International Business Machines Corp (IBM) 2003 Q2 法說會逐字稿

Welcome to the Ascential Software second quarter 2003 earnings release conference call.

At this time I would like to inform all participants that today's conference call is being recorded.

If you have any objections you may disconnect at this time.

I would also like to inform all participants that you will be on a listen-only mode until the question and answer session.

I would now like to turn the call over to Mr. David Roy, Vice President of Investor Relations.

Mr. Roy, you may begin.

Thank you.

Welcome, everyone.

We're pleased to have you join us for the second quarter earnings conference call.

With us today is Peter Gyenes, our Chief Executive Officer Officer and Chairman, Pete Fiore company President, and Bob McBride who is our Chief Financial Officer.

Before we begin our call we need to point out that the presentation includes forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

They are subject to factors that could call actual results to differ materially from those in the forward-looking statements.

In addition, new factors emerge from time to time and it is not possible for the company to predict all such factors.

All forward-looking statements speak only as of the date on which the statements are made, and the company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it was made or to reflect the occurrence of unplanned, unforeseen, or unanticipated events.

Statements expressing the beliefs and expectations of management regarding future performance or circumstances that are forward-looking, and involve risks and uncertainties including but not limited to quarterly fluctuations in results and in other risks.

Additional information concerning risks and uncertainties is set forth our press release today and in the section entitled factors that may affect future results in the company's periodic reports filed with the Securities and Exchange Commission include the company's most recent form 10-Q.

The company believes that the pro forma results described in this call are useful for the understanding of the ongoing operations because GAAP results include expenses unrelated to the company's ongoing data integration business as well as noncash charge associated with the amortization of purchased intangibles.

Management of the company uses pro forma results to compare the company's performance to data prior periods for analysis of trends; and to evaluate the company's financial strength, develop budgets, manage expenditures, and develop a financial outlook.

However, pro forma results are supplemental and are not intended as a substitute for GAAP results.

Relative to GAAP all pro forma results described in the release exclude the following items, net of associated taxes.

Amortization of purchased intangibles such as developed technology and customer lists, a litigation settlement, merger re-alignment and other costs primarily related to employee severance and the closure of idle facilities.

In process research and development charges.

Revenue, expenses and other items related to the Informix database assets sold to IBM during the 3rd quarter of 2001 as well as adjustments to the gain associated with the sale of database assets.

Revenue and expenses that were associated with the company's Content Management product line, that was terminated during the 2nd quarter of 2002 and asset impairment costs.

With that, let me turn the all over to Mr. Peter Gyenes.

Thanks a lot, Dave.

Welcome and thank you for joirching us this evening.

We are very pleased to be able to report record second quarter revenues in both GAAP, as well as pro forma profitability since taking the name Ascential Software following the sale of the Informix database business in July, 2001.

We have also achieved pro forma operating income profitability and continued positive cash flow.

We have now achieved five consecutive quarters of sequential revenue growth and this reflects the accelerating momentum and the increasing impact that our company is having on the enterprise data integration market.

Second quarter revenue was 43% higher than the same quarter last year and following on the heels of a very good first quarter we are raising our guidance for full year revenue growth to 35-38% and this despite a continuing tentative IT spending environment.

As we look beyond the mid year point we're optimistic about our position;

Ascential Software has a highly differentiated solution to enterprise data integration at a time when integration is high on the priority list of IT executives.

Our solutions are in demand because they address the requirement of customers to leverage their pre-existing investments in enterprise applications and systems.

We are executing well.

We gained market share in 2002, and we believe we are gaining more market share so far in 2003.

We're well positioned with products and with strategy that are geared towards a current IT spending need and we believe this need will continue to grow in the future.

At this time, Pete Fiore will provide you with more details on the quarter and insight into our expectations going forward.

Bob McBride will then review the financials with you and then we'll open it up to your questions.

Thank you Peter.

Good evening, everyone.

The second quarter was another strong quarter for Ascential and as Peter stated earlier, marks our 5th consecutive quarter of sequential revenue growth.

Our continuing improvements in operating performance reflect the much higher profile of our company with customers, prospects, partners, and industry influences; as well as the success that our enterprise integration suite is having in the market.

Our strategy and product road map are driven by our exclusive focus on the integration infrastructure and needs of our customers and their preference for our approach.

That is a single vendor solution that tightly integrates data profiling, data quality and data transformation together with robust metadata management and infinitely scalable parallel processing capabilities is underscored by the growth in the number of customers using one or more components of our product suite.

In the quarter, approximately half of our license revenue came from customers who purchased multiple product components of our suite and approximately 10% of our license revenue came from sales of our entire enterprise integration suite including sales to AIG, Allied Insurance Beckton Dickinson, Boeing, Fifth Third Bank and Weyerhauser.

In sharp contrast to the alternatives out in the market today, our customers don't have to buy product from multiple vendors and then incur the risks and expense of integrating this integration tools themselves.

Our integration suite delivers critical functionality such as scalable parallel processing across data profiling, data quality and data transformation processes, the common user paradym and look and feel; deep metadata sharing across components and intergrated management deployment and administration.

Offerings which include bundled or OEM third party software components simply cannot deliver these capabilities and will most likely cause customers to experience significant additional costs, delay in time to impact, and most importantly, risk in implementation effectiveness.

A major highlight of the quarter was the announcement of the Ascential enterprise integration suite release 7.0 in June which significantly expands the capabilities of our core platform offering.

This new release delivers significant enhancements in developer productivity, support for Linux and UNIX system services and IBM OS390 platforms and national language support for all components of our suite.

We also introduced the Ascential real time integration services product offering which delivers the capability for on demand integration and inflight enrichment of critical business information.

This innovative new offering is the only data integration solution in the market today with native support for web services and interoperability to a services oriented architecture; and is designed to be compatible with and complimentary to other integration technologies such as enterprise application integration and business process integration.

We expect to have more and more opportunities to operate alongside and with these other intergration platforms.

With these new offerings we are making data integration pervasive throughout an enterprise by allowing customers to easily and seamlessly embed data quality and data transformation logic anywhere within their existing business processes; ensuring that the information they rely upon is consistent, accurate, up to date and even up to the instant as required.

Customers with active maintenance contracts are entitled to upgrade to the release 7.0 version of any products for which they are currently licensed.

However, Realtime Integration Services is a completely new product and therefore represents a new revenue stream for us.

As with any product component our existing customers don't already have.

More importantly, this new solution significantly broadens the reach of our integration capabilities within an enterprise and greatly increases the value we offer to our customers.

Release 7.0 of our enterprise integration suite and Realtime Integration Services will be in general availability in August.

During the second quarter, we added 78 new company names to our global customer list.

Many of which were identified in our press release.

A couple wins I would like to highlight are BEA systems, one of the worlds leading application infrastructure software companies, who selected Ascential Software to provide real time web services based data cleansing and transformation services for their new enterprise wide customer information management system.

While the BEA's initial focus was on data quality only solutions, from point product vendors, the company quickly realized that they also needed integrated transformation capabilities, as well as, support for JAVA and web services architect.

BEA invited only one company, Ascential Software, to participate in a proof of concept because no other vendor offered the breadth of technology required.

Another key new account win for us was Weyerhauser.

An international forest products company with annual sales of $18.5 billion and a major SAP enterprise customer.

This was a competitive win for us where our strategic relationship with SAP was a significant determining factor in the decision to purchase the full enterprise integration suite.

In addition to the strong penetration into new accounts, we also expanded business with 142 of our existing customers with approximately 70% of license revenue come from our installed base, up slightly from 65% in Q1.

We believe this reflects new project expansion and the upselling of additional components of our suite within our customer base and highlights the revenue potential of our over 2200 customers.

A number of these repeat customers are identified in our press release, but I would like to highlight a couple of accounts.

The first is AIG, the world's leading international insurance and financial services company who purchased the complete essential enterprise integration suite this quarter for two separate projects.

At AIG Japan, Ascential's products are being used to migrate from dozens of mainframe legacy applications, which comprise the backbone of their current operating environment, to UNIX application platforms.

And at AIG's corporate locations, Ascential solutions are being used to cleanse financial data from all of AIG's 130 international operating groups; allowing them to improve the financial transparency, reduce risk and facilitate compliance.

In the UK, we had a major competitive win with our partner IBM at Imperial Tobacco, who selected Ascential for a strategic IT project aimed at establishing a consistent uniform data standard for all of Imperial's global customer distribution chain and CRM systems.

This strategic project will eventually integrate and consolidate data for every Imperial brand down to the SKU or stock keeping unit level for Imperial business groups throughout six separate countries.

On an industry sector basis, Ascential business continued to represent broad adoption across all global and vertical markets with approximately 24% of license revenue coming from financial services, 19% from information services, 13% from manufacturing, followed by government, healthcare, retail and telecommunications.

International business accounted for 47% of total revenue, while North America accounted for 53% of total revenue.

During the quarter, our average license selling price for new direct business in North America rose to approximately $220,000, up from approximately $190,000 in the first quarter of this year.

Blended average selling price, which includes license maintenance and services contracted for at time of sale, for new direct sales in North America was up to approximately $300,000 in Q2, up from approximately $268,000 the previous quarter.

Also during the quarter we reported 19 transactions with license revenue greater than $250,000 , three transactions greater than $500,000 dollars and one transaction with license revenue greater than 1 million.

The increase in average selling prices reflect the strong customer adoption of our integrated platform approach to enterprise data integration.

At the same time, the breadth and unleveled scope of our enterprise integration suite gives us the flexibility to start with a lower price solution and then scale up with a customer as their project needs and budgets allow.

We believe this pricing model flexibility is critical in this economic environment and it is valued by our customers who are looking for full featured solutions, but may have limited budgets to start with.

There is no question that a key driver of our revenue growth is our increasing sales productivity.

Our worldwide sales operation is gaining us market share against traditional competitors, while opening up new market opportunities.

Our sales organization, along with our strategic partners, has become quite proficient at selling the benefits of our enterprise integration suite and every sales situation, even when customers choose to start with only one or two components of the complete suite.

As a result sales force productivity is measured by license revenue for quota carrying sales rep rose to approximately $320,000, up from approximately $300,000 in Q1 and is up approximately 80% over Q2 of last year.

Not unexpectedly in Q2, partner and partner influenced business accounted for approximately 45% of license revenue, a bounceback from the seasonally low 35% in Q1.

Longer term we are looking for partners sold and influence business to contribute 50% or more of our total license revenue.

One organization we would like to highlight is our services operation, which is a major differentiator for our company and a key driver of our license revenue as well.

Our services strategy is designed to accelerate the adoption of our products in the market with proven best practices that accelerate time to value.

Whether working directly with an end user customer or working hand in hand with our systems integration partners; our services organization delivers enterprise scale integration solutions worldwide.

The best evidence of the quality and responsiveness of our services organization comes from our customers.

With our maintenance contract renewal rates approaching 100%; and with commensurate increases in professional services revenue, as you see in our results, driven by growing license sales.

Moving on to the outlook.

Based on the revenue growth we realized in the first half of 2003, we're raising our estimate of full year revenue growth to between 35-38% over 2002.

Although we continue to see good activity levels and our pipeline remains robust, the IT spending environment continues to be uncertain and we are in the seasonably challenging summer quarter.

Based on these factors, we believe it is prudent to expect total revenue for Ascential to experience a slight sequential decline for the third quarter, yet up appreciably from the 3rd quarter of last year; and we expect a solid sequential increase in Q4.

We believe our operations, infrastructure, and resources are at the appropriate levels although we are adjusting head counts slightly in the field and in product operations to ensure we continue to capitalize on our business momentum.

Never the less, having reached the GAAP profitability this quarter we plan to continue to achieve profitability for all of 2003 and as the revenue grows we would expect our earnings to grow at a more rapid rate, reflecting the leverage available to us.

Thank you.

I'll now turn the call over to Bob McBride.

Thank you Pete.

During last year's Q4 conference call the theme of my discussion for our financial presentation was one of revenue growth.

Then during our first quarter of this year's conference call, the major theme of our financial presentation was simplicity.

Simplicity in the sense of the construction and understanding of our financials.

Certainly, those themes continue to be relevant to today.

And now we have added a new theme for this quarter's conference call.

Profitability.

For the first time since we became Ascential Software following the sale of the Informix database business in July of 2001 we are profitable on a GAAP basis.

Our bottom line performance in Q2 of 2003 was a GAAP net income of $700,000, or a penny a share.

That represents a $21.3 million improvement over Q2 of last year and a $1.2 million sequential improvement from the first quarter of this year.

At this point, please refer to our description of proforma in our earnings release for the quarter.

Our Q1 '03 press release and the Q2 '03 conference call GAAP to proforma reconciliation schedule.

Each of which can be found on our website at www.Ascential.com/investors.

Proforma net income for Q2 was $3 million, or five cents a share.

An improvement of $9.7 million from the Q2 of last year net loss of $6.7 million and a $1.7 million improvement from Q1 of this year.

Proforma operating income in Q2 was $1.3 million, and by the way, that is the first time in Ascential Software's history that we've had a positive number that important metric.

That $1.3 million was an improvement of $13.4 million from Q2 of last year and $2.7 million sequentially.

For Q2 there are only three significant items that make up the reconciliation of gap to proforma.

First is the amortization of purchased intangibles, which as you know is primarily due to the previous acquisitions of Torrent and Vality, and which is as usual $1.3 million for the quarter.

Secondly, there was a final settlement of a lawsuit for $1.6 million. $1.1 million of which was charged in this quarter and the balance recognized previously.

Finally, there was $900,000 of expenses associated with our legacy Informix business.

These legacy expenses primarily idle real estate decreased from last quarters $1.2 million and should continue to decline barring unforeseen circumstances.

Ascential total revenue in Q2 vs $39.9 million.

Our fifth sequential quarter of revenue growth.

This represents a growth of 43% from Q2 of last year and 13% sequentially.

License revenue in Q2 was $21 million, representing a growth of 39% from last year's Q2 and 10% sequentially.

As we've said many times this has been the fifth consecutive quarter of sequential revenue growth or sequential growth in revenue.

This continued growth in a difficult economy resulted mainly from the broader foot print of our differenciated end to end product offering, continued improvement of our field operations and the result in productivity gains and the impact of our strategic partners.

From a geographical perspective North American revenue contributed 53% of the total worldwide revenue and the balance of 47% was generated internationally.

Both grew sequentially.

We continue to significantly improve our bottom line this quarter.

The following factors are highlighted as major contributors to this improvement.

Again, please refer to the description of proforma in our earnings release for this quarter, our Q1 '03 press release, and the Q2 '03 conference call GAAP to proforma reconciliation schedule; each of which can be found on our web site at www.Ascential.com/investors.

And some of the the points I make will refer to proforma results.

GAAP service margins were 53% this quarter.

Up from 33% a year ago and down slightly from 53% in Q1.

The slight sequential decrease in service margins is due to the increased proportion of professional services in Q2 relative to our higher margin maintenance services.

This increase in professional services reflects a higher demand for our value added service offerings driven by growing license sales.

We also experienced a sequential 5% increase in deferred revenue in Q2; due substantially to services driven by a growing license sales and of course our continued high rate of maintenance renewals.

Our GAAP total gross margin of 69% improved year-over-year by 28 points.

Our proforma gross margin of 73% was a five-point improvement over Q2 of last year.

Our GAAP operating expenses declined by $13.3 million or 31% year-over-year.

So you can see from the schedules we have achieved proforma operating income, we have achieved GAAP net income, and we believe we are well positioned to increase our profitability in the remainder of the year.

Our total head count at quarter end was 615 folks. 230 of which were in sales and marketing, 135 in services and support, and 155 in R&D, and 95 in G&A.

We may increase that count slightly from this point, primarily in field and product related operations as Pete mentioned.

The tax rate for Q2 was 30%, and we believe our tax rate for 2003 will continue at approximately that level.

Cash and marketable securities totaled $625 million at the end of Q2.

The $8 million increase in cash in the quarter was for the most part caused by our positive cash flow from operations.

Looking ahead, we would expect third quarter ending cash to be slightly below of that Q2 due primarily to scheduled tax payments and then building again in Q4.

Accounts receivable for the quarter was $25.7 million and that reflects a DSO of 58 days an improvement of 11 days from Q1, and much better than the 88 days of Q2 last year.

In conclusion, let's pause for a moment to reflect upon what we have been able to accomplish since the end of 2001.

We've broadened and differentiated our product offering, and continued to invest in R&D for further broadening and differentiation.

We've reprofiled and continued to invest in the ongoing improvement of our field operations.

We've gained significant traction with and through our strategic partners, and continue to fortify those relationships.

We have dramatically lowered our cost structure, achieved profitability, and are positioned for a healthy leverage in our business model as we continue to execute.

And finally let's not forget that with $625 million in cash and marketable securities; we continue to maintain a solid foundation with which we can continue to execute our strategic plan.

Peter...

Thanks a lot Bob.

Thank you Pete.

It's been a gratifying first half of the year and we're very anxious to answer your questions.

So let's open it up to questions.

At this time, we are ready to begin the question and answer session.

If you would like to ask a question press star one.

You will be announced prior to asking your question.

If you would like to withdraw your question press star two.

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

Our first question is from Imran Khan of Fulcrum Global Partners.

Yes, hi.

Congratulations.

Great quarter.

Thank you very much.

I was wondering, in terms of guidance like for Q3, like could you give us more color like what percentage decline we can expect and can you give us a little guidance in terms of earnings for this year as well?

As you know, the summer quarter is -- is a little bit more challenging than other quarters.

It is holiday time everywhere in most places of the world, particularly in Europe.

So I would emphasize the word slightly.

Okay.

And you know, it seems like your performance is much better than your top competitors so I was wondering what are the product differentiation and self-execution what are the differences you are making to win deals against your top competitors in this marketplace?

Could you just give us some more color?

Well, as you know, we have been engaged in this program for some time to expand the footprint of our solution and we brought it to market over the past year and it is now fully deployed and now fully in the market.

At the same time, we have over the past two years, we have completely revamped and upgraded the skill sets in our sales and marketing operation, and made a big investment in establishing and in fortifying strategic partnerships.

So, all of these things have been coming together in the execution focus of our company.

And we think this has differentiated our solution and it has differentiated our solution at a time when customers are looking for broader integration solutions as opposed to individual point product piece parts.

Often provided from multiple vendors.

Great.

Congratulations.

Thank you very much.

Yu Hahn Kim of S.G.

Cohen you may ask your question.

Hi everybody.

Congratulations.

Thank you.

I was wondering what kind of currency impact was there on the revenue number.

Sequentially right around 2%.

2%?

Yes.

And in general with the European pricing were you able to take advantage of the increase in the Euro to kind of moderate pricing to get a more competitive advantage out of that?

We continually look at pricing and to some extent, you know, 2% is not a big difference but we continue to look at it.

And just kind of a fun question for you guys.

One of your major competitors has decided that they were kind of going in the wrong strategic direction and are going to kind of focus back on more on the infrastructure.

Does that change your thinking on how -- what you expect the competitive environment to be going forward?

No, it doesn't.

Fair enough.

Thank you.

The next question is from David Beck of RBC Capital Markets.

You may ask your question.

Good evening, gentlemen.

Great progress in terms of getting GAAP profitability this quarter.

Thank you, David.

Thank you.

Now, with that said, with revenues expected to go down slightly, the question has already been kind of asked, expenses up slightly will we see at least break even GAAP eps in Q3.

At least.

Very good.

In terms, of just a little more discussion on the ESPs up sequentially some nice performance there.

You're obviously having some success at bundling products, but maybe you could just elaborate a little bit more on your success at driving ESPs up because that's obviously very impressive in this kind of environment.

Yeah, I think, you know, as I mentioned in my comments, we are seeing pretty significant adoption by customers who are buying multiple components of the suite at one time at the point of sale; so we are getting the benefit of customers who are buying data quality and data transformation and data profiling and data transformation or what ever their projects require.

They're buying those all together with services and so we're not only seeing the benefit of higher license ASPs but also the commensurate growth in our consulting and services business.

I realize it is not a fair question to ask, but can we expect these to continue to go up, I'm not even trying to get a same percentage or anything but is there still room to continue to push the pricing up there as you continue to bundle and deliver more products and do you sort of see is there, do you see a ceiling at some point?

I think, you know, for the past several quarters now we have indicated that we expect our average selling prices to continue to increase and I think there's still room to, you know, to improve upon this quarters's results.

At the same time, you know, we do have a very flexible pricing model so one of the big benefits we have is because, you know because we own all the technology and because we have integrated it all together very tightly; customers can make flexible purchasing decisions as well because they know when they need and require the rest of our technology it will work together.

So, yes, we can do better and I expect we will in terms of ASP.

And just a final question.

IBM channel partner contribution in the quarter was it over 10% or reportable event type of thing.

Yeah, it was.

Do you have the number for that?

It is attached to a schedule in the press release.

It was 13% including license and a little bit of service.

Very good, thanks, gentlemen.

Thanks, Dave

Patrick Mason of Pacific Growth you may ask your gentlemen.

Yes, definitely a great quarter.

Mine is more around the launch of the 7.0 product in August.

Can you give me flavor when you think that gets some traction?

Are you going to do some pilots initially in Q3 and then Q4 is when you see some of the revenue benefit from that?

Walk me through that a little bit.

The product has been beta now for about 4 months.

We have had a significant number of beta customers.

Feedback has been very positive.

We expect the release to come out in about a month, in August.

We do expect to have some impact of the product in the quarter, but, you know, it will be about 30 days or so a little longer of selling in the quarter.

So we expect to see good traction in Q3 and then strong adoption increasing adoption thereafter.

As I pointed out, the not only are we adding some pretty significant capability to our core platform but with our real time integration services we are expecting a lot more opportunities where real time integration is required and where we can interoperate with EAI and BPI technologies.

So for example you have an existing customer and they are waiting for the 7.0 upgrade do you think they might buy real time along side of that in Q3 even in the last 30 days of the quarter?

Absolutely, absolutely.

Then more on the quarter wraps and you guys talked about hiring some more field operations type people.

One -- on the in past you talked about the productivity levels I forget exactly how much you expect it to increase.

At least potentially 50%.

It's up to $320,000 right now.

Do you expect that to max out around 400 or do you have kind of a flavor for that?

What the hiring procedures are more specifically.

We're at the level of productivity now where we're comfortable that as we bring on additional sales people, we'll get immediate productivity out of those people and we will begin to adjust the head count plans accordingly to bring in more people in the field and some support around them.

Our productivity, I think we can improve it.

We have been looking at productivity as high as $500,000 per rep per quarter and as we continue to broaden the platform we should expect it to be in that range.

And then, lastly, obviously you guys have talked about the M and A front a little bit.

Are you backing off and EAI or still looking into that or what?

We have no change in strategy.

Okay.

Thanks a lot, great.

Thank you, Patrick.

Thank you.

Mark Murphy of First Albany.

You may ask your question.

Thank you.

Great quarter, Bob.

I wanted to ask you, if you could give us any insight into what drove the strengths in service revenue sequentially in Q2 and specifically was there any anniversarying of some of the Vality maintenance contracts that were not being recognized previously.

No, there was no anniversarying of the Vality contracts.

It was driven mainly, as my comments indicated driven by the strong license sales that we had and the value add that we can provide from our professional services organization is -- is used extensively by most of our customers.

Can you give us an update on the tax liability on the balance sheet?

I think you had mentioned an expected Q3 payment.

How much is -- how much do we expect that payment to be, what does it relate to, and what would be the future timing of the release of the tax liability?

The payment in Q3 is approximately $8 million.

And it has to do with -- with settling our accounts with mostly with the IRS in the U.S. from last year's transaction.

In terms of how the remaining tax liability will roll out, it is going to roll out over a fairly long period of time.

The nature of that liability is such that -- that the tax rule is complex and every year as your results come in you have to readjust so we don't anticipate that that is going to roll out really quickly at all.

It is going to roll out over a long period of time.

A last one, if I may, for Peter.

Do you have any estimate on the percentage of deals that might have involved a mainframe component and do you detect any change in the rate at which customers are moving data off mainframes and into open systems environments.

Is anything changing there?

We're not detecting significant change in the landscapes there, Mark.

We do about 15-20% of our business with mainframe related product.

Although, I would say in a much higher percentage of implementations are we and are we dealing with mainframe data.

But generally, you know, it is not necessarily a migration off of the mainframe, it's just the inclusion of mainframe data within an integration project and that probably occurs, you know, 60, 70, 80% of the time.

Thank you.

You're welcome.

Patrick Walravens of JMP securities you may ask your question.

Thank you.

The first one I may have just missed.

Can you repeat for me Bob what the cash flow from operations was?

The cash flow from operations was a build of approximately $7 million.

Okay.

And I guess second question is for either Pete or Peter.

You have obviously benefitted from Informatica's channel conflict.

Now that they're not selling the data warehouse products, do you see them being more competitive?

We have been competing with Informatica and others since the beginning of time in this particular market and they have been worthy competitors and I imagine they will continue to be worthy competitors.

I don't particularly perceive their change with respect to their analytic applications to really make that much of a difference in terms of the competitive scene.

Our focus is around enterprise data integration requirements and therefore enterprise data integration offerings and we believe that those -- those evaluations and those decisions are made by -- by individuals who are not focused on analytic choices, are not focused on business intelligence tools choices; but are rather focused on an enterprise scale perspective to determine what will best serve their needs across the enterprise over a long period of time, provide the most scalability and the most flexibility to cover the wide range of applications and the wide range of tools that their environment actually uses.

That is -- that is where we have been focused.

Those are the type of opportunities that are driving our business and driving our business performance.

And so we don't really see any particular change in the competitive environment based upon recent announcements of Informatica or frankly of anyone else recently.

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

Our next question is from Andy Shopick of JMP Securities.

Wonderful to see the progress being made.

Thank you.

Bob foreign exchange the impact I think you gave on revenue as being 2% versus the previous quarter but I'm wondering whether there were actually any foreign currency exchange gain losses on the transaction side that would have hit the P&L and other income.

No, it actually was I think in the neighborhood of less than $100,000.

Okay, and that is just basically buried in the interest income portion of it.

Yeah, it's another net I believe.

To what extent, Peter can you discuss any milestone achievements that you have achieved with some of the major channel partners especially IBM and maybe SAP, are there specific milestones or goals that you have been able to achieve over the last quarter, is there anything to suggest that there will be some accelerated activities through some of these major channel partners in the not too distant future as a result of certain achievements that you have made?

You know, I think, we have -- this is an ongoing program with the channel partners and so I think you can see from our results that we are making good continual progress each and every quarter with these partners.

And they're large organizations.

We have been able to expand our presence with IBM and with SAP in terms of working within more and more organizations within those companies.

And I think all of that will allow us to begin to increase the amount of business we're doing together.

These are big companies with lots of organizations and I think we are doing a good job of introducing our technology and our capability broadly within those companies.

Do I understand that the 13% customer.

The only 10% customer that was all IBM in the quarter.

Yes.

Okay.

Thank you.

Martin Shutes of Montauk Capital Markets.

You may ask your question.

Congratulations.

Comment on the status of your purchase program, it looks like you were not active again this quarter.

That is right, we weren't.

And as we said previously, we're -- you know, we still have authorization left in the program.

We believe at these prices we don't think this is the right level for us to be as active as we were at lower levels.

130 million remains approximately?

That's correct.

Thank you.

Patrick Mason of Pacific growth.

You may ask your question.

Just is a quick followup on the real time product in Q3.

I forgot to ask you what. do you think like a contribution per deal so if an existing customer decided to buy it, you might say what it the ASP for real time?

About $100,000 a license.

Thanks a lot.

That is it.

At this time there are no further questions.

Okay.

So just a very quick summary.

We do feel we have passed the inflection point and we can gain quite a bit of leverage from here on in.

As the demand continues to build for more comprehensive solution suites to integration requirements we believe that our approach becomes more in demand and as we continue to build customers and partners and successes that creates more visibility and more popularity to our offerings and that in turn creates revenue growth which of course in turn creates even higher earnings growth at this stage of our company.

We believe we can continue our momentum of revenue and profitability and we expect some acceleration through all of that when the IT environment ultimately improves.

Thank you all for being with us on the call.

Mostly thank you for being with us in support of our program to build a substantial company of high value to all of our constituents.

Thanks a lot, everyone.

And good evening.