Asure Software Inc (ASUR) 2003 Q2 法說會逐字稿

Good day, everyone and welcome to the Forgent Networks 2003 fiscal second quarter earnings announcement.

Today's call is being recorded.

For opening remarks and introductions, I would like to turn the call over to Mr. Michael Noonan, Director of Investor Relations.

Please go ahead, sir.

Well, thank you, Vickie and welcome everyone to our conference call today.

If you have not received a copy of today's earnings release, you may download one from the investor relations portion of our Web site, at www.forgent.com.

And before we start the conference call, I'd like to mention that some of the statements made by management during this call might include projections, estimates and other forward looking information.

This would include any discussion of the company's business outlook.

These particular forward looking statements and all other statements that are made on this call that are not historical facts are subject to a number of risks and uncertainties that could affect their outcome.

You are urged to consider the risk factors relating to the company's business contained in our latest periodic report on file with the SEC.

These risk factors are important and they could cause actual results to differ materially.

This call is being recorded on behalf of Forgent and is copyrighted material.

It cannot be recorded or rebroadcast without the company's express permission and your participation implies consent to the call's recording.

After we've completed our review of the quarter, we will open up for questions from the analyst community.

I'd like to now turn the call over to Richard Snyder, Chairman and Chief Executive Officer of Forgent - Richard.

Good morning, everyone and thank you for attending our conference call.

Once again, I have asked Forgent's executive team to be on the call so that you can hear directly from them and so that you can ask them questions at the end of our call.

So with me today are Jay Peterson, Vice President of Finance and Chief Financial Officer, Ken Kalinoski, Vice President of Development and Chief Technology Officer, and Russ Caccamisi, Senior Vice President of Sales.

I'd like to open by introducing the company to those who may be unfamiliar with Forgent Networks.

And frankly, to re-introduce the company to many as well.

We've made some significant changes to the company and our positioning in the last six months and it's important to understand those changes and why we have made them.

Forgent provides enterprise software that increases productivity and speeds decision making through more effective collaboration.

We do this by providing meeting management software that integrates the scheduling of people, resources, and technology and then seamlessly launches and manages whatever media might be used for the meeting, be it audio, video, or web conferencing.

We are no longer tied to just video conferencing.

Customers tell us that we are solving one of their primary problems by bringing together these critical elements to make effective meetings happen.

We have also been able to leverage both our experience and software that we have developed or acquired in the last 18 months.

We estimate the size of this expanded market to be around 500 million and growing at about 14 percent a year.

While there are companies who have partial offerings in this space, few if any bring together a total solution.

Forgent also has a successful intellectual property licensing program that has produced over $40 million in less than a year.

These funds are used to grow cash and invest in long term growth for our shareholders.

Now, let's talk about quarterly results.

The second quarter of fiscal 2003 was marked by a number of positive results.

First, we achieved profitability for the fourth consecutive quarter.

Second, brought in intellectual property licensing revenue for the fourth consecutive quarter.

We increased the sales pipeline by 50 percent.

We increased cash in excess of 25 percent and decreased our operating expenses by more than 20 percent.

And we reached an agreement to sell the video conferencing hardware service operation, which lets us focus on growing the core business.

While these results are impressive and clearly demonstrate a strong and stable company, we certainly experienced our challenges as well.

We were not able to achieve - was growing software revenue to our guidance of 30 to 40 percent.

In retrospect, we were clearly too optimistic.

Nor were we alone.

Most enterprise software companies are experiencing flat or declining revenues due to a lack of spending in corporate IT departments.

Although we have experienced a 50 percent increase in the number of accounts interested in our software, we were not able to close them.

We did not lose them; they simply told us that it would take more time to make the purchase.

Russ will give you more details and discuss how we intend to improve sales execution this quarter.

We may not be able to influence the economy but we can control our ability to convert interest to purchase.

What I would like to emphasize is that we will continue to invest in our software as our core business because we believe in it.

We believe what our customers are telling us about addressing their needs.

We believed that making meetings more productive today and in the future is an enormous opportunity.

We believe that we have the engineering talent to give us a competitive edge and we believe that we have the financial resources to not only be stable but to accelerate our growth through targeted acquisitions as well.

A word about intellectual property.

The intellectual licensing program has continued to mature.

There is less uncertainty and more evidence that we can continue to gain license revenue each quarter in the future.

The best evidence is four sequential successful quarters.

But we have also put more companies on notice and added them to an already long list.

The field of use has become much broader than digital cameras and the global coverage has extended from Asia Pacific to the US and to Europe as well.

In summary, IP is an outstanding funding source and is enormously important to us.

Let me close by commenting on our operational plans and execution going forward.

We will continue to carefully manage our cash.

Two uses we do have in mind are a stock buyback and strategic acquisitions.

We will continue to drive down operating expenses.

We have taken out over $11 million in the last eight quarters and we will do more.

We manage the software business with its own P&L, which means keeping the burn in line with growth.

We have specific programs that include selling our current office building, eliminating cash bonuses, and freezing salaries.

We have a strong commitment to profitability and we intend to have our software business profitable as soon as possible.

Now, let me turn the call over to Russ to give you more specifics on our sales execution - Russ.

Thanks, Dick and good morning all.

I want to cover three topics with you this morning regarding our performance in the software business unit.

What happened in the second quarter, what are we doing about it, and what we see in the marketplace going forward.

Excuse me.

First things first, what happened in the second quarter?

I won't bore you with droning on about the difficult IT spending environment that all enterprise software companies face in the marketplace.

But there were several other key issues that contributed to our underperformance in Q2.

First, quite frankly, our basic sales execution was unacceptable.

We engaged about 50 forecastable deal opportunities where we were actually selected as vendor of choice within the quarter and we closed a little over a dozen.

An unacceptable performance in my view.

We instituted a new sales model and a new management team a few months ago and this has taken time to mature.

But beyond that, because every account to us is a new account, we haven't been through a complete purchasing cycle with any of our customers before and this caused additional unpredictable delays in the sales cycle.

Primarily, because of these unpredictable delays, over 30 of the deals were what we call sliders.

Not lost, but they slid into the next quarter and beyond.

Frankly, we only lost three deals in the quarter.

One to competition and two to internally developed alternatives.

But the sliders really hurt our performance.

The combined effect of the unforecasted sliders led to the miss of the guidance that we provided in the past.

Another thing that happened in Q2 and I warned on the last conference call that it might, though I didn't realize how much it would hurt, was the impact of the season.

Selling over the Thanksgiving and Christmas holidays was typically difficult.

But the impact of trying to close an enterprise software company quarter at the end of January was even more difficult than I had predicted.

Customer after customer told us that they just couldn't get deals done in January.

OK.

So, what are we doing to address these issues?

Regarding execution, I have removed several members of the sales organization from the business.

We have replaced these personnel with experienced enterprise software veterans that I have either known personally or by reputation for years.

And adding these new resources to the great sales professionals we already have, significantly improves the overall gene pool of our sales force.

Also, I have implemented numerous sales execution tactics that we were lacking.

There's really nothing magic here, it's just enterprise software sales one on one types of things, but key tactical execution that we - execution techniques that we were lacking because we were new.

In addition, to address our quarter end lack of symmetry with a vast majority of our customers, I've moved the sales forces quarterly goal line up a month.

As with most software companies, our commission structure helps create the infamous hockey stick phenomena at the end of each quarter.

With sales folks attempting to close deals by the end of the quarter to maximize commission income.

Basically, I have reset their commission plan and implemented traditional end of quarter timing with the sales force.

I don't intend to eliminate the hockey stick, just move it up a month where I have more time to react.

This already seems to be helping as I look at our pipeline.

As deals are queuing up now for the end of March, rather than the end of April.

So, if they do slide a little, and some always will, we can still get them done by the end of the fiscal quarter.

And as I look at my forecasted pipeline at this moment in time, I have good visibility to both the deals that slid from the last quarter and new opportunities as well.

Our re-doubled emphasis on sales execution gives me cause for optimism that we will both get the sliders closed, prevent perpetuation of the slider problem, and get some real marketplace traction and momentum going forward.

OK.

So, what does it look like going forward?

A key goal that we have in the quarter and the years to come is to do a much better job of articulating our positioning and value proposition in the marketplace.

What the market has told us is that what we're really selling and what the marketplace wants to buy is a comprehensive solution to the problems involved in planning, scheduling and executing meetings across the enterprise.

And not only the meeting itself, but the myriad of resources surrounding meetings which include people, rooms, video conferencing technology, audio conferencing technology, web conferencing technology, and the lot.

In the past, we have focused on the technology needed to accommodate one specific type of meeting.

A video conference.

The market told us that there was a much broader problem.

Pulling together all necessary resources and services for a meeting.

And that led us to acquire GSS and its world-class enterprise scheduling software this past summer.

That got us closer to the problem and to a total solution.

As we've been selling our integrated solution of GSS and VNP over the last few quarters, the market continues to tell us that the problem is even broader than that and a significant market is emerging for a comprehensive solution.

Despite the continued lousy IT spending environment, we see increase signs of activity with customers in government agencies both large and small to fix their meeting problem.

Marketplace statistic from sources that include Microsoft and others tell us that quote 'knowledge workers' unquote and management, the so-called 'white collar workforce' if you will, spend over 40 percent of their time in meetings of some kind and another 15 percent of their time on the telephone.

The overall solution to address the planning, scheduling, and execution of over 50 percent of their day is a very compelling business proposition and we believe it to be a half a billion dollar market in the aggregate.

It encompasses more than just fixing video conferences and more than just providing a better scheduling environment.

And it is more than just providing the base technology to conduct a meeting, either audio, video, or web technology.

Ken will in a few moments give you a perspective on where the products are going, but rest assured that our battle cry in the marketplace going forward is 'Forgent does meetings.'

And I don't care if you meet in person, via video conference, audio conference, web conference, or with your fancy new Dick Tracy TV cell phone, we'll help you plan, schedule, and execute the activity that encompasses more than a half your day on average.

We have several of the components in place today to address this problem and we will, through both organic and inorganic growth, encompass more components going forward.

And I'll tell you the large customers in government agencies I speak to about this subject around the world, tell me that it resonates and that they would be willing to spend money, even in today's environment for a comprehensive solution.

OK.

I know you say 'Well, prove it to me.'

And that's fair, that's our mission.

I know revenue is the ultimate scoreboard and that's what we're out to go do.

Current indications in the pipeline, which is measured both by volume, which is up almost 50 percent, and quality, tell us we're on the right track and if we can get some help from the IT spending environment, we should be OK.

I'll now turn it over to Ken Kalinoski for a more detailed discussion on the products and I'll look forward to any questions you may have at the end of the call.

Thanks.

It's yours, Kenny.

Thanks, Russ.

Good morning everyone and I'd like to cover two specific areas.

First of all, what we have accomplished during this past quarter and a look at the technology and the vision for where we are going.

So, what did we accomplish in this past second quarter?

During the second quarter, the development team delivered enhanced support for our flagship product global scheduling system.

By adding a hosting capability to GSS, we can now allow service providers to offer scheduling and an additional value added service.

Note that this has the added value of providing Forgent with the recurring revenue stream.

Additionally, we supported new devices during the period including devices from Sony, Polycom and (Tenberg).

We have also begun work on Forgent's next generation enterprise meeting management solutions.

As Russ told you, today's knowledge worker spends over 55 percent of their time during their business day in meetings and on the phone.

If Forgent can make the process of scheduling and executing meetings more efficient and effective, worker productivity will increase as they drive to decisions faster.

The challenge is to do this in a way that is consistent with an existing organizations technology and business prophecies.

Forgent will meet this challenge with the delivery of an enterprise meeting manager for the Microsoft Outlook and IBM Lotus Notes environments.

The existing market size is roughly $500 million growing to nearly double that size over the next four years per Gardner Research.

The software will schedule people, rooms, audio, video conferences, web conferences, other items such as catering, equipment and any special technicians or set up and break down time.

The power of the product will be in its ability to integrate and manage an organizations existing meeting resources and collaborative tool sets.

Issues that deployment and training will be drastically reduced as Outlook and Notes have over 80 percent of the marketplace today.

Forgent is taking a leadership position committed to solving the problems of meeting management.

Various vendors have announced partial solutions.

Still others are looking at proprietary solutions that tie customers into their own collaborative environment.

We've talked to the marketplace and what people want is the ability to launch and schedule their tools through Outlook and Lotus Notes.

Our initial product offerings and deliveries will begin this summer.

In support of rich media management, we are adding supporting to VNP for audio conferencing.

Organizations will be able to reduce their reliance on costly audio service providers by leveraging in house bridges to launch audio calls or by adding audio participants, of course, to the video conferences.

When you think about the ability to use existing bridge infrastructure that people have already bought and invest in to conduct audio conferences versus paying 25 cents a minute for audio outsourcing, with a return on investment in Forgent software is recognized in less than six months.

Both audio and video calls will benefit from the superior reliability and manageability provided by Forgent.

So, that's what we did in this past quarter, but what does it look like really going forward?

Forgent sees the meeting environment of the future as one where any type of meeting can happen, whether formally scheduled conference or an ad hoc meeting between three associates, our value is in giving users the power and flexibility to collaborate without having to worry about the nuances of audio, video, web, phone numbers, equipment dependencies, no web addresses, no bandwidth concerns, et cetera.

Forgent will do this by integrating an organizations collaborative tools with a conference management framework that handles the details of resource reservations, security, user administration, directory services, synchronization with existing network infrastructure.

Users will benefit from the simplified scheduling application presented in a familiar look and feel and administrators will appreciate the control and reporting available from the management console.

Our history of supporting heterogeneous video technologies from different vendors make us uniquely qualified to deliver this solution.

We will remain vendor neutral allowing our framework to integrate the best of breed vendor applications based on the marketplace and customer preference.

Our Forgent vision for the future is very bold.

We believe that for rich media to provide significant business value, the power of the media has to be available to all users.

To date, video has not been widely used because every manufacturer has a different way to launch calls.

Challenges related to configuring and executing video conferences are left for the user to figure out.

Forgent has demonstrated in the marketplace today how networks can resolve these complexities autonomously.

Many people talk about making video as easy as the telephone, what they mean to say is wouldn't it be great if everyone had the same set of rules to make a call?

Just like the phone companies have done relative to the single simple 12 key user interface.

Even though there are multiple service providers, such as AT&T, MCI, SBC, et cetera, phone use is ubiquitous and available to everyone.

Web conferencing vendors are making the same mistake we believe as many of the video conferencing vendors.

Sure they think by differentiating their user interface they can make them better.

Really they just make it different and they create problems for users and in the end, only a few willing technophiles can use this media.

Do this ((inaudible)) test yourself, I ask.

Ask any of the executives in your company if they feel comfortable launching their own web conference or moreover, even their own video conference.

See if they even know whom to call relative to starting or launching an audio conference.

I'll bet you'll find that only a few folks or a few handful of folks within any company really know how to use these tools.

The power of rich media collaboration cannot be just for the rich and famous or the technically trained.

Forgent envisions a single button integrated into Outlook and Notes that can be used at any time to launch an audio conference, a video conference, a web conference.

This is the power and the direction of our next generation meeting management framework.

Simple meetings should be just that, simple.

However, if you need audio, if you need video, or you need web to help make a meeting or your point more efficient and successful, then it should be as easily available without needing a network administrator to set it up.

That is our vision and we're well on our way to realizing it.

And with that look into the future, let me bring you back to this meeting and turn the meeting back over to Jay for financials.

Thank you, Ken.

Good morning.

I would like to discuss the following areas this morning, first off the financial performance of our software and intellectual property licensing businesses, results from discontinued operations, the consolidated financial results for Forgent, the continued strength of our balance sheet, and future guidance.

First off, let me start with software.

Our software revenues declined this past quarter by 15 percent to approximately $1 million.

This revenue decline impacted gross margins and margins came in at 28 percent.

Note that costs for our software business - cost of good sold, if you will, were essentially flat quarter on quarter.

Software operating expenses were $2.8 million, down from $3.5 million in the prior quarter.

Dick previously mentioned several expense control measures we implemented and I would like to elaborate on this topic.

We will continue to look for ways to reduce our overhead and our back office expenses as we develop and grow our software business.

Current expense focus items include the sale of our equity in our office buildings, insurance premiums, equipment leases, utilities, et cetera, et cetera.

Having reduced spending by more than $10 million in the past two years, we believe we are getting good at this.

Note these future expense reductions will not impact our ability to develop new products nor will they impact our ability to engage with customers.

Let me now turn to intellectual property.

Intellectual property revenues amounted to $7.3 million this past quarter, a growth of a million dollars or 17 percent growth over the prior quarter.

Program to date since April of 2002, we have realized approximately $45 million in IP revenues.

Margin for IP amounted to $3.6 million or 50 percent of revenue.

Overall, operating expenses in IP totaled $400,000 this past quarter, a decrease of $200,000 over previous quarters a reduction approximately 30 percent.

Let me briefly talk about discontinued operations.

We anticipate the sale of our services business within 90 days assuming the requisite shareholder approval.

Our annual proxy was selected for a periodic review by the Security and Exchange Commission and we are currently responding to their comment letter.

We do not foresee any problems with the SEC comment letter and once this process is concluded, we will announce the date of our annual meeting and begin proxy solicitation.

Note that our services businesses - services business is accounted for as a discontinued operation.

The profit contribution for this business amounted to approximately $600,000 this past quarter.

Let me now summarize the consolidated financial results for all of our businesses.

First of all, we grew revenue this last quarter by 12 percent from $7.4 million to $8.3 million.

Second point, overall margins were 47 percent essentially flat with what we did in the prior quarter.

Our total operating expenses declined for the second consecutive quarter to $3.2 million a decrease of 23 percent.

Operating income improved from a loss of $600k last quarter to a gain of $700,000 this quarter an improvement of $1.3 million within a 90 day period.

Earnings per share amounted to five cents per share, a one cent improvement over our prior quarter and again, this marks our fourth consecutive quarter of profitability.

Next item is the balance sheet.

Cash and securities, the balance increased from - increased by $4 million to just under $19 million and this increase was due to a reduction in our DSO from 61 days down to 11 days.

Note our working capital totaled approximately $18 million an increase of $4 million in the last quarter.

Next item I would like to turn to is guidance.

I would like to provide guidance in five key areas.

First off, software revenue is expected to be flat with prior quarter.

As market conditions change, we will update this guidance in the future.

Number two, we will achieve IP licensing revenues in Q3 marking our fifth consecutive quarter of licensing revenues.

In addition, we expect IP revenue in Q4 and throughout fiscal year 2004.

Note we are currently in discussions with companies in Japan, the Pacific rim, the United States, several companies in Europe with fields of use covering printing devices, scanners, personal computers, rendering software, digital cameras, certain video cameras, and other technologies.

Next item of guidance is that overall spending level for our business will be flat to down.

Next item is that we envision that we'll be profitable again, remain profitable for the fifth consecutive quarter and that we will maintain healthy cash balances and a strong working capital position.

Two final points I'd like to make.

The first point is that I would like to discuss our share repurchase program.

We currently have approximately 1.8 million shares remaining on a three million share board of director approved plan and it is our intention to repurchase shares this quarter.

Last point is that there could be, there could be a one time non-cash charge relating to the sales of our services business once this business is consummated - once the sale is consummated.

The timing of this sale, the timing of the charge and the exact accounting of the sale is uncertain at this point in time.

I would now like to turn the call back over to our chief executive officer, Richard Snyder.

Thanks, Jay.

And great job, guys.

Let me briefly summarize what I'd like you to take away from today's call.

First of all, Forgent is in excellent financial condition.

We are profitable, with a strong cash position and we'll continue to reduce expenses.

Our intellectual property and licensing program gives us cash and funding to be stable and to grow our business in the long term.

Our business strategy is to provide meeting management software to the enterprise, which is a large and growing market.

And we have the experienced people in the management team to get the job done.

We're excited about the future and we look forward to reporting our progress in the months ahead.

Now, back to Michael for your questions.

And with that, I'd like to open up the meeting for questions from analysts.

And we'll ask Vickie to coordinate the session.

Thank you.

Your question and answer session will be conducted electronically.

If you would like to ask a question, you may do so by pressing the star key followed by the digit one on your touch-tone telephone.

If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

We will proceed in the order that you signal us and we'll take as many questions as time permits.

Once again, please press star one to ask a question.

We'll pause for just a moment to assemble the roster.

Our first question will come from Adrian Dowes with Hartwell.

Good morning.

Couple of questions.

Can you sort of walk us through the mismatch, shall we say, between the size of the backlog and your guidance for software sales being so flat and tie that into the seeming increasing complexity of the product development that's going on?

And then, I have a couple of follow ups after that.

I can take the first part of that question.

I think I understand the question.

Basically, basically what happened was that in many of the deals that we were pursuing toward the end of the second quarter, frankly, many of them began to grow both in size and in complexity as we started to be more focused on a broader field of endeavor.

And to this notion of managing their entire meeting environment with GSS and VMP and quite frankly, the deals took longer to get closed than we anticipated.

I mentioned some of the reasons, they were partially sales execution, they were partially seasonal, and part of them are just the normal course of selling enterprise software.

So, that's the reason that we didn't get them done at the end of the second quarter.

And as I said, we had visibility to those some had closed and some haven't.

Maybe I didn't understand your guidance then for the software business for this upcoming quarter.

You said it was going to be flat, versus the prior quarter.

Well, I think I would reconcile that primarily because of the difficult environment.

I don't know if you noticed this morning, a large automobile manufacturer headquartered in Detroit, that actually was a - at one point in time was a very high potential prospect of ours, announced a reduction of IT spending of some $400 million.

There was an article on that in the 'Journal' this morning.

We heard about it several weeks ago.

We're not getting a lot of help from the IT spending environment.

So rather than be overly aggressive relative to what our guidance is, we'd rather be conservative and deliver what we think we can deliver.

Is the ability to deliver product to the customers dependent now upon the introduction of the new modules that Ken talked about on the call?

In other words, the complexity's gone up and your ability to close has gone down.

Not at all.

Quite frankly, I think most of our large customers have employed a strategy of the ones that we've closed and have begun implementing have employed a strategy of limited deployments addressing many of the problems that they have that our - that the existing software that we're currently selling will address.

And as we deliver these new capabilities this summer that will give us an opportunity to both address new opportunity and to up sell the deals that we've already done.

So, quite frankly, no, I think we can deliver what we've promised with what we've got on the wagon today.

On the prior call, you've given guidance of software being up sequentially throughout the entire year.

What is your guidance for the fourth quarter and you gave guidance on '04 for IP and guidance for software.

The only guidance we're giving right now, Adrian, is that for the next quarter the software business will be flat.

And as we have greater visibility into the out quarters and as there are changes in the marketplace, we will update that guidance.

What is R&D spending going to be for the full year?

It's planned to be for this quarter flat.

And the outlook is flat to perhaps some down a little bit.

Great.

Thanks.

I'll let somebody else ask questions.

Thank you, Adrian.

Jeffrey Dabbs with Kirschville and Company has our next question.

Morning, gentlemen, how are you?

Good.

Thank you, Jeff.

Quick, quick question on IP.

Let's go through some of these things.

And I know some of this is difficult for you to discuss but can you kind of give us a sense of how many companies that you're targeting kind of an aging of the deals that are in the pipeline, deals that are close to completion and can you tell us how many deals were completed in the quarter?

I'm going to let Jay take a stab at that, Jeff.

OK.

Yes, Jeff.

I cannot tell you the exact number.

That's fine.

It is a very large number.

If you look at the countries we're engaged in, if you look at the fields of use we're engaged in and just make some of your own assumptions, it is a significant number.

Can you tell me how many deals were closed in the quarter?

No, I can't.

OK.

Well, let me ask you - let me do it this way, Jay.

From my calculations, there was about 15 deals that were in Japan, maybe more and that was just basically when we were doing digital cameras.

That's what I kind of assumed.

If we go back now we're in the fifth quarter since we've really begun that program, actually it started six months before you go revenue.

So, you're lapping some numbers that you would think that you would start to see some scale behind some of these deals, rather than one or two a quarter that you would start to see some scale.

Which it brings me to the question then of timing, can you control that?

Are we going to see a hockey stick in IP?

Or can you kind of just discuss what you think the revenue streams going to look like?

You know, we've been averaging about $4.5 million a month over the last 10 months.

We believe that this program will continue for the foreseeable future well into next year and beyond.

And we look to provide greater guidance in the future.

OK.

Jeff, let me just amplify for - I know that it's difficult and I appreciate the question because there, you know, normally in these kinds of things there are scale, there are things that you can apply to it.

This is a very, very different business.

And the size of recoveries really are dependent upon the companies and the length of time we've been negotiating.

And when you put all that together it is very difficult to give you any kind of certainty around it.

But I think Jay's point is that if you look at averages, it's not a bad way to look at it.

Well, and to get to your point that you're going to be profitable this quarter, then again, Jay, from my calculations, back in the envelope, you've got a see somewhere around $6 million in IP revenue.

OK.

Is that a fair back in the envelope calculation?

... your calculations say.

Yes.

Yes.

I couldn't disagree with that.

OK.

Hey, Jeff, one other point I would like to clarify, just to make certain we're all on the same page.

We believe the six seven two patent has a field of use well beyond digital cameras.

And that there was - I believe there was an analyst report out some time the last 90 days indicating that we have really harvested virtually everything we're going to harvest on this program.

We really do not see this program diminishing at all, today or tomorrow.

And that this will be a very significant funding source and a very significant profit vehicle for us for quite some time.

My research kind of echoes that also, Jay.

The North American, any timing on a deal?

Do you expect one next quarter?

The quarter after?

Is it near term?

Yes.

Yes.

We believe.

OK.

Let's go on to software real quick.

Russ, as far as the pipeline, can you kind of give us some hints on the timing of how these deals are laid out?

Before we were talking over the six to nine month kind of sales cycle, has that increased?

Just kind of give us some color on what the pipeline looks like.

Is it new deals that just in the infancy or can you kind of give some color?

Jeff, I think it's across the board.

We've got, you know, some significant number that we're still chasing that we thought we could've and should've gotten close last quarter.

There are a - I would say the majority of the pipeline are deals that we've been engaged with anywhere between n90 to 120 days already.

OK.

And we've got a significant number that have appeared on the radar screen just in the last couple three weeks after people had sort of emerged from their year end -- year end crunches in January ((inaudible)).

So, I would say it's sort of a bell curve with the preponderance of them in sort of the names that we've grown to know and love over the last 120 to 180 days.

OK.

And as far as, can you break down what the distribution was between VNP and GSS?

No, I can't give those specifics.

OK.

That's fine.

As far as, I think it was yesterday or the day before, Polycom came out with an integrated solution that encompasses all their end points, their MCU's, and also some software and scheduling.

Have you had a chance to look at that and kind of see where it kind of compares against your product?

Ken, why don't you take that one?

Yes.

The answer is, Jeff, yes, we have looked at that.

It's an interesting offering.

It's certainly one that is still more proprietary in nature.

It's an attempt, if you will, to and Polycom does recognize now that the value of network management in a large way, they understand that getting to know the underlying infrastructure is key and tying that infrastructure at the network level back to the application layer is required.

You know, I would say as I look at this solution, from where Forgent is today they're probably still at least six to 12 months behind the curve relative to our current technology.

And they're solution is very IP specific only.

It's very video conferencing in nature.

And the people we are talking to think that video today is kind of interesting but there are much greater technologies that one wants to leverage relative to collaboration.

They'd like to make audio as simple as, you know, as making a person to person phone call.

And that's not there today in the large.

They'd like to make web conferencing something that they could just go select a button and it happens during a conversation, during a meeting that happens in real time.

Those are the areas that we, you know, that I've tried to describe that we are going down.

Those are the people that we've been talking to who are driving us along those solution lines.

And I'm sure that the folks, our friends down the street here will continue to look at what we're doing and take our leadership position as par for the industry.

Russ or Ken, I mean, if we're talking about business becoming the enterprise solution, obviously then that's, you've got a different sales model or it's going to have to be part of a more integrated solution, which means that you're going to be pulled through by the normal IBM's, et cetera, et cetera.

Have we looked at the distribution channel?

Have we looked at extending that distribution channel?

You know, it's tough for, you know, what your sales force, your size to really kind of target and hit all those customers.

Yes, Jeff, we really have.

We'll have Russ comment on that.

Yes, Jeff.

I think you make a very good point.

We have done deals with many of those partners that you just mentioned.

We have done deals with the vast majority of the large integrators, the IBM's, global services of the world and what we see is that customers are addressing both in the United States as well as in Europe, this enterprise wide fix my meeting thing that's a part of an enterprise wide fix my IT infrastructure thing and we've got, I would say a significant percentage of our pipeline involves deals where we are, where we are subcontracting or co-bidding or whatever you would like to call it, with many of those names that you mentioned.

So, you're point is spot on.

Do you have any formalized deals that you could, you know, announce, without press releases on?

I'm not saying at this time but.

As we go forward, we try and do that, but I think, Jeff, you probably understand that in this marketplace, customers are very reluctant to do deal announcements.

We do the ones that we can and will continue to do that going forward.

I understand.

Last question, just some housekeeping things.

Depreciation, Jay.

Approximately, $400 - 500,000 in that range.

OK.

The revenue for service in the quarter?

We have not disclosed that, Jeff.

But we are happy with the financial performance for the service business in the quarter.

OK.

And as far as the actual deal that where the transaction, have you been - have you quantified exactly what the - back in the envelope calculations again.

It looks like they're getting about $3 million in receivable.

What other hard assets are they getting and what are the liabilities that they're taking on?

They're taking certain payables up to a certain cap.

They're taking all the differed revenue.

OK.

That liability is $7 million.

Fixed assets are rather negligible, probably $1 million maybe $2 million predominantly spare parts.

OK.

And obviously we get $8 million in cash from the deal and we do not have to deliver on that differed revenue that's on the balance sheet.

And the whole deal is valued at approximately $18 million.

OK.

Thanks, guys.

Thank you, Jeff.

I'd like to remind our audience to ask a question, please press star one.

Our next question will come from Carter Mansbach with Concorde Equities.

Good morning, guys.

How are you guys today?

Good.

Thank you, Carter.

OK.

Good.

Two questions.

I guess one of them was kind of answered with Jeff.

Stocks trading about 80,000 shares a day.

I would predominantly mom and pop what I call 'Mr.

Jones' investing and if the institutional ownership has increased in some levels.

But, it's still somewhat low.

The two tier question is number one, in the way of the deals that you've been signing, when I speak to guys like Russ it seems like the companies you're dealing with obviously are major corporations and investors are somewhat in the dark and we don't know who they are.

And obviously, I'd like to know if there's any shot of us, you know, kind of getting in on the loop?

You know last conference call you threw around some names, said some, you know, companies that you had dealt with.

On this conference call, you had said none.

We're trying to get a feel, I mean, if there are companies like a Pfizer or Merck or major financials we'd like to know a little bit better on the names and is that possible for the future?

And the second part of it is it seems like the focus of the corporation is here.

You had something that you're going forward with, you know, where you're going.

Now, that the focus is here, now that it's somewhat, a lot clearer to me, exactly the direction of the company, does the company, at this point, you know, get on a plane and start knocking on doors and talking a micro cap, mutual funds and micro cap institutions and brokers basically going on a road show and talking to the companies?

OK.

So, we'll try the - let's take the first part of your question with regard to customers.

As you say, we kind of touched on that, but maybe Russ can amplify a little on the Fortune 500 we're dealing with.

Yes, Carter.

I think the overwhelming majority of both the wins as well as the pipeline are represented in companies that I would characterize as a global 2000.

Now, I think you know that it is getting more and more difficult to get customers to agree to announce a specific deal with their vendors.

They're just not willing to do that because it's sort of like getting your name in the paper the next day you get 50 calls from stockbrokers.

They just don't want to do that.

It's very difficult.

The ones that we can, we will.

And our marketing folks are working with a number of our recent wins to try and get that announced.

From a segment standpoint, what I can tell you is that there are a number of industry segments both here and Europe that are emerging as very interesting.

I would suggest that automobile manufacturing, that financial services, that pharmaceuticals as well as to a lesser extent, the legal and other service based communities are very high on our list both in terms of wins as well as in the pipeline.

But relative to specific names, the most important thing to me is my relationship with my customers and if they haven't given us permission to do it, I'm not going to.

Sure.

Just understand that on a micro cap level, you know, for the last year and a half regarding IP and you know, software, all you've had to announce to the public is Sony, which was fantastic, and this recent law firm.

Besides that, it's really been quiet and it's hard to attract attention to a micro cap company when there's not a lot of you know big names being announced.

And I understand, your frustration but I want you to understand, you know, our frustration as investment professionals as well.

We'll try to do better on that regard, Carter.

OK.

Fair enough.

Now, in the sense of a road show, what's the mind set on that?

Very positive.

We've talked amongst the management team.

Following this call, what we want to do to follow up with the investment community and we have a number of ideas.

So, I think you'll be hearing about those in the not too distant future.

One last question.

As far as I know, there's only three people on the board at this point, is there any thought process of adding new players to the board at any point?

Yes.

Actually, we do have two new board members that have been unannounced.

And that's just in the process with the proxy being put out.

They will be on the slate and we're very pleased with that.

So, that will bring the board up to a full compliment of six.

And the strength that both of these new players bring is considerable.

So, we should have some announcements for you within the next couple of weeks.

Alright.

Fantastic.

Thanks for your time, guys.

Good luck out there.

Thank you, Carter.

Our next question will come from Elliot Gold with Telespan.

Hi, good morning.

Thanks.

Yes, I am hoping you guys beat my forecast, my prediction.

We were, too.

Couple of things came up.

One is if I heard you correctly you said that in the software business, you had implemented wage freezes?

Or that you could?

Did you say you did or you could?

Have.

OK.

When was that?

That was this month.

OK.

And then, Russ, you were talking about the meeting business and you talked about the Microsoft data and 40 percent of their time in meetings 15 percent on the phone, et cetera.

Half a billion dollar market and you said their cry is 'Forgent does meetings.'

You reference Microsoft, so let's do that.

How do you anticipate competing with Microsoft in this area, particularly where their acquisition and place ware?

And the development of this new enterprise addition there, how do you compete with them in that space?

Elliot, I think that's a great question.

And we don't anticipate competing with Microsoft.

We anticipate filling out a more enterprise offering on top of their group ware and individual calendaring capabilities that they have in place or plan on having in place from their Real Time collaboration division.

I think historically Microsoft has been very good at establishing technology foundations that others can build on.

And understand that our business is to help people plan, schedule, and execute enterprise meetings.

Microsoft's business is to provide the technology that actually that collaborates whether it's the place ware stuff or whether it's the base Outlook people calendaring.

What we do is we build on top of that.

So, quite frankly, we anticipate being cooperative not only with Microsoft, but with the other big player in that market, who is IBM and Lotus Notes.

OK.

And then - thank you.

A question over to Ken.

Ken, you said this during the fiscal Q1 quarter; you were talking about going after the enterprise customer promises ((inaudible)) bridging market for scheduling.

Latitude's the dominant player there, they already offer the scheduling.

I don't see how you can compete there and I also still disagree with your 25 cents a minute, since about 85 percent of the market now pays below 11 cents a minute.

So, how do you compete with Latitude?

You know, I certainly wouldn't want to compete with Latitude.

Latitude does provide - they are an audio conferencing bridge provider.

And they do act as a service provider, as you're aware of.

They have a limited scheduling - they have limited integration for Outlook relative to an audio conference.

I'm talking about having universal capability beyond - if a company has Spectel, if the company has Voyant, if a company has other hardware, ubiquitously they don't want to - they don't care who's behind, who's behind the wire, they want to make an audio conference.

That's the difference between our solution and other solutions that are proprietary for one particular brand vendor.

I think that that's the richness that people are looking for and at the end of the day, all they want to do is make an audio conference.

I don't care if my service provider is AT&T, MCI or - and in the case of our own company, we use Global Crossing and it is indeed 25 cents a minute having gone back and looked at the minutes.

Anyone who - you know, so.

You just have to go and look at it.

Maybe there are some other companies who have 10 cents a minute and perhaps some of those companies are the ones that are going out on a fire sale.

I can only tell you that we need to make sure that our business maintains valued, reliable carriers and so, I just know that those costs are out there and people who are using those services are paying at least that much today.

Well, you do your research and I'll do mine.

I think your numbers are not quite spot on.

Thank you.

Thanks, Elliot.

That concludes the question and answer session today.

At this time, Mr. Noonan, I'd like to turn the conference back over to you for any additional or closing remarks.

Well, thanks very much, Vickie.

And thanks everybody for joining us on our conference call today.

And we'll speak with you all next quarter.

Bye, now.

That does conclude today's teleconference.

Thank you and have a great day.