and you are expecting $50 million to $55 million. At the low end, that's a $2 million increase over six months. You became much more profitable. You collected money on my guess is the reserve fund. Maybe that is in the fourth quarter going to happen here. You collected money on the litigation it sounds like or had a favorable judgment. And so it seems that with what's going on receivables should return more so in the fourth quarter. I'm curious why you would only increase in that six-month period cash of $2 million to $5 million or $6 million.

Part of that is funding of CapEx over the last two quarters. The other part is our assumptions around receivables for year-end right now with an estimate. But if you go back to our prior quarter guidance, we have guided for a $10 million increase in cash from March 31, 2009 to March 31, 2010, and we've increased that now to $15 million to $20 million. So we've captured in our minds the increased expectation with respect to cash flow for the year. And that change from $10 million to $15 million to $20 million includes the reserve fund distribution, plus expectations with respect to cash generation over the remainder of the fiscal year.

Okay, I will get back in the queue and first if others have questions before I ask the rest.

(Operator Instructions) Sabu Joseph, BOE Securities.

Good morning. A couple of quick questions. One is a follow-up to Brian's question about SG&A. The SG&A, including TSG base, you're saying you're not necessarily hiring people, but you are shifting people from business to business. Is that what you said?

We did hire people in the summer of 2009. We hired a number of people, both sales and engineers, to start positioning ourselves for a turnaround in demand as the market started to recover.

Okay, but for Q3, did you have any new hires?

Not in Q3, no. They happened in the September quarter.

September quarter, okay.

Some of the increase in compensation-related costs for TSG is associated with higher sales in the quarter given that commissions are obviously tied to revenues and gross margin and the higher gross margin in the quarter drives higher compensation costs.

Okay, okay. The other question for you, you talked about your cash flow targets for roughly $15 million to $20 million in '10, for FY '10. For you to get to the $20 million at the higher end of your target, what has to happen?

At the higher end, it's largely going to be a function of DSOs at the end of the year. We know what we have obviously earned to date. The biggest change between now and the end of the year is ultimately where DSOs end up at the end of this fourth quarter.

Okay, so you're saying that the $15 million to $20 million, the $5 million difference is mostly due to your DSOs, your expectations for the DSOs?

Yes.

Okay. You talked about you had a $500,000 bad debt that you booked in Q3 which you collected subsequently?

Yes.

Okay. And one more quick question and I will get back in the queue. The HSG business, can you talk a little more about the demand outlook in that segment?

I think when you look at HSG, you've got to look at a number of different markets. There is the geographic cut North America versus rest of the world and then there are segments within the hospitality industry. If you take geographic first, we continue to see growth in the international markets, particularly in Asia with the opening of some new casinos and the opportunities to follow our customers in the Asian market and build out that market. So we see some growth in the international market.

As far as casino hotels in North America are concerned, that part of the industry has certainly been impacted by the downturn here the last 18 to 24 months and what was scheduled as the opening of new hotels has been scaled back. However, there is some property portfolio restructuring that has the prospect of providing opportunities for a new license and installations with customers. But generally speaking, North American casino hotels and resorts have been soft the last 12 to 18 months.

On the other side, the cruise market and corporate food service providers have been a lot stronger. We have seen growth in both cruise and corporate food service providers and so in those markets, the softness that we've seen in resorts and casino hotels has been offset by some growth in corporate food service providers and cruise and then you add the international or the geographic component to it and we would expect probably slightly higher growth out of international markets than out of North America.

Okay. So you said the Asian market is a positive, but how much of your business could come from the non-US market?

Today, it's about 12%, 12% of total revenues for HSG.

For HSG, 12% of the revenue, okay. What are the plans for that segment, the growth plans for that segment? What are you planning to do up there?

From a growth perspective, there's ultimately industry demand and how that changes and then company-specific issues as we've mentioned. And as Ken reviewed, we've been developing our new property management system over the last number of years, and that's currently in beta testing and will come to market here in the spring/summer of this current calendar year. And so we look forward to driving that product into the market over the next quarters and years.

In addition to that, we continue to pursue new opportunities in the international market, as well as to drive the existing products that we have deeper into the segments that we compete in today. And that would include casino hotels and resorts, as well as food service, cruise and then stadiums and arenas.

Okay, okay. I will get back in the queue and maybe have a couple more questions, either call later just to follow up, but I will get back in the queue. Thank you.

Brian Kinstlinger, Sidoti & Co.

Great, thanks, one follow-up to the HSG discussion. What percentage of that revenue is resorts and casinos versus the other markets you've discussed?

Resorts and casinos --

Of HSG, obviously.

Of HSG are approximately 50% of sales. And that would include international resorts and casinos.

Right, so that includes the 12% you mentioned?

Yes, but the 12% is not all resorts and casinos.

Right, right. So when you talk about -- when you check the channels and you are talking to your customers, what is your expectation for when capital spending, for example in the North American or specifically Las Vegas, is going to start picking up, is it going to be another year? Is it going to be a quarter or two? What is sort of your expectation?

I think, generally speaking, if you look at the number of the hotel properties that were scheduled to be developed here over the next 12 to 36 months, a number of them were put on hold late last year. You're starting to see firstly some restructuring in property portfolios into Vegas or more generally in the hotel casino market. And as properties get restructured and acquired by new owners, there's the opportunity to sell a new property management system and the related food and beverage back-office requirements, as well as point-of-sale requirements to the new owner of the property. So that's one part.

The second part, Brian, is you are starting to see some of those properties potentially be rebuilt and the one is Fontainebleau and you may have read some of the headlines about that coming back to market with a number of bidders looking to buy that property. So some of them are starting to be developed again.

Then the third driver is ultimately decision made by owners of the various party management companies to upgrade or replace existing systems, whether it's firstly to have a standardized offering across all properties or to upgrade from what they have historically had. My sense is you've got prospects for the rebalancing of property portfolios will drive some sales. The development of new properties will probably be somewhat slower; though we are starting to see it pick up slightly. Then ultimately the upgrade of systems will come as companies get more comfortable with the macroeconomic environment and the willingness to invest.

And when you look at the release of Guest 360, which I think you said is first-half fiscal 2011, give us a sense for if you already have a backlog of orders though that you are presented and how meaningful will it be right away? Will it take some time for it to have meaningful revenue? Just give us a sense for what your expectations are for that product.

Well, the sales cycle is different to shrinkwrapped applications. We have obviously got to build the pipeline. We have obviously demoed this product at trade shows and to some customers. I think part of what drives demand for that product is going to be firstly the product themselves; secondly will be new hotel construction; and thirdly will be companies willing to change out existing applications.

I think initially as you look at that market, new hotels and resorts will be a primary target and then over time, we would look to build out our footprint in other sectors of the hospitality industry. We will have obviously our existing applications that we sell to the gaming and casino industry and those we will continue to offer and Guest 360 will be added and offered now to new hotels.

We're going to focus over the next 12 to 18 months to start to push that into the international market too. A part of what helps drive that pipeline is ultimately going to be a more formal launch of the product together with hiring sales people to sell the product.

Is it too aggressive to assume that this could become 10% of revenue within its first year?

I think that is a little optimistic in the first year, particularly when you have a look at the current growth in the overall hospitality industry.

Okay, and during the December quarter, it looks like some strong growth in retail. In an area where it has struggled, we finally saw some improvement in retail sales. Was that more from store expansion or upgrades and maybe give us a sense for where you expect growth to come from split between those two over the course of the next couple of quarters?

Generally speaking, we have not seen meaningful store expansion outside of a few customer-specific store rollouts where some customers are expanding and opening up new stores. Most of what it has been has been a replacement of existing infrastructure and hardware products.

Was this -- was the December quarter year-over-year growth a function of one client or two clients, or is it across-the-board improvement in demand?

It's more than a couple, but it is not across the board with respect to all our customers.

Do you still have one 10% client?

At the consolidated level, yes.

And how has that performed year-over-year?

Our relationship continues to be good. You can have a look at the percentages of revenues in our 10-Q when we file that tomorrow, but generally speaking, it is pretty close to what it was a year ago.

I guess I'm just curious, are they growing faster or slower or in line with the Company, just to sort of get a sense of the rest of the business?

In some products and areas faster than the Company.

Okay, and then the final question I have is your thoughts on finally completing the Sun and Oracle deal, which sort of lifts the overhang that customers may have had. How do you think this will impact your business, hopefully for the better, but anyway it is possible it might affect your business?

Well, I think there is a historical comment, which is, as customers waited to see how the acquisition by Oracle of Sun ultimately came to close, a number of customers had put investment decisions on hold until they learned more. And so we certainly saw, in the summer of 2009 and late last year, some hesitancy on behalf of customers as they waited to learn more.

As Oracle has started to share more and more information with respect to their intent and their plans to invest in the product and set out product roadmaps, I think customers are becoming increasingly optimistic about the acquisition. And certainly as you look to now what is really the first release by Oracle of a product jointly developed between Sun and Oracle, the Exadata 2 product that you may have seen commercials on, we are seeing some pretty good traction in the marketplace with respect to the announcement of that product and an interest on behalf of customers.

And so if that is a precursor to what will come down the road, we are pretty encouraged by the path that Oracle has taken and the receptivity in the marketplace of really the first product developed by the two companies.

Okay, thank you.

Sabu Joseph, BOE Securities.

One quick follow-up question. It's probably the follow-up from the previous quarters. Can you give us an update on the cost-savings target for the current fiscal year, what you are looking at for the next year or two?

Well, let me start with next year. At this point, we don't have any planned savings for next fiscal year. However, as we go through our Oracle implementation, we do expect to receive improvements in efficiency and process that will drive an improvement in cost structure down the road. But at this point don't have anything specifically planned.

As far as it relates to total cost savings, over the last 18 months, we have eliminated about $44 million in costs. Of that, about $35 million have been in this current fiscal year, identified in this current fiscal year.

I believe some of those cost-savings related to pension expenses. Is that right?

Some of the cost-savings certainly announced here in our last quarter related to reduction in 401(k) expense and the suspension of our contribution to 401(k), and we have indicated in our last earnings call that that would be a temporary cost-savings that we would reinstitute 401(k) match here at some point.

Okay, do you have any thoughts as to when you might reinstate that?

No, we will reevaluate that as we enter our new fiscal year starting April 1.

Okay, thank you.

Thank you. There are no further questions. I'd like to hand the floor back over to management for any closing comments.

Thank you, Jackie. With that, we would like to thank you for joining us today and we look forward to reporting on our continuing progress.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.