Pros Holdings Inc (PRO) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2009 PROS Holdings, Inc. Earnings Conference Call. My name is Keisha and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

(Operator Instructions)

I would now like to turn the call over to Mr. Charlie Murphy, Chief Financial Officer. Please proceed.

Thank you very much. Thank you, operator. Good afternoon, everyone, and thank you for joining us today for the PROS Holdings financial results conference call for the first quarter of 2009. Joining me on today's call is Bert Winemiller, PROS Chairman and Chief Executive Officer. In today's conference call, Bert will provide a commentary on the highlights for the first quarter of 2009 and then I will provide the review of the financial results and our outlook before we open up the call to questions.

Before beginning, we must caution you that today's remarks in this discussion, including statements made during the question-and-answer session, contain forward-looking statements. These statements are subject to numerous important factors, risks and uncertainties which could cause actual results to differ from the results implied by these or other forward-looking statements.

Also, these statements are based solely on the present information and are subject to risks and uncertainties that can cause actual results to differ materially from those projected in the forward-looking statements. Please refer to our prospectus, Form 10-K and other filings with the SEC and the risk factors contained therein. Also, please note that a replay of today's webcast will be available in the Investor Relations section of our website.

I would also like to point out that the Company's use of non-GAAP financial measures is explained in today's earnings press release and a full reconciliation between each non-GAAP measure and the corresponding GAAP measure is provided in the tables accompanying the press release filed earlier today and can also be found on our website in the Investor Relations section. With that, I'd like to turn the call over to Bert.

Thank you, Charlie, and thanks to those of you listening to our call this afternoon. We are pleased with our financial performance in the first quarter of 2009 as we achieved the high end of our revenue guidance and exceeded the operating income and EPS guidance for the quarter. PROS reported first quarter revenue of $18 million, slightly above our guided range, a 1% increase from the first quarter of 2008. Our non-GAAP operating income was $3.8 million, a 14% decrease from the first quarter of 2008. Non-GAAP earnings came in at $2.8 million or $0.11 per diluted share at a 27.5% tax rate, exceeding our guidance. We believe this was a solid performance given the current economic environment.

PROS is a global company with revenue diversified across geography and our target industries. First quarter 2009 revenue that came from outside of the US was 57%, and 56% of first quarter license and implementation revenue came from our target industries of manufacturing, distribution and services. We believe this diversification in multiple dimensions provides us with a competitive advantage in the pricing and margin optimization market and benefits us especially in difficult economic environments.

It's also important to recognize that the pricing optimization industry, where we hold a leadership position, is still in its early stage and that our customers tell us that the return on investment benefits they receive by implementing our technology are just as important in a down market as they are in an up market.

We have been prudently reducing our discretionary spending and overall expenses from $14.9 million in the fourth quarter of 2008 to $14.2 million in the first quarter of 2009 while still investing in people, product and processes to drive our science and product innovation and to increase our competitive advantage. R&D as a percentage of revenue remains high at 25.9%. We are also planning to continue our focus on sales and marketing to position us to take advantage of the large market opportunity as the economy improves. PROS' proven track record, proven processes and proven solutions are the keys to our long-term success and drive our high level of customer satisfaction.

Now let me address the current economic conditions. As the macro economy continues to be unpredictable, forecasting for the longer term remains considerably more difficult. However, we remain optimistic about PROS' long-term opportunities as sales activity levels continue to be high, and we believe there is increasing awareness of pricing as a key profitability driver.

Contracts were signed in the first quarter with new and existing customers in four of our five target markets, new prospects continue to be identified and our maintenance renewal rate remains strong with a best in class mid-90% range. Even though the awareness of the power of pricing is increasing and the ROI is apparent, getting a multi-million dollar project approved in this environment continues to be difficult. Our customers and prospects are more rigorously reviewing capital expenditures and that has lengthened sales cycles.

During these difficult economic times, CEOs, CFOs and COOs, who are the ultimate decision makers for pricing software and are focused on cost cuts and selective innovative investments, are starting to recognize that traditional pricing strategies, such as "Cost Plus" and "Match the Competition," cause unnecessary discounting and destructive pricing practices.

Innovative executives are recognizing that pricing is one of the most strategic and powerful tools available to them and the message that a small improvement in pricing can have a large impact on operating profit is resonating with them. We believe more companies will turn to proven science-based pricing and margin optimization solutions in the future. To realize the high return on investment and fast time to value, C-level executives must embrace pricing excellence best practices, focus on optimizing margins, and implement PROS science-based pricing and margin optimization software.

Our target markets of manufacturing, distribution and services represent a multi-billion dollar opportunity and today are under-penetrated. We believe the market for pricing and margin optimization software is in the innovator early stage and that PROS is in the center of this shift to science-based pricing from spreadsheets and current destructive pricing practices.

Companies implement PROS pricing and margin optimization software as a strategic innovation and a risk mitigation initiative as they face unpredictable demand and volatile costs in the current economy. We remain focused on our strategic goals of delivering significant value to our customers early in our implementations and providing an increasing return on investment over time while focusing on lowest total cost of ownership.

As I mentioned on our last earnings call, PROS has unique strengths for managing in a challenging economy and there are four key traits I would like to review with you today.

First, PROS has proven management experience. The post September 11th years of 2001 were difficult, and 2002 through 2004 were very tough, but PROS still maintained its track record of profitability and positive cash flow during those difficult years.

Second, PROS has financial strength including a strong balance sheet with $52 million in cash and no debt. This helps PROS stand out positively in what continues to be one of the most important criteria in current sales situations, and that is vendor viability and puts us in a unique position to continue to invest prudently while increasing our relative competitive position.

Third, PROS has an attractive business model. That business model is based on a high return on investment value proposition for customers by providing pricing and margin improvements and fast time to value. A recent example of the fast time-to-value that our customers realize is demonstrated by the fact that a leading distributor with nearly $2 billion in revenue and over 40 distribution centers used PROS Scientific Analytics product to truly understand deal profitability and identified millions of dollars of opportunity in unprofitable customer accounts very early in the project.

Another component of our business model is PROS revenue visibility which is based on our percentage of completion revenue recognition model which helps with cost/expense management and resource planning.

PROS employees' experience and expertise in pricing is unequaled, and PROS best-in-class products and services are exemplified by our high maintenance renewal rates.

And the last component of our business model, PROS has a diversified revenue mix across industries and geography.

We believe PROS has a superior product strategy which is the fourth unique strength. The cornerstone of this strategy is the PROS Pricing Solution Suite Common Code Platform, a single integrated database and the PROS Configurator. This technical architecture supports high performance processing and scalability. The Configurator allows each implementation to be configured to a specific customer's business requirements while still taking advantage of PROS new releases and new innovations. This product strategy supports our strategic goals of shortest time-to-value, highest return on investment and lowest total cost of ownership.

PROS Scientific Analytics, Price Optimizer and Deal Optimizer products are high performance, scalable pricing products that deliver all of the relevant pricing information that a pricer needs to generate B-to-B list prices and that a salesperson needs to effectively negotiate a transaction at the time the price is quoted and the sales transaction is actually made. Companies that have a sales force with pricing power can greatly benefit from PROS B-to-B transaction pricing software for optimizing spot transactions, individual price quotes or negotiated deals. This type of pricing is very different from fixed pricing such as in retail where every customer pays the same price for a given product.

PROS software also supports pricing and product managers with optimizing list prices, list prices that are used for price volume agreements, customer RFQs, and group purchasing organization agreements as well as for determining product family and category pricing. PROS provides the pocket price, pocket margin, customer willingness to pay, customer cost to serve, win-loss ratios, market price, stretch price, and other relevant information so our customers can maximize revenue and profitability by using optimized prices while implementing pricing excellence best practices that reduce profit leakage. PROS software products optimally and dynamically are pricing millions of individual transactions every day.

In summary, we are pleased with our first quarter 2009 results. This achievement is the result of the hard work of over 300 dedicated employees at PROS who are smart people doing great things to bring pricing excellence and high value to our customers. Even though 2009 will continue to be challenging, we have an experienced management team that we believe is focused on the right strategies.

We have the expertise and resources to continue to deliver innovative, high return on investment products to our customers, and as a result, we intend to extend our leadership position in the pricing and margin optimization market. Now, let me turn the call over to Charlie so that he can provide you with a review of our financial results and our outlook for the second quarter of 2009.

Thanks, Bert. PROS had a solid first quarter. I will begin with a review of our statement of operations for the quarter which ended March 31, 2009. Then I will provide some commentary on the balance sheet and cash flow items before providing you with financial guidance for the second quarter of 2009.

As Bert indicated, we are pleased with our performance in the first quarter. Revenue for the first quarter of 2009 achieved the high end of our guided range and came in at $18 million, up 1% from the first quarter of 2008.

I will be discussing the statement of operations information on a non-GAAP basis. Our earnings press release includes a full GAAP to non-GAAP reconciliation, which can be found on our website in the Investor Relations section.

In accordance with our revenue recognition policy, PROS does not recognize any revenue at contract signing. License and implementation revenue is bundled together and generally recognized on a percentage of completion basis over the implementation period. There can be variability in license and implementation revenue from quarter to quarter, not as a result of seasonality, but rather the timing of when an implementation starts or finishes, the implementation effort needed, the number of projects being deployed and the contract size.

Revenue of $18 million in the first quarter was up 1% year-over-year and down 9% sequentially and was at the top of our guided range. Within revenue, license and implementation was down year-over-year and sequentially while maintenance revenue was up both year-over-year and sequentially. Let me provide some additional color on this.

The maintenance revenue increase of 19% from the first quarter of 2008 and 7% from the fourth quarter of 2008 was due to an increase in the number of completed implementations that are now in maintenance.

License and implementation revenue decreased 7% year-over-year and 15% sequentially. Although sales activity remains strong, the macro economy is having an impact on our revenues as it has lengthened sales cycles. In addition, the timing of bookings within the quarter as compared to the prior year's first quarter and the mix of business contributed to the decline in license and implementation revenue.

We are pleased that the combination of subscription-based revenue and maintenance revenue is increasing. The total recurring revenue from subscription and maintenance, as both a dollar figure, as well as a percentage of revenue, has increased from Q1 of 2008 and Q1 of 2009. It increased from 32% in 2008 to 39% of revenue in 2009. Additionally, we are pleased that our maintenance renewal rate continues in the best-in-class mid 90% range.

Our revenue is diversified geographically and spread across our five target vertical markets. International revenue was 57% and approximately 90% of our airline revenue continues to be from outside the United States. Historically, we have had success in denominating our contracts principally in US dollars. During the first quarter, we did have a loss on foreign exchange of approximately $0.1 million. With the volatility of foreign exchange rates, we may be required by our customers to have more contracts in the future denominated in foreign currency.

On a non-GAAP basis, gross profit was $13.4 million in the first quarter, resulting in gross margin of 74% compared to gross margins of 75% in the first quarter of 2008. License and implementation margins of 71% decreased by approximately 3 percentage points, and maintenance margins of 80% increased by approximately 3 percentage points over last year.

In the first quarter, we experienced a change from a gain from foreign currency in 2008 of approximately $0.1 million to a loss in 2009 of approximately $0.1 million. This foreign exchange change of approximately $0.2 million reduced our gross margin comparison by approximately 1.5%. Adjusted for foreign exchange loss in the first quarter, license and implementation gross margins of 72% are modestly higher than the fourth quarter of last year.

Non-GAAP R&D expenses in the first quarter were $4.7 million or 26% of revenue, and increased 6% from the first quarter of 2008 as we continue to invest in our suite of pricing and margin optimization software products.

Non-GAAP selling, general and administrative expenses for the first quarter were $4.9 million, or 27% of revenue, and increased 5% from the first quarter of 2008. The increase is due to increased selling expenses to extend our leadership position in the market.

Non-GAAP operating income was $3.8 million in the first quarter, a decrease of 14% over the first quarter of 2008 operating income, which exceeded -- but yet exceeded the high end of our guidance because of strong expense management. Total expenses were down approximately $0.7 million from the fourth quarter of 2008. Operating margins in the first quarter were 21% compared to 25% in the first quarter of 2008.

Interest income was approximately $0.1 million for the quarter, a decrease of approximately $0.3 million from the first quarter of 2008, lowering EPS by $0.01 in 2009 over 2008. The decrease was attributable to lower interest rates despite higher cash balances.

Our effective tax rate was 27.5% in the first quarter of 2009 compared to 35% in 2008 largely due to the timing of the reinstatement of the research and experimentation tax credits. In October 2008 the Congress reinstated the R&E tax credit for 2008 and extended the credit until December 2009. 2008 did not reflect the benefit of the R&E credit until the legislation was passed in the fourth quarter of 2008.

Non-GAAP net income for the first quarter of 2009 was $2.8 million or $0.11, at a 27.5% tax rate, per diluted share, exceeding our guidance. Diluted shares were 26.1 million. In the prior year quarter, non-GAAP net income was $3.2 million and $0.12 per diluted share at a 35% tax rate. Diluted shares then were 26.7 million.

The previous information has been based on our non-GAAP operating results because we believe that excluding certain non-cash items such as equity-based compensation provides you the best indicator of the health of the overall business. This is also how we measure the success of the business internally. That said, we appreciate that investors also need to analyze our results on a GAAP basis, so we have provided a reconciliation of the GAAP results and non-GAAP results as part of the earnings release.

For the quarter ended March 31, 2009, our income from operations, in accordance with GAAP was $2.7 million, compared with $3.5 million for the first quarter of 2008.

Net income in the quarter was $2 million, $0.08 per diluted share, compared with $2.6 million or $0.10 per diluted share in the first quarter of 2008.

Moving to our balance sheet, cash and equivalents were $52 million for both the first quarter and fourth quarter of 2008. Our operating cash flow in the first quarter was approximately $0.1 million positive reflecting the seasonal impact of incentive compensation payments.

Trade accounts receivables Days Sales Outstanding were approximately 65 days which is consistent with our typical DSOs. Cash flow and accounts receivable balances can vary in a quarter based on, among other things, the timing of collections and invoicing of milestone billings under our contracts, and for cash flow, the payment of accruals, all of which may vary from quarter to quarter.

Total deferred revenue at the end of the first quarter was $19.1 million, a decrease of approximately $0.3 million from the end of the year. As with accounts receivable and cash flow, deferred revenue can fluctuate quarter to quarter depending on the timing of contractual milestone billings. Because deferred revenue is not tied to total contract value, we do not believe it is a meaningful forward indicator.

Head count at the end of the quarter was 385 compared to 381 at the end of December. We have slowed head count growth as compared to 2008 in response to the uncertain market conditions and we continue to monitor expenses carefully. As we mentioned previously, non-GAAP total expenses were lower in the first quarter of 2009 compared to the fourth quarter of 2008.

Now, let me turn to our guidance for the second quarter of 2009. As Bert has mentioned, because of the uncertainty in US and global economy, longer-term forecasting is considerably more difficult.

For the second quarter, PROS anticipates total revenue in the range of $17 million to $17.5 million. We are projecting non-GAAP operating income of $2.7 million to $3.2 million and we are anticipating non-GAAP diluted earnings per share of $0.08 to $0.09 based on an estimated weighted average of 26.5 million diluted shares outstanding and the estimated effective tax rate used is 27.5%. The Company is projecting GAAP income from operations of $1.4 million to $1.9 million and GAAP diluted earnings per share of $0.04 to $0.05.

Non-GAAP operating income and net income for the second quarter excludes estimated FAS 123R stock option expense of approximately $1.3 million. This second quarter guidance is based on our current expectations, which assumes no meaningful improvements in the macro environment.

Although bookings are the most important component driving revenue, historically, revenue for PROS has not been solely impacted by current year bookings. Revenue is also impacted by four areas -- first, the duration of implementations, particularly those that exceed one year; two, growth in maintenance revenue resulting from completed implementations, which has been an ongoing trend; third, enhanced efficiencies in the implementation processes that we have seen with the shortening of some implementations, though customer delays have lengthened other implementations; and four, cost of living increases for maintenance services, which we continue to see as maintenance agreements are renewed.

It is the layering effect of current year bookings, bookings for more than one year, the time durations of our implementations and maintenance growth that has traditionally given PROS good revenue visibility based on our percentage of completion revenue recognition model.

While there is heightened uncertainty regarding future expectations given the current economic environment, I would like to remind everyone that the PROS management team has experienced tough periods in the past and the Company remained profitable and achieved positive cash flow during those periods.

We ended the first quarter of 2009 with $52 million of cash, working capital of $61 million excluding deferred revenue and no bank debt. While there are no assurances that past performance can be continued, our experienced management team, the financial strength of the Company and our revenue recognition model is particularly helpful during such periods.

In summary, given the current economy environment, we are pleased to have met our expectations in the first quarter and with our very strong financial position continuing into 2009. We will face additional pressures in 2009; however, we believe we are in a very strong competitive position given, among our other strengths, our strong financial position. With the growing awareness of the benefits of pricing technology, we remain confident that PROS has an attractive long-term growth opportunity.

With that, let me turn the call back to the operator so that we can take your questions.

(Operator Instructions)

Your first question comes from the line of Tom Roderick with Thomas Weisel Partners. Please proceed.

Thanks and good afternoon. I was hoping you could dive into the bookings environment a little bit more. I know it's not necessarily a metric you want to be a sharing in great detail, but just to get a better sense for what type of business is closing, how it's closing, how sales cycles are stretching, any details you can offer along that line would be helpful. And then just in terms of our directional thinking, if we look at the license line here down 15% year-on-year, is it kind of fair to think about the bookings growth being in that ballpark, maybe a little bit better or a little worse? Any directional evidence you can give us will be great. Thank you.

Hey, Tom. The economic environment obviously has affected budgets in all of our target markets and our customers are experiencing the same kind of challenging economy almost universally. And as a result, they have significantly reduced any capital expenditure budgets. Also, even when there is an innovative investment that they want to make, it's getting much more scrutiny than we have ever seen in the past.

So, this causes sales cycles to be lengthened. There is a lot more scrutiny at the most senior levels, and what's happening is it is kind of counter intuitive because we're actually seeing more sales activity. We are seeing more meetings. More people are showing up at our webinars. More people are coming to our seminar series because pricing is getting visibility and margin optimization is getting visibility in a way that it probably wouldn't have if there wasn't this difficult economy and this challenging environment, especially when they have unpredictable demand and very volatile costs. It's an incredibly challenging environment for people to price appropriately let alone optimally.

So I would say there are two sides of that. Sales cycles are lengthening; getting bookings is more challenging, but the confidence that there is awareness and there is a big pricing and margin optimization market opportunity out in front of us, our confidence has never been higher.

Now in terms of booking trends, we would just say it's too early to take any of the current situations that we're experiencing and generalize those into any trends. As you know, we're statisticians and there isn't any statistically significant data that would support any trends at this time. We are pleased that we closed contracts in four out of five of our industries.

We are pleased that we haven't experienced projects stopping or slowing down to any significant degree. We are pleased that there is a lot of momentum in our current customer base to actually accelerate the implementations of our software. We're actually having more C-level meetings with our customers today so far in 2009 that we have ever had because they want to know how they can get the value even faster.

We've had some incredibly successful rollouts already this year. We've had some return on investments that were really very pleasant surprises to the C-level executives of our customers. So the fundamental business is solid. The value proposition is well recognized, and we are going to manage prudently through this economy, and our goal is to continue to invest to emerge stronger on the other side. But it is too early to make any conclusions based on what is going on right now in terms of sustainable continuous trends in the business.

Thanks, Bert. And maybe just a quick follow up, do you see customers cutting down their deals and maybe trying out the solution with the smaller analytics type of purchase, maybe something in the several hundred thousand dollar instead of the seven-figure range? Is that a type of deal that you can close in this environment?

I am sorry, Tom, we commented on that after the year end call. We saw a couple of deals in the fourth quarter that were that way but we did not think it was a trend then and we haven't seen it going forward, so I wouldn't say that that is a trend that is discernable at this point. It still seems to be multiple product deals.

Yes, Tom, do you remember when we first met each other and we briefed you that we thought the people are going to start with scientific analytics and get that up and running, and kind of implement pricing excellence best practices based on that, look for the negative pocket margin customers and products and take action before they went to execution?

That never happened, and now, we are actually able to deliver value in less than 30 days. We have had a number of customers during the last half of 2008 and already in 2009 where you can go in and you can bring scientific analytics up and we recognized that market requirement. If you don't have short time to value, nobody wants to talk to you.

So, we have implemented our systems, brought up scientific analytics sometimes in less than 30 days and shown multimillion dollar profit opportunities by correcting bad pricing practices. Well, all that does is whet the appetite for C-executives to move right on or he can see past the correcting dysfunctional pricing practices today to how should we optimally price in the future. So we've have seen a couple of deals that were single-product deals but it's not a trend.

Okay. Great. Thanks very much.

Sure.

Thank you.

Your next question comes from the line of Tom Ernst with Deutsche Bank. Please proceed.

Hi. This is actually Joven Matthew on behalf of Tom Ernst. Thanks for taking my question.

Sure. Thank you.

The question is did you achieve your bookings target expectations uniformly throughout the quarter, or was there -- how was the linearity during the quarter?

On our last quarterly call, we said it was impossible to predict longer-term bookings so we discontinued the bookings guidance, and also, because of the nature of our business and high ASP, bookings in a quarter is not representative of the fundamental core business strength. So, from quarter to quarter, we can have variability in bookings but the only way to look at it is over a long period of time.

But in this environment, we just don't have the same level of confidence, and our traditional metrics that we've used to manage our business really are not as applicable as they were in the past. So, given the uncertainty, we think it's prudent to our investors not to communicate anything about bookings at this particular time.

Okay, got it. Thanks. With your high level of maintenance renewal rates, did you see any pricing pressure on those while renewing those maintenance contracts?

This is Charlie. I would say, no, we don't see pricing pressures on the renewal of the maintenance contracts. We did comment on the last call that we had a few requests. We're talking a few here, requests for some hardship considerations for a short period of time and no different from what we experienced after 2001. So, I would say no, I think most companies just go along -- the vast majority of companies certainly just go along renewing the maintenance and we did not have any company not renew in the fourth quarter and the maintenance renewal -- first quarter, I'm sorry -- and maintenance renewal rates continue to be very high.

Yes, we haven't -- it's really interesting because we really haven't seen any projects slow down. We did not see any maintenance cancellations. If anything, that the interest in accelerating the implementations and you saw a nice uptick in maintenance in the first quarter and that's a result of companies wanting to get value quicker, wanting to get the high return on investment and wanting to get these systems into production as fast as they can.

Thanks.

Your next question comes from the line of John Difucci of J.P. Morgan. Please proceed.

Hey, Bert and Charlie. We could see that the maintenance renewal rates are really solid and they continue to be really solid, an example which I think is a reflection of the commitment and loyalty of your customer base. At the same time, you say sales activities remain high. But it's really hard for us sitting here. We're looking at deferred revenue going down realizing that it's not really tied to contract value as you say.

But getting a few -- is there anything you can give us that can help us sort of see what the business momentum? We realize it is tough out there but we sort of need something to sort of have a feeling how worse things could be going. Obviously, it's tough out there, but is there anything at all you can give us in regards, maybe not bookings, but anything along the lines of where business momentum is going?

Yes, hey John, we're with you. If we saw any trends that were fact-based that we could communicate with confidence, we'd do it. We just do not see it. The environment slowed down. Bookings, we communicated what happened in our customer base in the fourth quarter. There was a project that stopped. There were some maintenance concessions that people were asking for. That activity really is muted or isn't happening now but is it an indicator that bookings are going to pick up and things are going to be great the rest of the year? It's premature, John. We don't see any facts that support anything other than what we have communicated. And I know this is frustrating for you and I know it's a little frustrating on our side as well.

The only thing I will say is that, unequivocally, our confidence that the pricing and margin optimization software business is going to be great some time in the future. And when the economy recovers, we think this is going to help us get momentum. But we still have customers that don't have any capital expenditure budget. We still have customers that -- they're saying we believe but not right now, or prospects.

So, I understand your question. I understand that you'd like to hear some facts, that we give some kind of indicator on future trends for the business, but the facts just are not there to support any conclusion at this particular time.

That's fair enough, Bert, but and then I guess just to follow up to your response. So given your month through this quarter now, at least you can compare I guess April to January and what a typical January is and what a typical April is. And I think January was difficult for every software company whether you're selling an application or infrastructure or whatever it is whereas April for some seems to have shown a little bit better relative to January; for others, maybe perhaps not. Just curious for PROS Holdings, what do you see there? Is it about the same as for a first month of a quarter? Is it any better or any worse than it was for January?

John, this is Charlie. It's very hard to have a month and a quarter really be able to discern much. On the long sales cycles that we have, the average ASP that we have is still not decided based on a month. Is April better from an economy standpoint than January? These deals don't get driven that way. And even for the last year and the first quarter, we'd say, geez, we had a stronger number of deals closed in January.

That really didn't mean anything other than it helped the first quarter revenue last year. That really wasn't meaningful. We can't go back -- back to the first quarter, the first January of the prior year or even to September of the prior years. There are no comparisons really on a month to month basis. You have to look at booking trends over a long period of time, and right now we have said that the booking trends have slowed down because of the economy. Sale cycles are longer.

Now if you look back historically, quarter-to-quarter over the last three years, you cannot correlate quarterly bookings to anything.

No. First example is absolutely right. For example, one year the third quarter may have then the best bookings quarter for the Company and the other year may have been the second quarter or may have been the fourth or the first. There is no correlation,

And when bookings went down, that didn't mean the revenue didn't go up. So we have been unable to statistically correlate quarter-to-quarter bookings with the fundamental strengths of the business historically. Now you may get to a point where you reach the law of large numbers and you got so much business that you move out of that, but clearly, we're still in the innovator early stage market here.

That would be a nice problem to have, right?

Right, we'd love that problem.

That's right.

Bring it on.

Okay, guys. Well, thanks a lot.

Your next question comes from the line of Nabil Elsheshai with Pacific Crest Securities. Please proceed.

Hey, guys. Thanks for taking my call. I apologize. I got on a little late so if you addressed this earlier, I apologize. But on the R&D line took a significant sequential decline. Is there something going on there? Is that a new baseline or are there CapEx and investments there or should that ramp back up going forward?

I would say that -- what we did coming out of the fourth -- but actually coming out of the third quarter, you may have known that we have slowed expense growth down in the fourth quarter of last year and we commented on that on the call that we have made as well, we started bringing expense growth down. And in the area of R&D, we did have a few contract people that we were able to make some decisions relative to not moving forward with as we entered the first quarter. But other than that, there's really no substantive change in the Company's R&D spending in the first quarter and our expectations going forward.

I would even say that in the fourth quarter, we communicated, or during the fourth quarter, we could see the economic slowdown just like everybody else could. And we revised and re-looked at all of our expenditures and we've been very prudent in looking at our expenditures and eliminating discretionary spending or spending that was not core to our business or business strategies, and you saw it from the fourth quarter of 2008 where we had 14.9 in expenses; it went down to 14.2. But I can assure you, Nabil, that did not affect the fundamental core investments that we're making that are necessary to achieve our strategic goals and R&D was just a small piece of that.

Okay. And then, could you update me on the buyback? It looks like you did not use any this quarter. I was a little surprise given where the stock has been, just kind of what you guys are thinking there and what's outstanding?

Yes, right now we still have a $10 million authorization from the Board but this market has been so volatile, we have just stepped back for the short-term and let's just see how things settle out, and we just say we'll step back, see how things settle out with -- sit on our $50 million plus cash position and perhaps use that. We don't believe we'll need it for operating purposes but it's available should we need it.

Yes, I think the overall environment has changed dramatically since we put in that stock buyback which was last August/September. Right now we're particularly interested in our strong cash position to potentially in the future take advantage of any strategic opportunities.

Okay. And then in terms of just a little granularity on the end markets, are there -- is the weakness across the board in your verticals or is there any area that is holding up better than the other or showing more activity than others?

I would say no, we did close four out of the five industries in the first quarter we closed deals in. So it's -- and as you know that we don't do that many deals in a year to begin with, so we do not see anything that we could discern right now that --

Okay. And how is the activity within kind of cross sell or up sell? I mean is there -- somebody's already got one of the modules. Is there more success selling a new module or a new functionality and or are they just hesitant to make a new investment?

No, it's much easier.

Okay.

They've already experienced it. They already understand the return on investment. They believe it's a great opportunity for us. As you know, we have got 2.2 products per customer. We've got a very high maintenance renewal rate, and right now, one of the opportunities is selling back into our existing customer base and they're more receptive than a brand new prospect that still is struggling with the concepts.

Okay. Great. Thank you very much.

Sure.

(Operator's instruction)

Your next question comes from the line of Ross MacMillan with Jefferies. Please proceed.

Yes, thanks a lot.

Hi.

So, just a couple of questions, obviously it's tough out there and you're seeing that impact your license implementation and consulting line and it looks like that's going to be again sequentially down into the June quarter. At what point do you -- I guess it is a cost question -- at what point do you do something more material on the cost side, or maybe the question is how do you assess when you might do something more material on the cost side?

Obviously, we manage the business internally on a month-to-month basis and we've got high visibility given our high visibility revenue model, and all I would say is that if there was a significant negative trend that we discern then we would have to prudently go back and take a look at it, but we don't see it right now.

Yes, so in the context of it's hard to correlate your bookings in one quarter to a trend. You probably wait a couple of quarters before you decide if something was a trend. Is that fair?

Absolutely. Again, you cannot take one quarter and extrapolate.

Right.

So, Ross, you got it.

Yes.

You may want to see the -- we're numbers guys like you guys are so we're looking at every number. We're looking at every single activity. We're looking at it by geography, by industry, size of the company or existing customers versus new-named business. We're picking up on every single fact to determine whether we think that's an early indicator of what the rest of the year or 2010 is going to be.

And right now, as you can see we didn't reduce our head count; we didn't have layoffs. We don't want to jeopardize the strategic investments that we believe will position us to take advantage of what we believe very strongly is going to be a huge market opportunity for us. So, when is that point when you might want to adjust that? It's not now.

Okay, that's helpful. And then two follow ups, I think you said this already but I wanted to confirm, so the deals that you did close in Q1, those deals are from a size perspective in keeping with your historical average kind of ASPs? Is that a fair statement?

That is a fair statement. Yes, you can't infer too much from one quarter because you have to look out over the course of the year. We mentioned for example in the fourth quarter last year, we did have a few more, one-product deals in Q4. That's impacted Q4's ASP but it did not impact meaningfully the full year ASP for the Company which is still around $1.8 million. So I wouldn't infer too much from one quarter's ASP but the first quarter was in line with our prior averages.

Okay. That's helpful. And, Charlie, I think you mentioned one thing which was around FX and some of your airline customers where you historically had US dollar denominated contracts. But it sounds like as those come up for renewal, there may be some requests to move to local currency. Can you just elaborate on that? Thanks.

Yes, if we said airline that was a mistake. We didn't --

Okay. I may have misheard that so I just wanted to go back to that point and--

That's great. No, it's not -- I wouldn't say it's an airline business. We have a few contracts, a handful of contracts that are denominated in foreign currencies -- the British pound, euros -- those seem to be the two prevailing. We do have some FX exposure, maybe some insight, today if the FX moves against us by 10%, the impact on the Company would be $100,000 or approximately $100,000. So, is it important? Yes. It hasn't been significant over a period of time.

All of last year with all the vagaries of FX last year, the cumulative impact on the Company was about $100,000 loss for the full year of 2008. Now, within that, we had two quarters with modest gains, one quarter with a loss and one quarter that had no impact. So, we mention it because it does impact our comparability from quarter to quarter.

As I said on the previous communication today, the impact on margins was fairly significant. The first quarter of last year, we had a gain and the first quarter of this year, we had a small loss. But that gives you the context, Ross. It's been between $100,000, a $100,000 plus, gain or loss in a particular quarter.

But you're not anticipating more to go in, more contracts to be signed in non-US dollars or is that something you said? I just wanted to be clear on that point.

I'd say we're putting out there as a caution. It could happen.

Okay, I see.

I did not say it's going to happen; it could happen. It's just that FX is so volatile today.

Yes.

Just putting out there as a cautionary.

Very good. Thanks very much.

Thank you.

With no further questions in the queue, I would like to turn the call back over to Bert Winemiller for closing remarks. You may proceed.

Thank you, operator. We are pleased with our first quarter 2009 results. We think we are well positioned and we'll continue to invest appropriately to capitalize on what we believe is a terrific long-term market opportunity. We're being prudent about our spending as we have communicated in this economic environment.

But with a strong balance sheet, we are in a unique position to invest in our products, processes and R&D, sales and marketing to improve our relative competitive position in the pricing and margin optimization market. We have great people, products and processes and we're going to manage through this time very appropriately. We thank you very much. We appreciate your valuable time and we look forward to meeting with you soon. Thank you. Operator?

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day, everyone.