Diebold Nixdorf Inc (DBD) 2004 Q1 法說會逐字稿

Good day, everyone. Welcome to the Diebold Inc. first-quarter 2004 financial results conference call. Today's call is being recorded.

At this time, for opening remarks and introductions. I would like to turn the call over to the Vice President of Investor Relations, Mr. John Christophe. Please go ahead, sir.

Thank you, Shannon. Good morning, everyone, and thank you for joining us today for our first-quarter conference call. Providing remarks on the quarter today is Wally O'Dell, Chairman and Chief Executive Officer; and Greg Geswein, Senior Vice President and Chief Financial Officer. Also with us today and available in the answer-questions are Eric Evans, President and Chief Operating Officer; Mike Hillock, President Diebold International; Dave Bucci, Senior Vice President of Customer Solutions Group; and Tom Swidarski, Senior Vice President of Strategic Development and Global Marketing. Just a few notes before get started on today's call.

The replay of this conference call will be available today at 1PM on www.Diebold.com as well as via telephone. The telephone replay number is 719-457-0820 and the pass code is 783723. As a reminder, some of the comments today may be considered forward-looking statements. As a precaution, we refer you to the more detailed information that has been filed with the Securities and Exchange Commission.

And now, with opening remarks I will turn it over to Chairman and CEO Wally O'Dell.

Thank you, John -- good morning, everyone. Thanks for being part of our call today.

I am very pleased that we once again were able to report solid revenue in earnings per share growth. Strong performance in our Financial self-service and Security businesses more than offset the dilutive effect of the Election Systems business during the quarter.

Our total revenue in the first quarter increased 21.5 percent on a GAAP basis and 16.2 percent on a fixed rate basis. Earnings per share were up 11.1 percent as once again we met our previous earnings per share guidance and expectations. Combined revenue from Non-election Systems business grew 19.9 percent, while diluted earnings per share from these businesses was up 25.7 percent.

Financial self-service revenue grew a very strong 22.2 percent or 15.1 on a fixed exchange rate basis, as global demand for the Opteva line continued to strengthen considerably.

Overall growth was particularly strong in North America, where we continue to make significant share gains and the market is building momentum. As a result of this outstanding performance, we have raised Financial self-service revenue expectations for the year.

Security revenue grew 13.7 percent during the quarter, or 13.3 percent on a fixed exchange rate basis. This was due to a combination of continued growth in our base business, as well as the successful integration of two small security acquisitions in Australia. We are poised to continue our strategy of growing this business through market share gains, new markets, and strategic acquisitions.

The Election Systems business continues to be challenging. In addition of having an adverse impact on working capital requirements during the quarter, margins were also negatively affected. While revenue increased during the quarter, we also saw significant increases in costs associated with securing certifications for new hardware and software, operational costs associated with insuring successful March primaries, and ongoing increased public relations costs.

We also are gearing up for a major implementation of electronic voting in Ohio -- which we now anticipate will be delayed until late 2004 or early 2005.

Given these circumstances, we have taken appropriate cost actions within Diebold Election Systems to bring costs more in line with the lower revenue expectations for 2004. The Company has reduced its Election's revenue expectations as a result of the delays in the implementation of electronic voting in Ohio.

I am clearly not pleased with our recent performance in the Election Systems, which is due in large part to delays caused by the important debate regarding standards and specifications for electronic voting.

However, touchscreen Election Systems continue to dramatically outperform traditional punch card and lever systems in real world elections. As a result, we believe that the standards and specifications issues will inevitably be resolved and this superior technology will continue to be implemented over the long term.

Looking towards the second quarter, we expect revenue to increase 13 to 16 percent on a fixed exchange rate basis, led by continued strong performance in financial self-service. Currency effect is expected to be neutral to slightly favorable versus the prior year period.

Financial Self-service revenue is expected to increase 8 to 11 percent on a fixed exchange rate basis, while we expect Security revenue to grow by 9 to 12 percent. Election Systems revenue is expected to be 25 to 30 million for the quarter.

Based upon these revenue assumptions, we expect earnings per share to be in the range of 58 to 62 cents. This compares to 57 cents in the prior year period, which included approximately 3 cents per share gain from the early buyout of leased ATM equipment by a major customer.

For the year, we are planning on consolidated fixed rate growth of 8 to 12 percent, with an additional 1 to 2 percent from currency. We expect global Financial self-service fixed rate growth of 9 to 12 percent, which would likely represent significant share gains. We expect the Security business to grow 10 to 14 percent on a fixed exchange rate basis. And the Election Systems business to generate between 80 and 95 million in revenue. This includes 36 million in revenue in Brazil from an order already received.

Earnings per share are expected to be in the range of $2.58 to $2.66. This represents a 9 to 13 percent increase in earnings per share over 2003 -- excluding the impact of pension expense, and 8 to 11 percent including pension expense.

In conclusion, we remain confident in our ability to continue to deliver superior performance in 2004 despite the short-term challenges in the Election Systems business. The core Financial self-service business remains very strong, and we are encouraged by continued market demand for Opteva and our ability to capture further share gains moving forward.

And now, I would like to turn the meeting over to Greg Geswein, our CFO.

Thanks, Wally -- good morning, everyone. As Wally said, we are extremely pleased to report strong revenue and profit growth, with EPS of 40 cents per share. Which was, again, in the range of our previous guidance of 38 cents to 42 cents per share.

Additionally, the Financial self-service and Security businesses overcame the negative impact of the Election Systems business which was 5 cents dilutive year-over-year.

On the revenue side, we reported record first quarter revenue of $498 million, up 21.5 percent from the first quarter of 2003.

For the fourth quarter in a row, we reported a double-digit increase for worldwide orders, excluding voting, for product and service, with strong orders in the Americas, and excellent performance not only from North America but from Latin America as well.

Asia-Pacific -- Financial Self-service orders also increased in the double-digits, lead by continued strong orders, from China, India and Australia.

EMEA decreased in the single digit range, as this market remains very competitive.

Product orders for the quarter, excluding voting, are the highest first quarter in Diebold's history. And as Wally mentioned, Opteva has been a significant percent of global ATM order entry, with over $60 million in orders, with approximately 20 percent of that amount coming from international locations.

Revenue as noted was 498 million, up 21.5 percent on a GAAP basis and 16 percent on a fixed rate basis. The positive currency impact in the first quarter was $18.5 million or 4.5 percent, and was a result for the most part of the strengthening of the Brazilian real and the euro.

The Financial self-service business shows solid growth, with GAAP growth to 22 percent and fixed rate growth of 15 percent. This was led by strong growth in the Americas, up almost 19 percent -- 15 percent fixed rate. And Asia-Pacific, which was up 14 percent and 7 percent fixed rate.

EMEA was up almost 20 percent on a GAAP basis and over 5 percent on a fixed rate basis.

The Security business was again up double-digits for the 10th quarter in a row. The Voting business, as mentioned, increased from 7 million in 2003 to almost 15 million this quarter.

Gross margins declined from 30.2 percent to 28.1 percent. Product gross margins increased from 36.8 percent in the first quarter of 2003 to 32.5 percent in the first quarter of 2004. The decline in product gross margin was due to lower product margins in Election Systems business as well as pricing pressure on our non-Opteva Financial self-service product and U.S. security products. This decline in product gross margins was partially offset by higher profit margins from Opteva products.

Service gross margins decreased to 24.7 percent from the 25.7 percent reported in the first quarter of 2003. The decrease in Service gross margins was due to pricing pressure in Europe and Latin America. In addition, we also had a higher mix of installation revenue in the quarter and Election Systems service revenue -- which carries a lower gross margin.

We continue to develop and implement productivity improvement majors to target these pricing pressures -- including call management, wireless applications, and improved diagnostics.

Season (ph) issues helped improve service margins in North America, which partially offset the overall decline in Service margins.

Though we continue to leverage areas which we can control with operating expenses including the 19.3 percent of revenue from the 20.2 percent reported last year.

Operating profit was 8.8 percent versus the 10 percent in the first quarter of 2003. The decrease in operating profit margin was due to operating losses associated with the Election Systems business. Operating profit margin for the combined Financial self-service and Security business was maintained in the first quarter of 2004 versus the prior year period. (indiscernible) the effect of leveraging of operating expenses due to aggressive cost controls -- offsetting the impact from lower gross profit margins in the Financial self-service and Security businesses.

Other income expense for the quarter improved by $2 million over the first quarter of 2003. This improvement was a result of increased interest income net of interest expense, and improved foreign exchange results.

Net income was 5.9 percent of revenue, compared to the 6.3 percent reported in the first quarter of 2003. The decline in net income as a percent of revenue was a result of lower performance in the Election Systems business.

The balance sheet continues to be strong, with a net debt to total capital ratio of approximately 5 percent. Net debt was $50.1 million at March 31, 2004 -- compared to 27.6 million at December 31, 2003, and 13.3 million at March 31, 2003. The increase year-over-year was due in part from the repurchase of 342,000 shares of Company stock, for approximately $16.5 million in the first quarter of 2004, and additional working capital requirements.

In the first quarter the Company used free cash flow of $8 million. Free cash flow was impacted by higher working capital requirements from our Election Systems business, timing of estimated tax payments and accelerated growth in the core Financial self-service and Security business.

Days-sales-outstanding increased by 6 days, moving from 90 days at March 31, 2003, to 96 days at March 31, 2004. The (indiscernible) remaining Maryland election systems contract receivables approximately one-half of which was paid in the first quarter of 2004. And the San Diego elections systems contract receivable impacted DSO by 5 days.

We expect to collect the remaining receivable from Maryland during the second quarter, and the San Diego payment early in the third quarter.

On a twelve-month moving average, inventory's turns decreased slightly, from 5.5 to 5.3 due to the rapid growth in the first quarter and expect a strong revenue in the second quarter.

As permitted under SFAS No. 123, the time for stock base compensation, we provide quarterly and annual disclosure of the impact to earnings per share if stock options were expensed. We estimate that if stock options were expensed in accordance with 123, the full year impact in 2003 would have been approximately 6 cents per share, and 2004, approximately 6 cents per share compared to the 6 cents per share in 2003.

In the interests of more directly linking (indiscernible) to corporate performance, the Company has granted restricted stocks units in lieu of stock options to a select group of key associates. The impact from this transition to grants of restricted stock units should adversely impact 2004 earnings by approximately a penny per share.

Wally hit on the expectations for 2004 just briefly. Second quarter revenue expected to increase 13 to 16 percent on a fixed exchange rate basis. And again, led by strong performance in Financial self-service, where Financial self-service revenue growth of 8 to 11 percent fixed rate -- expecting Security growth of 9 to 12 percent fixed rate, and the currency exchange is anticipated to be neutral to slightly favorable versus prior year.

License Systems revenue is expected to be 25 to 30 million for the second quarter, and depreciation and amortization to be approximately $18 million in the quarter.

Our effective tax rates should remain at approximately 32 percent. And an increase in pension expense of approximately one penny per share in the second quarter of 2004, as compared to the second quarter of 2003. And an EPS range of 58 cents to 62 cents. And Wally mentioned that this compares to the 57 cents in the second quarter of 2003, which included approximately 3 cents per share gain from the early buyout of leased ATM equipment from a major customer.

Looking for the full year then, revenue growth of 8 to 12 percent on a fixed exchange rate basis, with the Financial self-service piece growing 9 to 12 percent -- again fixed exchange rate -- Security growth of approximately 10 to 14 percent, with Elections Systems revenue now anticipated to be 80 to $95 million.

We have reduced revenue expectations (indiscernible) delays in the state of Ohio's implementation of electronic voting. And this total adjusted range does include the $36 million of voting contract in Brazil.

Positive currency impact of 1 to 2 percent versus prior year, and depreciation and amortization of approximately $75 million for the year. And again, the effective tax rate at 32 percent.

Research and development should remain at approximately 3 percent of revenue.

Pension expense is expected to be 4 cents per share higher in 2004, but we have gone a penny per share expense in 2003 to 5 cent expense per share in 2004, an EPS range of $2.58 to $2.66 which should represent a 9 to 13 percent increase in EPS over 2003 -- excluding the impact of pension expense.

And we are maintaining our free cash flow expectations to be in the range of $225 million to $250 million.

With that, I will now turn it back to John, for questions.

Shannon, let's open it up for questions at this time, please.

(Operator Instructions). Kartik Mehta, Midwest Research.

The first question on the Americas -- Americas was up 24 percent and I know you include Latin America, which is mostly Brazil -- is it as much clarity as you could give. Is this mostly the U.S. on the replacement cycle we are starting to see help flow through this revenue line now?

The whole region is very good, but the strongest area was North America.

And, if you look in the mix of Opteva for U.S. in the first quarter, I think year-end you said it was 50-50. And if you look at the mix of Opteva in the U.S. now, where is does it trend now?

Last year, the numbers that I gave were an estimate, and they were about right. This year's first quarter, because you had asked last time, we did a little math on the first quarter. And 64 percent of U.S. shipments were Opteva, and 22 percent of the international activity -- and this is just as the part that will convert. So it excludes Brazil, which has its own set of product lines. Actually, for the total, it's 22, and excluding Brazil it would be 33 for international.

And Greg, you talk about cash flow and you're keeping your cash flow (indiscernible) in Maryland and San Diego. What is the dollar amount of receivables you are anticipating from Maryland and San Diego?

Let me first answer that. He had said that the Maryland receivable, which was paid in half already, we are anticipating it to be 0. If that's what you're talking about?

And the same with San Diego -- we are anticipating that these receivables will be paid off.

I guess my question was -- how much do they owe you?

I think Maryland (multiple speakers)

Maryland owes us another approximately $15 million.

It was 31 at the end of December. It's now 15.

Changed -- they paid half of it. And they will pay the other half soon.

And San Diego is $26 million -- approximately, Kartik. (multiple speakers)

So not expected to be paid until July.

Great. Well, I will let others ask, and if there's more, we'll get back in queue.

Matt Summerville, McDonald Investments.

Hi. Couple of questions on voting to get out of the way first. In terms of -- what are the actual issues that you are encountering or the rationale that you are hearing from Maryland and San Diego in terms of why they are not paying you?

And I would also like an update, maybe, from Tom on how he feels with respect to the state of California, in that their talking about -- I think it's tomorrow -- having a hearing regarding whether or not they are going to continue certifying your voting product there. And, along those lines, because you are anticipating collecting the San Diego receivable, Wally, does that -- in turn, should I assume that you're very confident that you're not going to get decertified?

Well, trying to take those one at a time. In Maryland, there is some final certification of one of the devices that we are expecting some sort of federal number very soon. And when that happens, Maryland will complete payment.

As far San Diego, it will take a little time. There are issues to get resolved to their satisfaction, none of which seem to be insurmountable. And I don't think we want to comment on the political debate. There is a lot of political debate. It is healthy, interesting and important. And when that gets done, I'm sure the country will move forward.

Well, Wally, with respect to San Diego, you mentioned that there are issues to get resolved. What are those issues? And why would the state be considering Diebold for decertification?

Tom would like to handle that. This is something that can be handled off-line from this call. It's beyond the scope of this meeting. But, go ahead, Tom.

Matt, relative to California, we have been working with the Secretary of State's office. In essence, they want to ensure that the systems that are run are federally qualified now and state certified. So, we're going through that process, and recognize at the federal level it really funnels down into one or two people -- two different organizations. So we actually got a report back -- we have a letter in hand -- from Cyber (ph), which is one-half of the federal qualifications. We have another letter that is supposed to be with us today.

So, we will be presenting those to the state of California tomorrow, and, in essence, we would be the first system in the United States that is 2002 touchscreen systems that is federally qualified. No one else has been through this process yet.

So, part of this is just the changing landscape. But, I think from a procedural standpoint, we're through the biggest hurdle, and have been battling this really for the last six, seven, eight months.

Perfect, that's exactly what I was looking for. I will get back in queue. Thank you.

And at this time we have one question remaining in the queue. (Operator Instructions). Reik Read, Robert W. Baird.

I just wanted to ask on the price margin pressure that you were talking about that is non-Opteva -- ATM. Could you talk a little bit about that? Is that discounting to move inventory due to the Opteva strength? And can you talk about how much price pressure that is at this point? And when that situation might balance itself out?

Hi, Reik -- Wally. It has nothing to do with that issue as you raised it. It has to do with markets, competition -- buyers want to buy the best they can. People are expected to improve cost and improved pricing and performance. We are doing that. It's a very competitive marketplace.

We are holding margin in the core business. So what you're looking at when you look at the overall margin issue is a voting issue. So, we feel pretty good about what we have been able to accomplish, in the quarter and year that we are delivering.

So -- it's a tough, active market with aggressive customers and we feel pretty good about our performance within that space.

And given the strong Opteva ramp that you have had, can you just comment how well are you situated from a part's capacity perspective? Is that going to be an issue, given the strength that you're seeing?

We're absolutely not facing any capacity issues, any part supply issues, any limitations on our ability to supply our customers of any kind that I know of.

And you guys have talked about with Opteva -- it's a significantly lower cost product. How far along are you in reaching that low-cost level that you're looking for -- and I ask from the standpoint that when you typically go through a product transition, there are issues that you face on the front-end, and you don't always hit the full benefit. When do you expect to see that full benefit?

Well, you're absolutely right. And we have seen some significant initial benefits. There is more to be achieved as we work through the entire design and supply chain process. And transition our plants over. And, I'm sure there will be enough there this year to hold our margins and gain share. And there will be more in '05 as well.

And just a question on the Security business in Asia -- that jumped quite a bit. Is that due to the Australian acquisitions you were talking about? Is that how they're classified.

Yeah, yeah, that's exactly what it is. I have those numbers for you. The security business in the first quarter was helped by about $6 million. And for the year, it's about -- let me see, I got to make sure I read this right. It was 6 million in the first quarter benefit. You can see -- it's in the Asian numbers.

And the two small Australian Security Companies, right, that (multiple speakers)

It's almost $6 million.

Okay. I just want to make sure I was classifying those correctly. Thanks very much.

Let me give you one other piece of data that we didn't share. The growth rate of 16.2 in the quarter -- for the consolidated Company -- that's with deals. And the consolidated growth fixed rate no deals is 14.4.

In other words, you take the acquisitions out of the year -- out of the quarter -- both years. So we get a fixed rate, no acquisition, growth rate in the quarter of 14.4. Acquisitions raised it to 16, 2 and exchange rates dipped (ph) to 21, 5.

Great. Thanks very much.

Alan Ziegler (ph), First Manhattan (ph).

Two questions, back to Security. Are there -- this question has not come up in quite some time -- in the U.S., what is going on overall? I mean is it more industrial, retail, government -- could you sort of give us a quick landscape, Wally, of what's going on in the Security business in domestically? Which, you know, is most of the business there? And then I have a quick follow-up.

We can give you a little update and Bart Brizito (ph) who that runs that business is not in the room. But the financial side of Security has done well. And then we have expanded in the more kinds of commercial activities with Starbucks and people like that, that have had to that growth rate. And we feel very good about our solutions and our progress.

And a follow-up on your favorite topic, Wally, voting. What's the difference today between the touchscreen and the optical scan? I mean, when you go out and make a sale to whoever it is, why would someone buy one versus the other? And what is the technology difference, if I'm asking that right -- meaning state-of-the-art or whatever? Could you maybe spend a minute or so? Because, I think some people are confused, including myself on that.

Well, we can try, but that is a long conversation. We would be more than happy to talk to you further -- but (multiple speakers)

Just generically, why one versus the other if we could just understand it?

Optical scan, the voter fills out the piece of paper, connects the dots or fills in some circles. And the scanner then reads the piece of paper.

Touchscreen, or electronic voting, the ballot appears on a touchscreen and you touch the various candidate that you which to vote for. It will not let you vote for two in the same election, where you could actually do that and spoil your ballot with an optical scan.

So, optical scan is paper-based, electronic is not. The electronic one can incorporate more easily voice-enabled voting for the visually impaired. (multiple speakers) precinct can have a different solution that works best for them, and even have a combination.

Just so that I understand, why would anybody -- it sounds like the touchscreen is more state-of-the-art, for lack of a better term, from somebody who is not a computer geek, and from what I have read, California does optical. So, is that because their choice, your choice, price? I mean, what is the differentiator there?

Well, first of all, California is making decisions in different counties one by one. Some are sticking with what they had. Some are going optical scan. Some are going touchscreen. Some are just waiting.

There is a very important debate under way as to what the right course of action is for the state and for the country. There's pros and cons of each solution. When California decides, and when America decides, we will do our best to serve that need.

Thanks, Wally. Have a good day.

(Operator Instructions). Matt Summerville, McDonald Investments.

Couple of questions -- Mike, maybe you could comment a little bit in terms of where you are -- I know Wally mentioned that you're starting to see some of -- Opteva orders start to come through in the international marketplace -- where you are with respect to the significant Opteva hardware launches in Europe and in Asia -- whether you're on schedule, behind schedule?

And then, Wally, we have heard a lot about Opteva today. A lot of good things. And I am curious to hear where you're at in gaining some penetration with Agilis given where the market is today -- what successes you're having there.

Well, Mike can answer some of that. But Agilis and Opteva are being very well received. And as we said from the very beginning it's a multiyear rollout, it's going very much on plan. Some customers are not ready to move to a Window's type solution. Others are ready to go. It varies customer by customer, country by country -- we're thrilled at the rate of the transition. The existing solution we have is still much loved by many. And so over a period of time, over the next couple of years, this will all transition over. And, Mike?

You know, I would echo what's Wally says, Matt. When we began this process we started with a couple of international general announcements about Opteva. One at the Seebit (ph) show last year in Germany, and one in Singapore, March of last year -- and then we followed that up with individual launches in major markets around the world, which are fairly well complete by now.

There are many, many markets where the transition was relatively simple and we have done that. There are others that were much more complicated, and we're working through that. And up to now, we have not run into any roadblocks that have thrown off the schedule that we anticipate.

Okay, perfect. And then, one follow-up questions on voting, Wally, and then I have one more on ATMs. With respect to the voting business, does it makes sense, given all the politicized that we're seeing around the issue, given what I would call fairly slow collections -- at least in some cases -- have you started to think about potentially an exit strategy for this business, longer-term?

I have not and don't intend to. The country had a problem. I thought that Diebold could help. We are trying to help. It is complicated. It is political.

I am confident enough to fight through this political debate and help serve the needs of the country, and I don't want to be part of like what we had four years ago, where we almost had a constitutional crisis. And sometimes people have to step up and that is what we're doing.

So you remained as committed to this business as ever, then?

Absolutely. Unequivocally.

And then, with respect to the ATM business, I think this gets back to a question that someone else asked -- it sounds like -- if I had to rank the pressure that you saw in consolidated gross margins for Diebold, would voting, then the old non-Opteva ATMs, then some pressure you're seeing in security, would that sort of be the appropriate ranking there?

Well, certainly voting goes first. It is an issue. Prices are down, costs are up. It's very difficult, and this is a challenging moment.

But as far as those other issues, it's just general competition. We have strong aggressive competitors who have good solutions and customers who love them. So, you know, it's a challenge.

But we're doing well and we are gaining share again four years in a row. Region by region. And at the end, we will hold OP (ph) margin, we will gain share, we will deliver good, superior performance, and we will deal with the issues as they come along successfully, as we have been doing for the last 4.5 years.

If I look at your voting business in the first quarter did about 14, 15 million in revenue. And gross profit dollars declined $20 million year-over-year. I am curious, when we really dig into this, just how much voting accounts for that $20 million year-over-year decline in gross profit dollars?

First of all, at this call, we will deal with it on an OP basis. And you can see it's about a $5 million swim (ph).

On operating profit margin?

Yeah -- well, operating profit dollars, we told you, it's a 5 cent swing. And a little over $1 million is a penny -- we're not splitting out gross profit margin by line by call by quarter. But, what we said to you is -- Security and Financial self-service combined, in the quarter, held OP margin. And that should -- you should be able to do the math with that.

Okay then and I guess just one (multiple speakers)

What we're saying is we had, maybe, a point of gross profit margin, and we made it back in operating expense. And that is a long-term trend that you're going to see is -- gross profit margins are going to get squeezed, and good Companies are going to leverage operating expense to hold OP.

Okay. Just one last thing on the reclassification, Greg, that you mentioned in the press release on revenue. If you could just quickly run through that rationale so I make sure I understand it. And then maybe if we could talk about what the year-over-year growth would have looked like under previous reporting in your ATM business?

Before he answers that, the ATM business total did not change (multiple speakers)

I'm sorry, product, Wally, I apologize.

All right. So it's just a slight shift between product and service.

Well, it's $14 million in the first quarter, Matt, and really it's coming from the managed service business. That's become a bigger piece of our business. Especially on the international side. And so when Eric came in, he would like to see that separated into that area. So, that was a good change. And it will be about $70 million for the year (multiple speakers)

'04 or '03?

'03. You've got your (multiple speakers)

Okay, gotcha.

The financial self-service doesn't change. And product drops a little, and service goes up a little because of professional services that in some of the markets were not captured as service. They were captured as product. It should not significantly change the growth rates of either category. (multiple speakers) we're more than happy to give you both pieces both ways. In the end, when we have a full year number, we will try to give you three pieces. Product, professional services, and service.

Okay. But this is how we should expect you guys to report on a go-forward basis, then?

Yes, that's correct. And we believe that is consistent with others in our industry

Perfect. Thank you.

It appears there are no further questions at this time. Gentlemen, I would like to turn the conference back over to you for any additional or closing remarks.

Well, thank you for joining us today. Thank you, Shannon. And as always, feel free to give me a ring with any follow-up questions.

And that (multiple speakers) that does conclude today's teleconference. Thank you for your participation.