Amdocs Ltd (DOX) 2004 Q4 法說會逐字稿

Good day everyone and welcome to the Amdocs fourth-quarter 2004 earnings release conference call. Today's call is being recorded. At this time I will turn the call over to Mr. Tom O'Brien. Please go ahead, sir.

Thank you, Cynthia. I'm Tom O'Brien VP, IR and Treasurer for Amdocs. Before we begin I would like to point out that during this call we will discuss certain financial information that is not prepared in accordance with GAAP. Investors should not construe these financial measures as being superior to GAAP. The Company's management uses the financial information in its internal analysis in order to exclude the effect of acquisitions and other significant one-time events that may have a disproportionate effect in a particular period. Accordingly management believes that isolating the effects of such events enables management and investors to consistently analyze the critical components and results of operations of the Company's business, and to have a meaningful comparison to prior periods. Also, this call includes information that constitutes forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, including statements about Amdoc's growth and business results in future quarters. Although we believe the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that our expectations will be obtained or that any deviations will not be material. Such statements involve risks and uncertainties may cause future results to differ from those anticipated. These risks include but are not limited to; the effects of general of economic conditions, Amdocs's ability to grow in the mobile wireline and IT business segments, adverse effects of market competition, rapid technological shifts that may render the company's products and services obsolete, potential loss of a major customer, our ability to develop long term relationships with our customers, and risks associated with operating businesses in the international market. These and other risks are discussed at greater length in the Company's filings with the Securities and Exchange Commission including in our annual report on form 20-F filed on December 24, 2003 and amended on September 21, 2004, and our form 6-K furnished on August 13, 2004. I would like apologize for a technical error this afternoon. An incorrect version of our press release was mistakenly issued on certain channels, and has been replaced by the corrected version which explains the error. Please make sure you have the corrected version. Participating in the call today are Dov Baharav, President and Chief Executive Officer, Eli Gelman, Executive Vice-President, and Ron Moskovitz, Chief Financial Officer. Following Dov's and Ron's comments, we'll open the call to Q&A.

Thank you. Good afternoon, ladies and gentlemen. We are pleased to report that this was a solid quarter for Amdocs. We met our guidance with revenue of $452.5 million in our earnings per share of 31 cents excluding acquisition related costs and related tax effects. Exceeding our guidance of 30 cents. We had some important developments in our business this quarter including nine key wins which contributed to a $40 million increase in backlog. This should help to drive an increase in our growth rate in the second quarter of fiscal 2005. All this was accomplished in a still challenging and competitive market, and we believe that our success is continuing testament that the strategy we are pursuing is correct.

Let me spend a few minutes talking about the quarter and where we see Amdocs today. The first important driver for Amdocs is the transformation in the wireline industry from circuit switch voice to IP involvement services. As the competition between the carriers from wireless and cable company accelerating, wireline carriers see the need to consolidate and to move towards data services including DSL, video, and Voice over IP. Their legacy system cannot support these new services in an efficient and effective way. We have seen acceptance from carriers for our vision of integrated customer management as the roadmap for their organization.

Our portfolio of offerings is an appealing vision for customers, because it's evident to move toward that vision. They can launch new services rapidly while supporting consolidation and, as a result, cost reduction. We bring the preintegrated company such as (EKIL), all new management, CRM, (rating) and billing combined with our services. Our customers are able to start with the single modular component and then expand later. We have had several wins lately in this area, and we have a strong pipeline of potential additional business as well. Other drivers for Amdocs include our directory business, and our entry into the financial services sector. We are building on our success in directory with expansion of our many services agreement DEX Media to include data center operation. We are also providing a very sophisticated sales force automation system for another existing directory customer.

During the quarter we announced a win with ABN AMRO, a Netherland bank, utilizing Enabler as a rating engine. The first for Amdocs in the financial services area. We hope that this will lead to future additional business with ABN AMRO, and with other financial services companies.

I would like to say a few words now about Nextel and Cingular. As we announced recently we were pleased to extends our managed services arrangement With Nextel through 2011, and we are working with Nextel to determine which Amdocs products and services could be leveraged to support impressive subscriber and services growth. We have enjoyed the long relationship with Nextel and this extension provides additional continuity and certainty allowing Amdocs and Nextel to engage in long-term roadmap discussions. The Nextel extension was one of the two significant Q4 deals that I mentioned on the last quarter conference call. The other was Cingular. Cingular Wireless recently stated publicly that they will convert all of AT&T Wireless subscribers over to the Cingular system creating the largest wireless carrier in North America. Amdocs is providing significant support to Cingular in this major effort, and we see potential for further growth with Cingular.

We continue to invest in the future of Amdocs. We saw R&D spending increasing by $2.5 million this quarter. Resources are being devoted to supporting integrated customer management, new version of our software due to be released in early 2005, and new initiatives such as voice over IP, IPTV and others. In addition, we are continuing to expand our new development center in India while this activity costs us now to position Amdocs for growth in the coming years. When we look at where we stand today, we are encouraged. We see great alignment between the need of the market and our offering. Our competitive position is strong and we continue to increase the gap between Amdocs and our competitors. We have signed some important bills recently and there are some excellent opportunities in our pipeline. Where this development resulted in modest growth in the first quarter, we anticipate an increase in our growth rate in the second fiscal quarter.

Let me now turn the call over to Ron Moscovitz, our CFO for the financial review and then I'll come back with some concluding remarks.

Thank you, Dov. Our fourth quarter revenue was $452.5 million, in line with guidance and representing a growth of 9.5% over last year and sequential growth of 0.5%. Our EPS excluding acquisition-related charges and related tax effects was up 34.8% to 31 cents per diluted share which was 1 cent over our guidance. After taking into account acquisition-related charges GAAP EPS was 30 cents per diluted share. License revenue was $24.6 million or 5.4% of revenue, and was favorably impacted by strong CRM sales this quarter. We expect license revenue next quarter to return to around 4% of total revenue.

Operating margins were flat this quarter. The (RM) contribution from licensed revenue and from improvement in our med services business was offset by several factors: first, we increased the curve related to our unused real estate in Stamford, Connecticut by approximately $4 million to reflect the current subleasing market in Stamford. Second, as we mentioned last quarter we traditionally increase salaries on July 1st. And as Dov mentioned, we invested an additional $2.5 million in R&D this quarter which was partially offset by lower SG&A expenses. Other income was $2 million this quarter, up significantly due to more favorable interest rate on our investment portfolio.

In addition, we are benefiting from our new convertible notes which has a much lower coupon rate than our old notes. We expect this line to increase in the coming quarters. In the March quarter, we saw a steep increase of $50 million in deferred revenue due to a substantial prepayment in maintenance renewals. As a result, we anticipated a decrease in deferred revenue over time. Since then, deferred revenue has been reduced by $10 million to its current balance of $223 million and we anticipate some continued decline. DSO at the end of the quarter was 51 days. Free cash flow defined as cash before operations, less capital expenditures and payments on capital leases was strong at $62.7 million for the quarter. We ended the quarter with a cash balance of $1,191 billion, a decrease of $37.5 million from last quarter's balance. The main reason for the decrease was the use of $100 million for the repurchase of approximately 4.9 million shares of Amdocs during the quarter a an average price of $20.40 per share.

Our 12-month backlog which includes contracts committed revenue from med services contracts, letter of intents, maintenance and estimated ongoing support of activities was $1,440 billion at the end of the quarter, an increase of $40 million from the June quarter.

Regarding the SEC investigations we're not aware of substantial development since last quarter's conference call.

Looking forward, our guidance for the first quarter of fiscal 2005 is for revenue of approximately $457 million. We expect EPS of 31 cents excluding the effective acquisition related charges and related tax effect of between 1 to 2 cents per share.

Before I conclude, I would like to discuss some new accounting rules and their impact on Amdocs. As you know, in March 2004, the Company issued $450 million principal amount of 0.5% convertible senior notes that are convertible into the Company's ordinary shares subject to several contingent conversion conditions including a share price condition. According to the use GAAP, the effect of the share issue conversion of these notes has not been included in our computation of diluted earnings-per-share since to date none of the conditions that would permit conversion of the notes have been satisfied. The Emerging issues task force has recently reached a consensus to require commencing with reporting periods ending after December 15, 2004 to include the shares issuable, a total conversion of contingency convertible debt, such as our notes in diluted earning per share computations, regardless of whether the conversion conditions have been met. The transition rules of EITS 04-8 require that per period earnings per share computations will have to be restated to conform to the new rules. We believe that the changes in accounting rules will reduce previously reported quarterly diluted earnings per sure share by approximately 1 cent per share per quarter for the third and fourth quarters of fiscal 2004. This is due to a 10.4 million share increase in fully diluted share count offset in part by approximately 800,000 less interest expense and debt issuance cost per quarter.

Another related subject, others of our notes have Put Rights which can require the Company to purchase the notes on certain dates or upon the occurrence of certain specified events. We currently have the right to satisfy the Put Rights in cash, ordinary shares, or a combination of cash and shares. Recently FASB issued changes which would demand FASB statement 128 on earnings per share to require that commencing with reported period ending after December 15, 2004 if a convertible financial instrument has an option to settle a required redemption in cash or shares than if then converted method should be applied based on the currents share price, and not according to the conversion price where computing diluted earnings-per-share. If applied to the Company's share settlement option this change in accounting rules could potentially have a significant impact on the Company's diluted earnings-per-share computation and, as a result, the Board of directors of the Company has authorized Amdocs to amend the note by waiving our right to share settlements upon the exercise of the Put Rights in the committing to a cash settlement.

Following the amendment to the notes, the new accounting rule is expected to have no impact on the Company's financial results. Just to remind you, the first Put Right is 4.5 years from now. Regarding income taxes, we expect that our effective tax rate on pretax income before acquisition-related charges and related tax effects, will decrease to a 20 to 21% range for fiscal 2005. Just to be clear, I want to say that the new convertible notes in our reduced tax rate were considered when giving our first quarter 2005 guidance. With that, let me turn it back to Dov. Thank you Ron. By the way I'm not going to discuss any additional accounting change. We are pleased with what we accomplished this quarter. And we are looking forward to additional success in the coming quarters. With that, let me now open the call to Q&A.

(OPERATOR INSTRUCTIONS) And we will take our first question from Tom Ernst with Deutsche Bank. Please go ahead.

Yes, good afternoon, thank you. Dov, I'm curious, maybe I missed it when you were talking about your growth opportunities, you seem to mention wireline directory and entry into financial services. Do you see the wireless sector as having attractive growth opportunities as well?

Thank you, Tom. I'm glad that you asked this question. We just added the new, new drivers to our growth in this quarter due to the recent activity. Wireless is still the majority of our business and by the way, the growth in the wireless is the largest growth in the telecom industry and I would say that due to Nextel and Cingular, two wireless companies, are a demonstration for the hope for growth in our business due to wireless.

Okay. Great. And maybe one follow-up question there on the wireless side. Do you expect revenue to begin picking up? You said you see potential for further growth with Cingular. Do you see anticipate that occurring immediately in this quarter?

Overall, the consolidation of AT&T Wireless and Cingular is a major undertaking by Cingular. We having a substantial role in this activity and we believe that we have a potential to increase gradually our activity in Cingular and have then to be successful in the endeavor.

Okay. I'm curious how much of the expectations for the accelerated sequential growth in Q2 is due to this, this deal? Is that a significant components or are you seeing other opportunities as well?

Well, I would say Amdocs is a big company, and it's not only Cingular. It's due to many, many customers, many activities, not only Cingular.

All right. Thank you, Dov.

Thank you.

We will take our next question from Marianne Wolk with Susquehanna. Please go ahead.

A couple of questions. First of all, when you talk about the outlook with Cingular, can you walk us through what you might be doing for them in the very short term and then give us time frame for the other kinds of things you might do over the long run and whether you're looking at that fiscal, you know sort of the first half of fiscal 05, or spread out more evenly over time. And then the second question was well, let's start there.

Marianne, I'm not sure that it will easy to put a time frame and time stamp for all the activities with Cingular but just to give you a glimpse, a feeling for what type of things we might be doing for Cingular, as part of the process of consolidation, AT&T wireless subscribers, they will have changes with the conversion. Then most likely they will need to upgrade their call centers to accommodate different systems in a hybrid scenario which might be a temporary scenario but they will have to go through it, there will deal with new markets and new price plans. So all of the examples that I just mentioned and given the fact that we have such a breadth of products, from mediation all the way to billing and CRM and E-care give us the feeling that we can expand the business there and this, of course, on top of services.

It sounds like you're expecting a CRM deal in the short term and then I guess I'm just trying to understand what other kind of things you might do for them over the long run. And then can you go through with us what you're currently doing for Cingular today? Are you managing their entire billing platform or are there pieces of it that are Amdocs managed?

Well, I'm not sure that I can, you know, directly relate to the short-term CRM things that you mentioned. We are today doing most of the customer care billing for Cingular in their market on the intelligence base. They have some markets with the old care version that generated Bellsouth, and as I said we are helping them right now to go through the transition of consolidating the systems into the Cingular system. As for specific CRM or other activities, we cannot put a time stamp.

Question for Ron. In the past, when you talked about stronger quarterly momentum, you've really talked in a sort of 2% to 3% range. Is that the way we should read your commentary about the March quarter?

The guidance for Q1 is representing 1% growth. When we are talking about increasing growth in Q2, it's more than 1%, and I cannot give you the exact number, but it's more than the 1%.

Okay. Thank you.

Thank you.

Thank you.

We will take our next question from Michael Turits with Prudential Equity Group. Please go ahead.

Hi, guys. The 40 million increase in backlog was certainly above my model. What were the -- what were the biggest contributors to that increase this quarter?

I tried to refer to it in when I alluded to the activity in the wireline activity. We see, we have nine wins this quarter and among the wins this quarter, we have some wireline wins, which helped a lot and actually that was, that was one of the drivers. The second one was, we talked about Cingular here and which helped the backlog on top of it. So overall, I would say that we see a wakening in the wireline. Wireline companies are moving more aggressively toward buying new systems that enables them to offer integrated customer management to their customers while they offer data services, video, IPTV, gaming and on top voice, and maybe in the future, Voice over IP. So that's one of the major drivers for this growth in the backlog this quarter.

Any outlook for where the backlog goes next quarter?

It is -- we expect the backlog to correlate to the growth of the business. So we expect it to grow -- go up, and we cannot give a specific guidance for that.

Okay. And lastly, year-over-year growth in revenues this quarter was 10% with the guidance that goes down to 7% next quarter. Do you think that it can stabilize or increase from that level?

It's difficult for me to relate to the year-over-year growth, because there are some anomalies in the quarterly behavior of 2004, we focus on the sequential growth. And the way we look at it, we see 1% growth in the next quarter and the subsequent to that, higher growth rates.

Okay. Great. Thanks very much, guys.

Thank you, Michael.

We'll take our next question with Greg Gould with Goldman Sachs. Please go ahead.

Liz Gross sitting in for Greg. You guys have commented in the last few quarters that European market remains fairly weak and your (gimmelments) and certainly in the quarter is concentrated in North America. Can you give us a sense of what you're seeing in the European market, if you're seeing it firm up at all?

Well, Liz, what we see that we have strong momentum in the North American market. We have quite, I would say solid activity in Europe with a lot of potential with major customers. With a lot of wins. However, the growth is faster than in North America so we might have a factor regarding the quarterly revenue from North America to Europe, I think this quarter we have a higher, some higher revenue from Europe in comparison to last quarter. However, overall, I would say that we can expect in the coming few quarters more activity in North America than in comparison to Europe.

I just want to add, Liz, that the pipeline for Europe is strong with diversified, you know, demands for basically the whole range of products and services.

Is it concentrated in wireless out there still?

More so, yes.

More so. Okay. And then on the services gross margin, it compressed about 110 basis points over the quarter. I know you mentioned that you increased salaries and had an increase in your accrual on a lease, but was there anything else in the quarter? I know you took out an IT outsourcing project with DEX Media, was that part of the compression, Ron?

In no you mentioned the reasons and if you take out approximately $4 million of the accrual, you'll get more give or take to the same gross marginal services as we've seen in the previous quarter.

Okay. Thanks, a lot.

Thank you, Liz.

We will take our next question from Julie Santoriello with Morgan Stanley. Please go ahead.

Good afternoon,.

Good afternoon, Julie.

Dov, can you discuss the pipeline a bit. Just help us put it into context, perhaps if you could help us understand how the pipeline has changed over this time last year. Is it up, how much perhaps has it increased? And how does financial services fit into that?

Julie, I will try to give you some, you know, some color on the pipeline. First of all, to your question, it is larger nowadays than it was last year. In terms of the financial services, we have some components of the pipeline financial services but this is not anything significant off the pipeline. Most of the pipeline have the same characteristics as it was in terms of percentage or variations as it was a year ago. That includes CRM and billing, some new mediation, due to the (Exec) acquisition. Also seeing in the Yellow Pages.

I will just would like to add to what he said, that the new trends in the market where we see wireline companies awakening, moving toward data services, video, IP TV, actually added a substantial portion and, a new element I would say to the pipeline that we did not have before. On top of it Amdocs actually expanded the portfolio for this that we offer to the market so if you compare the pipeline today to the pipeline a year ago, you will have a lot of e-care today. We have more auto management today. We have the mediations that Ellie mentioned before due to the fact that we bought exact late in incorporated than they're now offering. So all the ICM concept actually is adding a lot to the pipeline, so the pipeline today is more diversified, more balanced between billing CRM and the other products.

Thanks, that's helpful. If I can just also follow up on the in general in air get, the nine wins that you had in the quarter. Can you help us understand, generally when will the bulk of that revenue start from those nine wins? Does it start in a meaningful way in the second quarter or will it be realized more ratably over the next four quarters or so.

In generally, changes from one bill to the other but overall the immediate result is the increase of the backlog that we see for the next 12 months, and this is the main driver for the growth in the Q2 numbers, so basically we're going to see small ramp-up in Q1 but the majority of the ramp-up we're going to see in Q2 and then after.

And just one more quick one, if I can. Of those nine wins, do any of them represent new customer relationships for you?

I don't think so.

ABN for sure. And at least another one, yes.

Okay. Thank you.

We will take our next question from Ashwin Shirvaikar, Smith Barney. Please go ahead.

I just want to head back to Cingular if I could. Could you comment on what part of your SBC business is Cingular and would it to add to that, would it be safe to assume that the Cingular piece could roughly double over say the next 18 to 24 months assuming a gradual ramp like you said?

Well, I would say that we see that there is a growth in our business with Cingular. We think that Cingular will be very active in the near future. It will be quite difficult to estimate whether we can -- at what extent we can increase our activities there. And it's very -- I would say it's -- I'm not in a position to estimate whether it would be double or triple, and I think it's very aggressive what you said, We'll see growth but not to such extent--.

I will add to that that begin with we have a lot of business with Cingular. The deal that we actually refer to in this quarter was significant by itself in terms of the size of it and on top of that, we have additional opportunities going forward.

Okay. So just because Cingular is doubling the number of subscribers roughly speaking, and you have additional opportunities to the combined company , it's not, you're saying it's not really safe to assume the level of business there--

No.

If I could have one more question, just a clarification. Did you mention something on the tax rate being reduced?

Yes. We assume our best guess at this point is that the tax rate will go down to 21%, even to 20% so -- and our guidance for next quarter assumes around 21% tax rate.

Okay. 20, 21, continuing through the fiscal year?

Yes.

Thank you.

Thank you, thank you.

I would like to remind to limit yourself to the one question and one follow-up question. And we'll to go Scott Sutherland with Wedbush Morgan Securities please go ahead.

Good afternoon.

Good afternoon.

Cingular on the backlog impact was a significant portion of that this quarter, or do you expect as they go through the AT&T wireless acquisition there's possibly more backlog impact in future quarters. Can you give us a breakdown of managed services and directory?

As for the Cingular we're talking about Cingular we talked publicly about the plan which is more than the one year, so we have some in the backlog this quarter and gradually we're going to see more of that in the coming quarters. As for directory, 10% this quarter and managed services, all together it's around 40%.

Okay. And the follow up question, what is your concentration with Vodafone now?

Could you -- Vodafone is one of our five largest customers which are in the range of a 10% customer. We, we didn't discuss specifically the exact percentage of Vodafone in the past.

Okay. Great, thank you.

Thank you, thank you.

We will take our next question from Tom Roderick with Thomas Weisel Partners, please go ahead.

Hi, thank you, good afternoon,.

Good afternoon.

So we saw the ABN AMRO deal and that's a nice entry into the financial services arena. Have you created a specific financial services division with a carved out sales team, to attack any new pipeline opportunities here?

Yes, we have a special unit. It's not a division. It's a small unit that is now handling all the financial services, we believe in low risk penetration strategy. And we are moving very slowly regarding sales of other elements. We believe that if we are successful in ABN AMRO, selling them our retail fee management system based on the Enabler, which will help them substantially to be competitive in the market, being able to offer bundled services of all their activity which will be I would say, a revolutionary activity by the bank, opening opportunity for the bank, if we are successful there, it'll open the doors for more activity with more banks and more activity with ABN AMRO.

Thank you. Maybe turning over to looking at the managed services side of the business, can you offer an update on how much things are going with SBCDO and Bell Canada with regards to where both of those arrangements are on nearing a full run rate status for revenue and also in creating further cost efficiencies.

In terms of revenue, it's to some extent stable because we're talking about fixed price arrangement prorated in SBCDO and Bell Canada subscriber based fee. However, we have some opportunities, especially in Bell to increase our revenue to selling additional product and services which is not in the backlog. This is some opportunities we have given an offering and giving their needs in the marketplace. As for the profitability we saw increase in profitability on this project in Q4 with Bell Canada being much further along in this process. We still expect profitability to continue to improve in the managed services specific deals in 2005.

Okay. Good, thank you very much.

Thank you.

Thank you.

We will take our next question from Sterling Auty with J.P. Morgan. Please go ahead.

Thank you, I'd like to follow up on that question around the profitability of the managed service. If profitability in certain improved in the quarter, I mean, outside of the salary increase, I guess why aren't we seeing further enhancements in the services gross margin?

When you look at the service, the gross margin of the services, you see that we had this I would say unusual accrual of the leases, if you take that out of the formula you see that basically our gross margins was flat. If you take out the salary increase, you see actually that we were able to improve the gross margins in the quarter so, unfortunately, salary increase is part of the business and lease accruals is also part of the business, however, you can easily look through this analysis and see that the margins on the med services was favorably proved.

Could you quantify the impact of the salary increases on margin?

I don't -- have this information readily available.

Okay. Shifting back to the revenue side, in terms of the acceleration that you expect in the second quarter, let me ask you from this perspective, how much of that acceleration is from business that's already closed and how much of it is business that needs to come in either closed from the pipeline or new business or kind of turns business?

We we have told you second quarter the usual visibility that we have in our model, basically we have improved backlog for the quarter so this is -- and on top of that we need to close additional business in Q1 and some of it in Q2 in order to get to our internal targets. But we have I would say at least level, high level of confidence that we will be able to improve the growth rate.

Okay. Thank you.

Thank you.

We will take our next question from Peter Jacobson with Kaufman Brothers. Please go ahead.

Thanks. Can you characterize a rough break out of the nine wins in terms of how many were average size deals, how many were larger than average and how many were smaller than average deals?

I would say, I'm doing it on the fly. We have very important relatively large wins. Nextel extension is very significant, because we generate a lot of revenue from this relationship and extension by more than 2.5 years, more than 2 years is significant, not necessarily for the near term. The Cingular one is significant and on top of that we have some other at least one which is in wireline which is pretty significant. Dex maybe also, the extension of the outsourcing arrangement is also a significant one.

Okay. Any comments regarding expectations relative to the size invest opportunity in Russia?

We made the comment before that this deal is very complex by its nature. It's a large deal. It involves a move to party environment. We're working with IBM there and some other companies. And as you know, the customer put a request that they choose Amdocs in terms of the systems, but on the other hand, the deal itself and the contract is not signed, and we will update the public as soon as we have something new. But it's a relatively complex project in terms of the technical aspect of it, and the multiparty environment also adds some complexity to the process.

Okay. Thank you.

Thank you.

Thank you.

We will take our next question from Daniel Meron with RBC Capital Markets. Please go ahead.

Thanks, couple of questions. First of all, can you provide any sort of geo breakdown?

Geo, geographical breakdown, okay. In terms of geography, we had this quarter 63% of revenue in North America, 29% in Europe, and 8% in the rest of the world.

Okay. And can you characterize those integrated customer management deals that you mentioned either now or going into the future? Would you characterize them as bigger than the average deal?

The integrated customer management, these are usually larger than average. The one specific wireline that we mentioned in this call is quite significantly larger than average.

Okay. Follow-up question, if I may. Do you have any-what is work force count right now, and what are your plans for next quarter?

IT professional is around 2500.

Not 2500, --

9500 employees.

And plans for next quarter?

We may see stability with maybe a slight increase.

Okay. Thanks.

Thank you very much.

We will take our next question from Richard Sherman with Janney Montgomery Scott. Please go ahead.

Ron, could you repeat the number from the directory business in the quarter.

13%. Okay. Great.

And in terms of SG&A expenses, do you expect that to move back up in the December quarter and going forward or is this a lower level we would expect to see?

The December quarter, it may be slightly up.

Okay. All right. That's my questions.

Thank you.

We will take our next question from Steve Freitas, Harris Nesbitt Gerard. Please go ahead.

Thank you. And good afternoon.

Good afternoon.

If we look back at your various customer engagements over the last several quarters you've had a great deal of success in the eastern European theater, and I imagine it's probably a function of the maturity of those markets and becoming increasingly competitive and your solutions seem to play well to those type of environments, I was hoping you could contrast that with the Asian Pacific theater, both in mature markets there like Japan, and emerging markets like India and China which by your standards it seems like you seem somewhat underpenetrated, and also if you could frame your answer in the context of some of the competitive challenges you may be facing given that it seems that maybe your competitors are willing to cut pricing to the bone to gain entry into that market.

I would say the substantial difference between the market in eastern Europe, the market in Japan, the market in China, APAC, and South America I agrees with you that they're emerging market or new territories that we're trying to penetrate and let me shed some light. In eastern Europe, we are successful, we have several wins and we consider Russia as a very promising territory, there is substantial progress in the economy and the telecommunication, the growth in telecommunication there is very substantial, and we are very well positioned there had to actually enjoy the growth. The same is true for some other activity in other countries.

Now, it's completely different in Japan. It's true that we want to penetrate through Japan but Japan is a very advanced market. It's not an emerging market. However, since our motive is to provide products and services in Japan if you do not provide the services in Japanese, by Japanese actually I would say you have some difficulties, and we have not yet built our service organization in Japan and we continue to work on it. We have several products there. We work with the local -- with some local agents and partners. However, we feel that there is still a lot of room to grow in there.

China is completely different story. We have not even started our penetration. We believe it's a big market and we hope to be able to penetrate there and you are right, that the prices might be too low. That's one of the reasons why we are hesitating out to move there. However, we will be there in the coming years. So regarding the other areas we focus on these territories, and we, we intend to have possible growth in these territories.

In terms of the question of the competitors slashing prices, we always face competition. We proved that we know how to handle it in most of the cases, all of the cases. As you know, we are providing a product and services and we are providing an offering namely integrated customer management. In most of the cases I would say in actually all of the cases, at the end of the day our customers, the carriers, note appreciate earlier that we bring, the value that we bring which is not only translated into price. We're seeing that our competitive position is much stronger today than it was a year or two years ago, and we expect some more aggressive moves from our competitors but at then of the day, buying a CRM or billing or even mediation, not to mention integrated customer management as a package is very complex project, very crucial, mission critical to the organization and price is only one one small consideration over all. So we think that we're competitive today and we can stay competitive.

Okay. That's it for me, thank you.

Thank you.

Thank you.

This will conclude our question and answer session for today. I will now turn the call back over to Mr. O'Brien for closing comments.

Thank you. I'd like to thank on behalf of the Company everybody for participating in the call today. Thank you and good night.

Again this will conclude our conference call. We thank you for your participation, and you may disconnect at this time.