Gen Digital Inc (GEN) 2003 Q2 法說會逐字稿

Good morning, my name is Sheika and I will be your conference facilitator today. At this time, I would like to welcome everyone to the On Technology Corporation second quarter 2003 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press star then the number two on your telephone keypad. I would now like to introduce Joe Allen of Allen and Caron. Thank you, Sir. You may begin your conference.

Thanks, Sheika. Good morning and welcome to On Technology Corporation's Second Quarter 2003 results conference call. I'm Joe Allen of Allen and Caron. Before we start this morning's call, there are a couple of items I would like to cover. First, this call is being recorded. Second, many of you should have received a copy of the press release announcing the company's results for its second quarter ended June 30. It was released this morning at 7:35 AM EDT and was covered by the Dow Jones News Service at 7:40 AM. If you did not receive a copy of the press release, it is available on our website at www.allenandcaron.com as well as on a number of other public information sites such as Yahoo Finance. You may access a replay of this conference call by calling 1-800-642-1687 and using access code 1768863. International callers should dial 706-645-9291 and use the same access code which is 1768863. This call is being broadcast live over the Internet via Thompson's First Call Events at www.firstcallevents.com as well as on the company's website at www.on.com. An Internet replay of the call will also be available.

Additionally, I've been asked to make the following statements. The statements in this conference call that relate to On Technology's future plans, events and performance, including statements relating to the company's future growth prospects, financial results, new products offerings and expanding sales channels, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 of the Securities Act of 1934. Some of the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements in this call are general economic conditions, including the current weakness in the global economy, demand for the company's products and services, performance of the company's direct and indirect distribution channels, competitive pressures, market acceptance of the company's new products and technologies and the risk factors detailed from time to time in On Technology's periodic reports filed with the SEC including without limitation the company's quarterly report on Form 10Q for the first quarter of 2003 filed in May, 2003. Actual results and performance may differ materially due to these and other factors. Readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the date of this conference call. On Technology undertakes no obligation to release publicly any updates or revisions to any forward-looking statements contained in this conference call but may reflect events or circumstances after the date of the conference call.

With us this morning is Bob Doretti, Chairman, President and CEO, and Steve Wasserman, VP, Finance and CFO. Steve will discuss the company's second quarter results after which Bob will discuss the state of the company's operations. Bob and Steve will then be available to answer any of your questions. I'd now like to turn the call over to Steve. Good morning Steve.

Good morning, Joe. Thank you Good morning, ladies and gentlemen. Bob and I are pleased to be speaking to you today. As you know from today's press release, we met our investor's guidance and markedly improved our performance over that of the first quarter. To highlight some of key financial results from the second quarter, the company generated total revenue of approximately $9.3 million. This included $4.9 million of software license revenue. The company reported operating income of $186,000 and the company licensed its software to a total of 117 customers. Now I'll provide some additional detail. As I mentioned, total revenue for the quarter was approximately $9.3 million, an increase of 5% over the $8.9 million total for the same period in 2002. This consisted of $4.9 million of software license revenue and $4.4 million of services revenue. Service revenue increased by $1.5 million or 52% year over year. Software licenses decreased by $.3 million or 6% year over year, although the total number of customers increased from 100 to 117. Finally, hardware revenues decreased by approximately $800,000 or effectively 100% year over year as had been planned. Condensed services, both professional services and maintenance revenue increased substantially year over year. The increase in maintenance revenue resulted from the growth in our installed base as well as a high level of maintenance renewals. And the increase in professional services revenue resulted from both the growth in the installed base as well as higher consultant utilization.

From a channel perspective, direct channels generated 54% of On's license revenue with the remaining 46% generated from the indirect channels. From a geographic perspective, 21% of total revenue was generated in North America with the remaining 79% from Europe. Of the 117 customers that licensed On's software in the quarter, 81% licensed On Command CCM and the remaining 19% licensed On iCommand. 58% of the customers in the quarter were new license customers and the remaining 42% were repeat customers. The company closed 13 software license deals I excess of 1000 seats. Annualized revenue per employee was $186,000 for the quarter as compared to $211,000 for the same period in 2002.

Moving below revenue, the gross profit percentage increased by .7 percentage points from the same period in 2002. This modest increase resulted from a reduced amount of lower margin hardware sales which was partially offset by a decrease in higher margin On software license sales. Total operating expenses for the first quarter of 2003 increased by approximately half a million dollars over the same period in 2002. Sales and marketing expense increased by $1.3 million year over year primarily due to higher headcount in the sales and marketing organizations worldwide. Although worldwide sales and support positions fell by 1 in the quarter, year over year sales and support positions increased by 19. G&A expense decreased by $600,000 primarily doe to a bad debt recovery of $185,000 as well as reduced professional fees. The operating income for the quarter of $186,000 compared with an operating of $281,000 in the prior year. Net income for the quarter was $171,000 compared with a net income of $503,000 in that same period in 2002.

Moving on to the balance sheet, we ended the quarter with $13.4 million of cash, essentially flat with last quarter. DSOs remained flat at 58 days as a result of strong collection and less last week of the quarter sales. In summary, the company generated total revenue in the quarter of approximately $9.3 million. This included $4.9 million of software license revenue. The company reported operating income of $186,000 and the company licensed its software to a total of 117 customers during the quarter. Now I'd like to turn the call over to Bob Doretti. Bob?

Thank you, Steve. Well after the inverted revenue spike in Q1, everyone on the On Technology team without exception worked hard to insure we would return the company to our previous pattern of year over year growth and profitability. It was an accomplishment all by itself in a world of (inaudible) in a state of flux and corporations electing to manager their balance sheets over making investments even when interest rates had been lower than at any time in history. Be that as it may, we are breathing easier now but we are still pushing hard and will continue to push hard. The results have been encouraging on all fronts. We are taking market share from our competitors which in itself is a textbook opportunity in difficult market conditions. Our new customer count remains high and as of this morning, we have now exceeded our target of 1,000 customer milestone.

As you saw with PetCo and Rolex and others, we also kept up our trend of bringing in well known business establishments. Our channel partners such as Siemen Business Systems in Europe and Insight in the United States have been contributing sales and own companies in public sector organizations that we would likely not have reached without them. Thus, we are realizing more strength and stability in our indirect channels as well. The strength of the Euro has been a boom for us in the Euro zone which is where the bulk of our sales still occur. That strength in Europe continues to provide time for the business expansion in the USA to gain traction. At the moment, the reports that we've been reviewing tell us that we have more demos, more proposals and opportunities in the USA than at any time in the past. That is summary is good news for us.

As to the general corporate economic environment, spending remains tight and many budgets are still being held close to the vest or being cut. This, of course, is frustrating to us because it tends to lengthen decision cycles and therefore sales cycles. We continually keep the customers aware that our products, all of them, are productivity enhancing, super cost efficient, and are therefore more appropriate than ever for cash constrained corporate buyers. What we call ROI selling, based on cost savings, is taking priority over intense technical product evaluations. Technical issues do not loom large as a major concern. Partly that is because with the wealth of reference sites we can off now, people are generally confident in our ability to execute and confident that our technology will perform. But their selection of On Technology Solutions is easier if they can just find the spending allocations to put in place.

Here are some important exceptions to the slowness issues in the purchasing cycle, areas where buying decisions are more timely. First and foremost, we closed 68 customers, new customers, validating the market's acceptance of our iCommand and CCM Management Solutions. This acceptance is also reflected in 13 customer orders that went beyond 1,000 seats each, 3 of which were over 5,000 seats, though the conifers in general are slowly opening. Interestingly, we also had a flurry of orders in Europe from Air Transportation customers including four important regional airports. As these customers install and are tested, they will provide invaluable reference sites for airports that are modernizing all over the world and taking control over the computer systems in the airport in order to better serve the airlines thus bringing the airlines up to provider of proof.

In addition, we closed 23 public sector sales at a time when at least one of our larger competitors is finding public sector sales very difficult to close. That is an important market share gain for us and it has spread across Europe and the USA in approximately the same proportion as our overall sales, 79% Europe, 21% USA. There are other trends also that are worth noting. As one would expect in a very tight economy, end of quarter price cutting is rearing its ugly head. This has always been a quarter end spiked business for all the companies in our segment and the pressure to make price concessions at quarter end is very intense. As far as you can see from our report, our margins have been stable but pricing cutting by some competitors is a part of the selling environment that we have to contend with.

Also, industry wide we are seeing, as all other software companies are seeing, more server provisioning interest. An example of that is PetCo and Metro One, deals that were closed this past quarter, and the ascendancy of more laptops, tablets, pocket PCs and wireless devices in general as well as management over the Internet. You can have more play in industry IT shops today more than ever before. Our Device Management Solutions, especially iCommand, are right on target for this trend with pretty much every kind of computer that an enterprise might use and we intend to keep it that way. We are presently talking with some significant potential partners in the mobile and server arena and hope to be able to announce some alliances later this year.

In addition, we are continuing to add capabilities to iCommand which is now functional on all platforms and plays over multiple different types of networks. Basically, with our 22 iCommand orders this quarter, which was iCommand's first full quarter in its existence, acceptance for this solution is going quite well. Finally, on the cost control side, we have implemented a 5% cut in executive and board compensation and we have delayed merit increases for six months. We are freezing new hires excluding select field rep requirements and managing variable expenses carefully. These are just matters of prudence in a difficult environment. We're sure at this point that we see the light at the end of the tunnel and that light is not an oncoming train, so we are confident about the second half of this year. We are confident more rewards will come as the economy picks up speed. We are in place with the large enterprises. They know us, they like us, and they have referenced our products and in many cases they have pilots already underway. In short, they are ready to buy when budgets are allowed.

As to guidance, we believe the third quarter will bring in revenue in generally the same range as we provided last quarter which will be over $9 million up to $10 million with year over year revenue growth. For the full year we are again expecting year over year growth in the fourth quarter. Nonetheless, given the performance of the first quarter, we are conservatively projecting 10% revenue growth with an operating profit margin somewhere between 1% and 2% for the year. Now we'll be happy to answer any questions you may have.

At this time, I would like to remind everyone, if you would like to ask a question, please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Charles Castanza.

Hello, Bob, how are you? One housekeeping - - I'm at an airport and some noisy things just went by. Bob, can you repeat the full year guidance that you gave and can you discuss please the pricing? What happens at the end of the quarter? Elaborate a little bit on that and would you review the difference between a 1,000 seat order and 100 seat order if you would? Well, I guess that's it if you can please respond.

I think I heard three questions. Cover the full year guidance, pricing on the product to date due to the discounting, and 1,000 seat orders versus 100 seat orders?

That's correct.

We'll take them in order. On the full year, what we're projecting in that 10% is just basically numbers going forward, again, because of what occurred in the first quarter. We're projecting growth in the second half of the year both third quarter and fourth quarter and given the first quarter hit that we took, we think we're in that 10% revenue growth range and we'll also be in the operating profit range that I gave of 1-2%. So it was really the impact of the past first quarter, okay?

Okay, great.

Regarding pricing, our pricing seems to be holding well. We have discounted orders just like other people have discounted orders, but our average seats for a total sales solution is up there in the high 60s or low 70s in terms of prices we see in dollars. To explain 1,000 seat order versus 100 seat order, I'll start with the 100 seat order. We can get 100 seats on a pilot, customers that want to buy more. They will buy initial orders of 100 seats to run improvement concept or do a trial or do a small rollout to remote operations and then continue to buy more seats. And that has been traditionally a big pattern in our type of business. We have 117 customers and a lot of that is reflected in some pilots that are occurring where they're not buying all that they could buy because they don't have the budget monies. But they're buying some, so that's good news, they're buying some. And other times there are customers that maybe just buy 100 seats, but our average is higher than that. On the 1,000 seat side, we're seeing good committed customers right up front that have money and they're moving forward to rollout full implementation of our products. The 5,000 seat deals are deals like the PetCo deal, the major bank we had in New England and deals like that, who are committed to rolling out right away. They seem to find the dollars more so than maybe other people.

Charles, I want to add just one other thing. 100 seats is not our sweet spot. I mean, we're an enterprise solution, so 100 seat people may use SneakerNet. It only comes from a pilot if we did get that.

Okay. Thank you very much.

Your next question comes from Kama Krishna.

Hello. Good morning. Could you comment on the deferred revenues for this quarter as well as the end of the December quarter and also, what was your cash flow from operations for this quarter?

The deferred revenue for the quarter was $7 million, it's $7,122,000. It's in the press release. It's primarily made up of maintenance. We have a little bit of deferred service sin there also and cash for the quarter was $13.2 million. Did you have an additional question on cash?

No, I think that was about it. Thank you very much.

Your next question comes from Robin Nip.

Good morning, gentlemen. Bob, specifically a question addressing one of the comments that you made. Taking market share from your competitors - - can you quantify that for me? And then a follow up question relative to the number of quota carrying sales reps or teams that you have right now.

Okay. Regarding taking market share, we - - in the larger deals, we're not the only player in many instances. Let me give you an example - - in PetCo, we also beat and replaced Alteris at PetCo and also a company called Accelanon. At the major bank in New England, we beat Alteris out, so that may give you an idea of one deal where we beat Novadigm out. S&S seems to be sticking up in a series of deals. B8 appears a couple of times in the U.S. and three times in Europe. Our primary competitors that we're seeing today is Alteris. B8 typically, primarily in Europe but some of it in the U.S. and Novell we're seeing, too. We actually lost one deal during the quarter to Novell but we also beat Novell on deals. Does that answer your question on the competition?

Well, it does and it doesn't. Let me put it a different way. If you were to look at this as a zero sum gain, what percentage have you gained against your competitors say in the last 6 months?

I'll have to see if Steve - - that's a little different and we don't have that number right in front of us here.

Robin, there's two things going on in the marketplace that we see. Number one is, there are still people using SneakerNet so you can call that market growth. At the same time, the framework companies that are out there that have a software deployment module, ourselves as well as the other print solution like Marimba-Novadigm, we're all targeting those because our products are optimized for these markets. We believe we have the best mousetrap so when we get into shootouts, we believe we're successful. So the framework products tend to be the easier ones to displace to take share and when we're running head to head with the other folks, it tends to be trying to displace one of the frameworks or trying to take a new SneakerNet account and automate it.

The framework is like a buffer for CA.

Understood, and so in the framework bakeoffs if you will, what percentage of the time the last 3 to 6 months have you all been successful versus your competitors?

I can't give you an exact number on that. All I can tell you is that I don't know of a loss that we had to Computer Associates. The loss that I gave you was the only one that I'm aware of and then we had one loss last quarter to Novell. All the rest were ones that I told you we'd replaced so that's market share or we beat.

Okay, very good. And then, relative to quota carrying sales reps and progress being made at this point in time?

We have currently 45 quota carrying reps worldwide including our government outsourcing rep that we have. And their pipelines are building, they're out there selling and as Bob said earlier, Robin, we believe our second half of the year will put us ahead of the second half last year so we are gaining traction with these reps.

We're seeing some good opportunities starting to prevail in the U.S. and they're also coming from the new reps and include the activity that will roll over on.

Last question is a follow up and I'll let somebody else speak. What type of progress did you make in pipeline growth Q2 versus Q1?

The North American pipeline grew, I believe, about $15 million in total identified opportunities during the quarter. I want to caution everyone, these are opportunities we've identified in need. Those are not qualified in our short term pipeline that we expect to close this quarter.

Yeah, we're not forecasting $15 million in business.

And part of it, Robin, is we're very successful, for example, in certain vertical markets. For example, retail. So we've got programs that are targeting these retail markets and we're able to generate interest and demos, proof of concept, etc. So we do see continued traction in North America. We have three full time people working on telesales and in Europe, I believe there is more than that, but some of them are part time. I think it's 3 part time and 2 fulltime. So these people are out there calling and helping to build the pipeline.

Very good. Thanks.

Also more targeting in the public sector than we ever had and you can see that as a result of our business.

Thank you.

Your next question comes from Winder Hughes.

Hi, guys. Winder Hughes. Just kind of a follow up from Robin's question - - when one looks at Alteris, they're running at about, I guess - -

Winder, I'm sorry, you're very, very faint.

How does that sound?

Much better.

Okay. Alteris is running today at approximately $85 million or so run rate. You're running at about a $40 million run rate. I don’t know what percent of theirs is non-U.S., but how would you compare the market size for your version versus what they target? It's kind of my understanding that your market opportunity is much larger than theirs. If that is the case, why wouldn't you be hiring more sales people in the U.S. so you can get up to the $80 million run rate that they're running at?

It’s a matter of where do we spend our money right now? Their distribution channel is humongous compared to ours. Ours is quite small and the name of the game is distribution. In order to absorb what we have and still run a profitable, let me call it at least a breakeven business, we elected to add what we have added at this time. Also absorbing more at one time in the direct sales force, we can train better. They have a very large indirect distribution channel and we have a small indirect distribution channel that we are spending a lot of time adding more people on a regular basis. We're playing catch up behind the indirect sales. So distribution is the name of the game as far as getting in front of these customers or brining in business. The second half is - - where do we differ? Our product is geared at the larger institution, primarily people looking for scalability and managing in a heteroidius environment. If you have to manage thousands and thousand of seats and you have to do it remotely, our type of product outshines an Alteris type of product.

So is it fair to say that the number of seats that's available worldwide that would be more or less like to use yours versus the number of seats that use theirs, that your population is much, much larger?

A larger institution that wants to buy thousands of seats. Then it's us and companies like Novadigm and things like that.

Right, but the number of seats that - -

There are many, many small and medium size companies also that have a few hundred seats and Alteris fits in well. They also sell module. We sell a full solution. They'll sell an inventory module maybe and that's all.

Winder, let me try to answer that. I don't have the numbers in front of me. Our marketing department pulled out some statistics, you know - - it's a pyramid. You have a smaller number of larger companies with a huge number of seats and then there's less companies that are small and midsize with less number of seats and there's lots and lots of tiny companies with a very small number of seats. We're going after the top end of the pyramid there where Alteris is going after the mid to bottom. We'd have to get those exact numbers, but that is available, the number of PCs by size of business. The other thing just to keep in mind is Alteris, on their conference call, only 15% of their revenue came from the direct channels. 84% is coming from their partnerships with HP, Dell, etc. And as Bob said also, they're selling inventory and other modules and not all the deployment pieces. But I can take this offline and get the stuff from marketing and get back to you on the PC breakdown by size. We just didn’t bring it in the room with us.

Okay, the last question then - - in terms of distribution channels, where do you think that you'll be at the end of the year relative to where you are today with new partnerships and things like that that will give you the kind of scale into '04?

We are focusing - - we've got a team dedicated in the U.S. to grow these partnerships. We've got the same thing in Europe. Europe's got in the range of 50 formal partnerships. North America has currently 25 relationships Some of those are former retailer partnership and some of those are informal referral agreements. But our strategy, one of our sales strategies I should say, is to grow the indirect channel and there is a concerted effort to do so. So we expect to continue to increase our percentage of license revenues through the indirect channels as they move forward.

Our number of - - the type of partners we have in many cases are larger type partners like the Siemens and Contronics of the world and Alteris may have, in terms of partnering because of the purchase scalability in a lot of the larger accounts, smaller type partners overall and they're able to spread themselves out.

But for the accounts that you're going after, it would seem here to me that the type of partners that one would need, there would be folks like EDS, Cap Gemini, PriceWaterhouseCoopers - - am I not correct?

Cap Gemini is a partner of ours. They're selling corporations, like I said. Contronics, their neighbor, both out of the - - we've expanded our Contronics relationship worldwide. They chased us down. We're pretty excited about what they're doing and where we fit in. But we are pushing in the directions of all of those and as I think I referenced in my talk, are looking towards some new ones. They're not small local ones, but I'm talking about new ones that could possibly be even bigger if the relationship came to fruition this year. We're spending a lot of time - - we have a full business development effort at the larger type partner.

And Winder, also, to get to your point - - absolutely the bigger deals are going to come from the larger partners. As you correctly said, we do have a team focusing on those. At the same time, we have our direct sales people trying to develop relationships with smaller resellers in their territories and those smaller resellers have been also a good source of leads as well as reselling opportunities for us. So we're doing both. The smaller ones pay off faster, the larger ones take longer but you get a bigger payoff in the end.

Okay, thank you.

Your next question comes from Greg Steiger(ph):

I was hoping you could give is an update on the retail space.

Greg, same thing. We're going to need you to speak up. For some reasons, we're not hearing the questions very clearly.

Okay, can you hear me all right now? Is that better? Hello?

We can hear you.

Okay, I've talked to a lot of retail customers and they keep saying that they're sort of on the verge of a replacement cycle for their POS systems. Is that true? And could you give us an update on the retail space, maybe percentage of total revenues, etc.?

We can give you - - I think they are correct in what they're saying and many of the retailers we area approaching ad ones that we have dealt with already are in a replacement cycle for point of sale and we are targeting those types - - have a marketing effort targeted at the retail world, particularly in the USA right now, where the reps and telemarketing (audio break) appointments for our sales reps at a rate of getting acceptance, not just for the point of sale, though that is a major lead for us, they're also doing lots of PCs, hardware itself or the upgrade on the operating side in retail stores. We have some stores also considering migration over to Linex and because we have that capability with the iCommand product, we've begun discussions with them. Right now in terms of market share, there's a long way to go in terms of retailers. The list that we have is interesting. We tend to have the supplies companies - - the office supply companies, the pet supply companies, the home supply companies - - there's a lot more to hit as we go through the United States. At the same time in Europe, we have retailers, we have some fashion design companies and grocery stores and they're targeting as well in their own local spheres in each of the governments.

Okay, have you done - - have you by chance done any joint work with like JDA or Retek to try to see if there's any synergies there?

In terms of retail?

No, we haven't done that. Not that I'm aware of at this time. Our business development guys may have had conversations with them. We do, right now, our main lead generator other than our own efforts, is Fijitsu. Fijitsu teams with our sales force. We participate in shows with them and they also develop leads and turn them over to us because of their point of sale effort.

And what was cash flow from operations?

Sorry, I was on mute for a moment. Cash flow from operations, Greg, for the quarter was a use of cash of $400,000.

And of the new iCommand deals you did, how many of those were new customers?

I've got that. The lion's share of the iCommand - -

It was 22.

Steven R. Wasserman. It was 22 in total. I believe - - let me see if I brought that with me. It was a couple of repeat customers, almost all were new. We're both looking to see if we brought that page in with us here. Okay, 19 were new out of the 22.

Okay, Great. Thank you very much.

For additional questions, please press star then the number one on your telephone keypad. Your next question comes from Ted Ketterer.

A couple of questions. One, if I could focus on North America for a minute because that seems to be the big swing and has the most leverage with you guys. Can you go over the changes in the key things that you look at that have occurred in the last 6 months in terms of headcount and pipeline and where you think you are versus where you want to be?

As far as the headcount goes in sale, we're about where we want to be in the number of salespeople We were a couple light and we went through some replacements and Michael Pearce, the one that's running the operation, he is looking to replace those as we speak So we'll be on target with where we slated at the beginning of the year which was around 14 salespeople. That's for the direct side. Regarding partners, Mike's ahead of the program. He's doing quite well in developing the partner ranks throughout the U.S. and that helps because they're good lead generators for us. So I feel quite happy with what we're doing on the partner side, not only with what we've brought to the table to date, but what's ahead of us in terms of relationships. So there I feel quite good. Regarding the pipeline, the activity is quite high like I said in my talk We're measuring demos, we're measuring proof of concepts, we're doing all of that for Mike back here and that gives you a pretty good growth, gives us a good growth target that we can see that going up. Another major effort is the government. Just to give you an example, we just ran a seminar in Washington, D.C. yesterday and we had 55 different attendees at that seminar and it was quite interesting from what the reports came back to me on the interest in the remote capabilities of our product and the OS migration. OS migration still seems to be driving the business in terms of getting in the door. Interestingly I just read a Microsoft report - - they're not that happy with the OS migration to date on XP, so they even anticipate more of that in '04. But we're getting good attendance on the government side so we anticipate business to go up there as well. So I think overall, U.S. is doing well and I get happy when I start seeing some of the new sales reps start selling and that is occurring. PetCo came out of the west coast and that is a whole new team for example. Metro One is - - that came out of the west coast, that's a whole new or same part of the sales team. But that team seems to be coming on pretty fast. We've got good local management there and they do good targeted selling.

A couple more quick questions. Microsoft is supposed to be dropping the NT40 and Win98 support as of the end of September. Is that still on and what are your customers doing regarding that?

Okay. That goes back to the OS migration - - OS being operating system migration. We're using that as leverage to - - when Microsoft retires an operating system that they're pushing the customer to go to Windows 2000 or XP, with that, we just join on their tail and we go forward and try to market into those accounts encouraging to use our product to roll out these operating systems. We're even working with partners who are doing rapid rollouts for customers. The customers are saying hey I've got to roll out to XP, a partner uses our software and then does a deployment and then moves on. So it is a major benefit to us. The reverse to that, like I said, Microsoft in the statements that I read, wish that XP was going faster than it is going. So we're getting our share with the size sales organization that we have.

Last, could I ask a question - - obviously, this regional major New England Bank doesn't want their name released.

Yeah, that's true. I would love to tell you who it is, but just kind of take - -

Can you give us any idea of the number of seats or ?

Yeah, Ted, this is a multi-step purchase. They purchased a chunk of current seats for the first piece, like 5,000 and then they are going to be purchasing additional seats later on this year and they have the option beyond that to continue to purchase. So this is a first step into this large bank.

So the number of suspects is very small, more than - - I'm just trying to figure out who it is.

No, no, no.

We're not allowed to tell you.

I know you can't, I'm not trying to get that. What I am asking is do you have other financial institutions of comparable size or is this the first one of its like?

Bank of Montreal is a major user of ours. I don't recall the number of seats but it's like 15,000 seats, possibly higher, somewhere in that area. We have SunTrust which is, I think, 17,000 or 20,000 seats that use it. We have New York Life which is 12,000 seats.

So you're in this space and this is an expansion in that space?

That's correct. We leverage financial services, retail, governments in all public sectors, local as well as federal level.

The more distributed an organization is, it plays right into our strengths of complete unattended management.

That's why retail will go towards us. In the question earlier on Alteris, when you get in a distributed arena like the PetCo, it becomes more viable to us a product like ours versus Alteris or some other of the smaller vendors.

Good. That's it for me. Thank you.

You have a follow up question from Winder Hughes.

Winder Hughes. Winder Hughes, but I forgive you. Can you discuss some of these expanding markets that are outside the prevue of the PC an the laptop? Things like medical devices and other things? It's kind of my understanding that we're getting ready to kind of enter a new time period where there are many more things out there that are devices that are going to be networked and thus have to be managed for this, that and the other. And just how you see yourself just kind of playing in that space over the next 5 years?

Okay. I'll stay within the computer area for a moment. Your tablets and other pieces of these are starting to come on stream, we're managing tablets and a lot of lap tops now. So within that arena, you're seeing the computer, there's a difference of smaller size, but remotely used, come more into play and we're in that arena. We're also working now on some hand held wireless devices. We're not managing them in a customer, but we are demonstrating that capability today to a select industry. So we're seeing the opening of these mobile type devices far and more, specifically in the medical arena. (audio difficulty). So mobile devices more and more, hand held pocket type PC devices. Some of them are geared towards particular industries. We even have a test in Europe but this is really a test with one of the major phone companies, our product in a relative download application of mobile phones. Again, this is not a customer. So we have a venture of going out to find new types of devices to see how they play for future business down the road not for today's business.

Okay. Thank you much,

At this time there are no further questions. Mr. Doretti, are there any closing remarks?

Yes, if there's no further questions, which it looks like there are not, I'd like to thank all of you for participating in our quarterly conference call. We hope you'll join us for the next one that is planned for October 2003. You may access a replay of the call by calling 1-800-642-1687, access code 1768863 or online at www.firstcallevents.com or on our own website, www.on.com. Thank you very much. Bye now.

Thank you, everyone.

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