泰勒科技 (TYL) 2008 Q4 法說會逐字稿

Hello and welcome to today's Tyler Technologies fourth quarter and year-end 2008 conference call.

Today's call is being recorded.

Your host for today's call is John Marr, President and CEO, of Tyler Technologies.

Mr.

Marr, please begin your call.

Thank you, Katie.

Welcome to our fourth quarter 2008 earnings call.

With me on the call today is Brian Miller, our Chief Financial Officer.

First, I would like for Brian to give the Safe Harbor statement, then I'll have preliminary comments, then Brian will review details of operating results.

Then I'll have some final comments and we'll take your questions.

Brian?

Thank you, John.

During the course of this conference call management may make statements that provide information other than historical information and may include projections concerning the Company's future prospect, revenues, expenses, and profit.

Such statements are considered forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties which could cause actual results to differ materially from these projections.

We refer you to our Form 10-K and our other SEC filings for more information on those risks.

John.

Thanks, Brian.

Tyler finished the year with its 31st consecutive profitable quarter and overall strong results.

For the quarter we posted 15% overall revenue growth and 18% growth in software related revenues an 120-basis point improvement in gross margins.

Recurring subscriptions and maintenance revenue now comprise approximately 46% of total revenue.

Together with services from existing customers well over half of our revenues are generated from existing customers.

In addition, we reported a 13% growth in EPS for the quarter, excluding the tax impact of a noncash legal settlement related to the warrants.

Our full year 2008 results were very strong.

We posted overall revenue growth of 21% with software related revenues growing 25%.

Year-over-year, our gross margins improved 300 basis points, and operating margins before the impact of the noncash legal settlement pertaining to the warrants improved 180 basis points.

We were especially pleased with our 2008 free cash flow, which excluding our real estate acquisitions, was over $42 million, representing growth of approximately 40% from 2007, exceeding net income before the impact of the noncash legal settlement by approximately 77%.

No question, 2009 was encouraging, but as importantly we continued to build a longer term track record of consistent performance that we believe is sustainable.

Tyler software related revenues have a compounded annual growth rate of 17% since 2001.

Free cash flow has a compounded annual growth rate of 43% since 2001 excluding real estate investments.

And earnings per share has a compounded annual growth rate of 95% since 2001 excluding the noncash legal settlement related to warrants.

As we are all aware of the broader economic conditions is troubling and while to this point Tyler has performed well in these conditions, there's certainly the possibility outside conditions will put some pressure on our business and affect short-term results.

But we have and will continue to take a long-term view and approach to managing our business, and when we look at the long run we expect demand for our products to be strong, our execution to be good, and we are confident in our ability to withstand these historical trends.

Now I would like Brian to provide more detail on the results for the quarter.

Thanks, John.

Yesterday Tyler Technologies reported its results for the fourth quarter ended December 31st, 2008.

You all have access to the press release, and our Form 10-K has now been filed so I'm going to limit my comments and focus on providing an analysis of the key factors contributing to our results this quarter, then move on to John's comments on the quarter, our annual results, and our outlook for 2009.

Revenues for the fourth quarter were $69.5 million, up 15.1% from the fourth quarter of 2007.

Our organic growth for the quarter was approximately 9%, and about six percentage points of our growth was the result of acquisitions we've made over the past 12 months.

Our software related revenues, consisting of software licenses, subscriptions and software services and maintenance increased 17.8% from the fourth quarter 2007.

Software licenses declined 7.4% from last year's fourth quarter, primarily because of a decrease in software deliveries for our financial management product that we believe is primarily due to timing.

Subscription revenues grew 23.5% over last year's fourth quarter reflecting revenues from new customers as well as existing customers that have converted to our ASP model.

During the quarter we signed four new ASP customers, including our first two appraisal on tax to ASP customers and converted six existing customers.

Growth in the base of customers subscribing to our disaster recovery services also contributed to the increase.

Maintenance revenue growth was 23.9% with acquisitions accounting for approximately 10% of the growth and the other 14% organic.

Together, recurring revenues from subscriptions and maintenance comprised 46% of our total revenues for the fourth quarter.

Software service revenues grew 24.6% with increases across each of our major product categories.

Finally, appraisal service revenue was essentially flat in the fourth quarter as we successfully completed the Ohio revaluation projects in the third quarter of this year, and those completions were primarily offset by the ongoing revaluation project in New Orleans.

For the fourth quarter of 2008, our blended gross margin increased 120 basis points to 41.6%, compared to 40.4% in last year's fourth quarter.

The improvement is attributable to an increase in the volume in average rates for maintenance and support and improved productivity of certain appraisal projects that were being staffed in the fourth quarter 2007.

Sequentially gross margins decreased 200 basis points from 43.6% in the third quarter 2008, primarily due to a higher volume of software licenses recognized in the revenue mix during the third quarter.

SG&A expenses were 24.1% of revenues and 22% for the same period in 2007.

The incremental SG&A expense related to acquisitions was primarily responsible for the increase in SG&A as a percentage of revenue, along with some new positions added in management at some divisions of Tyler.

Net research and development expense was $1.8 million for the fourth quarter 2008, compared to $1.2 million for the same period last year.

The increase is primarily due to staffing increases associated with our joint development effort with Microsoft on the dynamic AX ERP project for the public sector.

Research and development expense for the fourth quarter 2008 was offset by $857,000 of cost reimbursement recognized under the amended research and development agreement with Microsoft.

R&D in the fourth quarter of 2007 was offset by reimbursement from Microsoft of approximately $720,000.

We currently expect reimbursements through the balance of the project of approximately $850,000 each quarter through the end of 2010.

Operating income for the quarter was $9.7 million versus $9.6 million for the fourth quarter 2007.

As we previously discussed, we settled outstanding litigation related to stock purchase warrants and recorded a noncash charge of $9 million in the second quarter of 2008.

This charge was not tax deductible and had the effect of significantly increasing our effective tax rate for each subsequent quarter in 2008 as we must allocate the tax impact prospectively for the 2008 calendar year.

In order to more clearly present our operating results on a comparable basis, in addition to GAAP income numbers we've also provided non-GAAP results that exclude the effects of the noncash warrant settlement.

Reconciliation of earnings before the effects of the legal settlement to GAAP income is included in our earnings release.

For the fourth quarter of 2008, the impact of the legal settlement resulted in an effective tax rate of 47.9% and additional income tax expense of $1.1 million.

Non-GAAP net income for the quarter, excluding the income tax effect of the legal settlement, was $6.3 million or $0.17 per diluted share compared to net income of $6.2 million or $0.15 per diluted share in the fourth quarter '07.

Including the impact of the legal settlement, GAAP net income for the quarter was $5.1 million or $0.14 per did diluted share.

Free cash flow for the fourth quarter was $426,000 excluding real-estate acquisitions of $791,000 versus $8.5 million for the same period in 2007.

Primary reasons for the decrease are the timing of collections on outstanding accounts receivable and the timing of license fee deposits on new contracts.

Our days sales outstanding at December 31st, 2008, were 99 days versus 95 for the same period last year.

For the full year 2008 cash flow from operations was $47.8 million, compared to $34.1 million for the same period in 2007, an increase of 40.1%.

Free cash flow for 2008, excluding real estate acquisitions, increased by $12 million to $42.3 million versus $30.3 million for calendar year 2007.

As we've discussed in the past, our free cash flow had been used for purchases of common stock and we've been a very consistent buyer of Tyler common stock for several years.

We have a long-term outlook when considering the valuation of our stock, and with the recent upheaval in the market we believe our stock is a particularly compelling value.

During the fourth quarter we repurchased 2,089,250 shares of common stock at a cost of $27.7 million.

For the 2008 calendar year we purchased a total of 4,283,074 shares at a cost of $59 million.

Subsequent to the end of the fourth quarter through February 20th, we have purchased an additional 419,100 shares for an aggregate purchase price of $5.1 million, or an average of $12.28 per share.

We now have about 35.5 million basic shares outstanding.

We currently may repurchase up to approximately 1,078,000 additional shares of our common stock under existing Board authorization.

Since the beginning of 2003 we've repurchased a total of 18.4 million shares of Tyler stock at an average cost of $8.10 per share.

Our backlog at December 31st, 2008 was $243.4 million compared to $250.1 million at December 31st, 2007, and it increased from $235.6 million at September 30, 2008.

Backlog related to our software business, which excludes backlog from appraisal services contracts, was $217.8 million at year end compared to$222.5 million as of December 31st, 2007, and it increased from $209.8 million at September 30th 2008.

Appraisal services backlog was $25.6 million at December 31st, 2008, compared to $27.6 million at December 31st, 2007, and $25.7 million at September 30th, 2008.

On the balance sheet we ended the quarter with $11.4 million in cash and investments, and availability of $17 million under our $25 million credit facility.

We established the line of credit to provide additional working capital availability to ensure that we have the flexibility to take advantage of opportunities with respect to potential M&A activity, as well as stock repurchases and capital expenditures.

We also continue to consider leveraging our real-estate assets once we complete construction of our Lubbock's building.

Now I would like to turn the call back over to John for his comments.

Thanks, Brian.

Our 2008 results continue to build on what has been relatively steady and sustained performance from year to year.

We continue to sign new business at a relatively normal rate, even during the current economic environment.

This demonstrates that the value of our product to local and state governments to streamline their operations and become more efficient, and the fact that the purchase of these mission critical systems is often a high priority for local governments looking to replace their older unreliable and unsupportable systems.

During the fourth quarter we signed contracts for financial systems with the city of Douglas, Arizona, the cities of Dublin and Manatee, California, Peoria Unified School District in Arizona, Deer Park Independent School district in Texas.

We signed a contract for school transportation with the San Diego Unified School District.

We signed our 700th client for Courts & Justice and added the state of North Dakota and San Patricia County, Texas.

We signed a tax and appraisal government contract with Bucks County, Pennsylvania.

We signed a multi-suite deal with Sandoval County, New Mexico for tax appraisal reporting and financial solutions.

These are just some of the examples of our new customer contracts.

For the quarter, Tyler signed 61 new named customers, and for the year we signed 271 new named customers all across the country and for all our different offerings.

Of course, all of these are local government clients.

This clearly extends our leadership position in this attractive marketplace.

In addition, we received the following recognition during the year.

For the second consecutive year we were named Forbes list of America's 200 Best Small Companies.

And we were ranked 157 in Software Magazine's Software 500 ranking of the world's largest software and service providers.

As we have reported, 2008 was a very strong year for Tyler.

However, we are very aware of the current challenging economic conditions and continue to monitor these very closely.

What are we seeing currently?

Well, at the macro level, not much good.

Obviously we are in a serious down cycle, and many predict that given the fact that real estate values are central to the broader problem, it has to affect property taxes.

This would clearly put additional pressure on governments that have already been hit hard by declines in sales and income taxes, as well as serious new demands.

Given these pressures we have implemented more active monitoring of activity in our marketplace.

While the broader macro environment is negative, and we have seen some projects delayed or projects shelved, so far at this early point in 2009 RFP activity and our qualified forecasts remain within historically normal levels.

Based on this, and a comprehensive planning process, we are forecasting revenue and earnings growth for 2009.

Consequently we believe we remain in a position to support all of our current strategic product development projects.

Our current plan for 2009 calls for more than 150 new positions, and the fastest growing group is product development.

Never in our history have we had so many resources committed to improving our current offerings while at the same time we invest in new products for the future.

We begin 2009 with a set of factors that we believe will contribute to continued financial performance for Tyler.

We currently have a strong pipeline of sales prospects and a healthy backlog.

We also begin 2009 with almost half of our total revenues generated through recurring sources, such as maintenance and subscription services.

Also, we continue to improve our gross margins and operating margins, demonstrating the leverage we have built into the business model.

This leverage provides Tyler flexibility in its cost structure to respond to changes in the market conditions.

These factors, as well as others, contribute to the following guidance for 2009 calendar year.

We currently expect 2009 revenues to be in the range of $292 million to $298 million.

We forecast 2009 diluted earnings per share to be approximately $0.66 to $0.72.

Fully diluted shares for the year are expected to be approximately 36.5 million to 37 million.

For the year, estimated pretax expense related to stock options and the employee stock purchase plan is expected to be $4.8 million, or approximately $0.10 per diluted share after taxes.

We estimate an effective tax rate for 2009 of approximately 39.7%.

And we expect free cash flow for the year to be within a range of $28 million to $36 million with total CapEx of approximately $14 million to $16 million for the year, and total depreciation and amortization of approximately $10 million.

Excluding CapEx, real estate of approximately $11 million, we expect free cash flow to be between $39 million and $47 million.

Now, Katie, we'll take questions.

We'll now begin the question-and-answer session.

(Operator Instructions) Please limit your question to one and one follow-up, then place yourself back in the queue for additional questions.

We will pause momentarily to assemble our roster.

Your first question comes from [Loren Eastburn] with CJS Securities.

Hi, good morning.

My first question relates to your margin expectations in 2009.

Would you expect to see similar leverage as did you in 2008?

Probably not.

Margins, over time, we believe, as we've said, generally will expand at the operating level, 100 to 200 basis points a year.

We had a strong year in 2008, and the level of growth that we're currently forecasting in 2009 probably wouldn't support that level of margin expansion.

Also, as I just indicated, we are making more significant investments in product development in the year as well and that will put a little pressure on margins.

Right.

And second, your software backlog is down a little year-over-year.

How much of that is any slowing business and how much is pulling revenues out of backlog at a faster rate?

The biggest difference is by design, and that is that we built a stronger than what you might want backlog in our Courts & Justice division through a couple years of very strong performance in the marketplace ahead of us building the infrastructure to be responsive to that level of business.

So a year ago we were certainly in a position where we needed to build out our delivery capacity for that business, and we made a lot of progress on that, and appropriately worked off more business in the Courts & Justice division than was replaced.

We would not have wanted to maintain those levels of backlog in relation to the delivery capacity.

That is the biggest difference year over year, and that's a good thing.

Good, thank you.

Your next question comes from David Yuschak with SMH Capital.

Congratulations on a great year.

As far as the rest of this year, your local governments operate on a June fiscal year.

Is there anything that suggests that a lot of stuff that's been in place happened before this economic downturn that could have a dramatic effect on next year's budget for these guys?

It's definitely the single thing we'll watch most closely as the new year draws near.

As I said in the comments, obviously the broader information and the macro view is that part of this is property values, and that could affect property taxes, and local governments you read about having a lot of pressure on them, and that they're going to have less discretionary resources in a new year.

Certainly we're very pleased with the performance in 2008, and we're approaching March and have pretty good visibility on the first half of this year, and obviously that's reflected in our guidance.

And certainly there's a little less visibility into the second half of the year.

Certainly not for the majority of those revenues but for some percentage of those revenues that would affect earnings.

We need to watch that very very vigilantly and adjust appropriately.

As I indicated in my comments, as well, our RFP activity is almost identical to last year at this point in time.

Not just those issues, but those that we've received and will be due in the coming weeks or months or so, and our qualified forecast, the decisions we see being made during this year that we will be very actively engaged in, is actually relatively strong, certainly within historical norms, but not at all on the weak side of that.

So that's what we can see, and every month that goes by and that remains the case, we'll become more comfortable with the second half of the year.

If it were to change, we'd make the necessary adjustments.

Does the stimulus package help that out at all as far as your concerns?

You don't see an awful lot that is targeted directly at something that would be said to be a project we'd participate in.

But indirectly, I have to think it does.

When the stimulus package provides capital to a school district to repair a roof or build an addition, or do things that we may not directly participate in, that money might have had to have been spent locally, and now that it doesn't, it certainly frees up the resources that might have been committed to that to do other projects that have urgency, which would be those that we do participate in.

So I would expect that at least indirectly, it's a good thing for us.

Okay.

Then one follow-up on that.

On your Courts & Justice, you mentioned building resources to capacity.

As you have built that capacity and the execution, because I know very early you had some problems with execution, are you seeing enough things happening in the execution and the capacity built into existing business that would suggest that you may want to try to ramp that up some more as you go through the rest of this year if the capacity is starting to execute well and that gives you a chance, like you said, maybe get a little more comfortable with your capabilities so that you could do more?

First, David, I have to take exception with the early challenges.

Our first national implementation was Minnesota.

It was extremely successful.

So I think the challenges you are probably referring to are that we did build a big backlog and it was a challenge, obviously, and a good thing, to have to grow the infrastructure to be responsive to that, but I think the quality of that rollout, I want to point out, was very good for a new product.

I think we're over the kind of accelerated growth in those resources, certainly on a relational standpoint, the percentage of people hiring and adding to existing resources.

And it'sll be more steady as we go forward.

We have good visibility on Courts & Justice.

They tend to be larger contracts that are executed over longer periods of time.

So I think it will be pretty steady, less explosive, but a growth rate that is in excess of our overall company growth rate.

Okay, good, I'll get back in queue, thanks.

Your next question comes from Brian Kinstlinger with Sidoti & Company.

Thank you.

You had mentioned RFP activity being similar to last year and decisions being relatively strong.

What can we assume about the low end of your EPS guidance?

What does that assume about RFP activity and decision?

Does it assume there's not going to be delays and that there's not going to be a slowdown in RFP?

I guess the high end would assume that.

So the high end, in a normal year, Brian, based on what we see right now, we would be comfortable with the high end of our guidance because we would believe that the $12 million or $15 million in our plan that we can't give you a name for, that is a deal that's in a forecast, that we're working, that we expect to materialize later in the year, we'd have confidence, based on the weight of that forecast and our competitive position that that level of business would occur.

What's built into the lower end of the range, or could cause a marginal miss, would be if that business dries up, if it gets back burnerred, gets delayed, or of course, as always, if our competitive position wasn't what we'd expect it to be.

So that's really what's built into the lower end of the range.

Great.

I have a handful of questions related to the backlog, Brian, if I could, so we can assess visibility.

First, can you tell us how much of backlog do you expect will turn to revenue in 2009, 12 months?

Yes, the total 12-month backlog, the $243 million, we think about $181 million would be delivered or recognized during '09.

And you will recall, backlog includes, with respect to maintenance, it only includes the unexpired portion of current maintenance agreements so it doesn't include anticipated renewals.

So with respect to maintenance we obviously have much more visibility than just the backlog.

How much of that $181 million is actually software license that you expect to recognize that's already in hand?

In the $26 million range would be the licenses in backlog expected to be recognized in '09.

How does that compare to last year?

A little above last year.

Couple million dollars above last year.

Then in that whole line of thinking, what is in your software license, what do you assume -- maybe it's a wide range, I'm not sure, for 2009, based on where the market is?

Basically sounds like you have similar software license in hand.

What do you assume for revenue then?

We don't break out, obviously, the guidance at the revenue lines, but we would expect, if you look at our overall guidance of the range of 10% to 12% revenue growth, the license would be a little bit above the blended growth.

Okay.

And how much, just so we know, since criminal justice had that large buildup in backlog, how much of, I think the software license is the most important point that I'm looking at, is software license in the criminal justice backlog.

Are you able to provide that?

Or even a rough percentage?

It's less than half.

Of the part that we'd expect to recognize during the year, it would be in the $10 million, $11 million range.

In a normal year -- I don't even know about a normal year -- just give us a sense for, suppose you have a software license in hand, how likely could it be or has it been, because I think John you mentioned there's some projects that get shelved and some that get canceled.

Do those actually happen if something is already signed and in backlog?

And how often does something like that ever happen?

Very rarely.

I can think of one name in the last two or three years.

So the stuff that you say gets shelved and canceled, is still that maybe you were looking at, sales cycle for the year, and they realize we're not going to do this right now?

You want to remember that local government has an appropriations clause, and they are not allowed to sign contracts that are not funded.

So most of our contracts, virtually all of our contracts, have funding in place when those contracts are signed, and it's pretty rare that that funding goes away.

They have a responsibility for it.

You will hear about nonfunding or nonappropriation clauses.

It could be that in a multi-year ASP arrangement, that the out years are not funded and that they would have an out of a contract on that, but for a specific contract within a shorter period of time, they've made a commitment to the funding, and it's in place when they sign that contract.

It's pretty much enforceable.

Last question, then I'll let others ask questions.

Can you maybe talk about -- it sounds like there's a bunch of states that are looking at such a product.

In those discussions that you're having where budgets aren't as good as municipalities, what are they saying as it pertains to price given today, in terms of budgets, and in terms of timing?

Our guys in the Odyssey channel, the state initiatives that they're tracking, the large county initiatives that they're tracking, have stayed in place, and we continue to get some awards.

But again, we track a heavier forecast there, and we have not seen the statewide deals and the type of top 20 county deals where we've done well, we haven't seen those coming off the front burner.

So we do forecast deals, large deals in the Odyssey side of the business.

Now, having said that, that's a division that has larger contracts that get executed over a longer period of time.

Virtually all of their business in the '09 plan is in backlog, whereas most of your exposure on names that aren't under contract would be more on the financial side.

And I was going to ask about Odyssey, but in a normal, call it $1 million of software license you sign, say, today, how much of that gets recognized in the next six to 12 months, and how much of it is over a longer course of time?

Based on Odyssey, I would say maybe you'd recognize half of it or so within the current year, maybe a little less, and that all of it would be recognized, in some cases over 24 to 30 months.

It's a longer cycle.

It's a COC recognition.

In a standard deal for financials and other parts of the business, I would say more like 70% or 80% of it for something signed in the next 60 days would be recognized within this current fiscal year.

And the last 30% or so would slide into the following year.

Thanks very much.

Your next question comes from [Daniel Alching] with (inaudible) Capital Advisors.

Appreciate you taking my call.

You've been pretty aggressive on the share buyback front in 2008 and it looks like you've continued to do that so far in the first quarter.

But just based off your guidance for (inaudible), did that slow down in the second half of the year, especially as you have levered up a little bit and the cash balance has come down quite a bit?

Our guidance for share count really assumes no more.

We don't assume any more repurchases.

So to the extent that we have repurchases, it would further lower that, but it would also lower either interest income or some other aspect.

Usually it's somewhat of a push on the EPS side.

But the forecast really assumes we don't try to forecast what those repurchases will be.

We're somewhat opportunistic about it, and we weigh what our other options for cash are, capex, investments in M&A activity, and so we don't try to forecast what that will be.

So it's probably safe to assume that first quarter in December right now, and that's it.

That's correct.

Okay.

And then finally, maybe I'm thinking about this the wrong way, or maybe you could help me out on this.

But in your software license costs there's obviously the amortization effect or impact of the software development development costs that run through there.

As you go to the balance sheet there's also that software line, that's the intangible, that has been decreasing very steadily quarter after quarter.

Is it fair to think that eventually that software just gets totally amortized, and that can be backed out or going away out of your costs and you can see margin expansion on that front?

That's correct.

There actually is a pretty significant amount of that from '08 to '09.

So our internally developed software.

And the software falls in a couple different categories.

There's acquired software, which is the part of the purchase price of a company that we allocate to their software, and that shows up as a separate income statement line.

And then we have amortization of software that we've developed internally, and in the latter, the internally developed software, that amortization was about $4.8 million in '08, and that goes down to around $800,000 in '09.

Okay.

So slowly and surely that just wears off and it's gone, and you can see some favorable impact on that front.

That's correct.

We haven't really -- we capitalized no software last year.

In the last three years we haven't capitalized any significant amount, so to the extent new software goes on the books it really comes through acquisitions.

Very good.

Congratulations on the quarter.

(Operator Instructions) We'll take another question from David Yuschak with SMH Capital.

In your cash flow from operations estimate, do you have anything in there for deferred revenue as a plus or a minus?

In '09?

Yes.

Yes, we assume an increase in deferred revenue in line with our historical.

There's generally a historical rate that you look back at how deferred revenue has grown with our revenues.

It's a fairly consistent ratio and we assume a similar situation.

We do have a fairly broad range on the cash flow because there are items like deferred revenue and receivables that the timing of some of thesis larger payments, either a customer payment, can have a fairly significant effect on that range.

Because that number has gotten to be pretty important to you here as you have grown out your -- that's primarily the Courts & Justice.

Would that be more Court & Justice then in that deferred revenue?

That's really all across the board.

Most of it comes from maintenance, which is generally paid annually and generally paid advance.

And maintenance has grown above our overall growth rate, including with the acquisitions.

So maintenance is becoming a more important part of that mix than anything else.

The biggest piece of the deferred revenue.

Then one last question.

As far as you all seeing more RFP, as equal RFPs as you did you a year ago, is that, would you say, John, are you getting more visibility in the marketplace that you are seeing more relative to maybe what you may have seen a year or two years ago just because of the capacity you have to respond to them?

We try to normalize that.

It's almost like a same-store approach.

So I don't think so.

When we add a product or add a geography, that is reflected in what I'm saying.

As I've said previously, the volume or the weight of the RFPs last year was below historical levels.

But we perform well in that market.

The average transactions were larger and our competitive position was improved, and that's where the results came from.

So far into this year, which is more than seven weeks, because we have received all the RFPs we are going to be responsive to, it has remained roughly at that level.

I actually think it's a few higher.

We haven't seen a dramatic fall-off.

What we all want to see is certainly, a little bit already I think we can take from that and take a lot more over the next 30 or 60 days, that when you are responding to RFPs in March and April and May, and some of these that we've received are due then, those are next year budget RFPs.

We're not issuing an RFP in March to spend money from the current budget.

If we're where we are 30 or 60 days from now, if we still can say what we're saying, I think we'll be saying we feel better about the second half of the year as well.

So the second quarter RFP is really your indication of what's happening on the budget side.

I think we're already getting into that.

There's not an RFP that we are going to receive today or deliver or respond in to the coming weeks that they expect to make a decision and deliver and spend money out of a current year budget.

Those are RFPs that are being released for next year.

Again, as we get a little more visibility on that, hopefully we'll be saying we're more comfortable with the second half of the year.

Given what's happened to the economy already, that kind of evidence is at least an encouraging sign, I would have to say.

Thanks a lot.

(Operator Instructions) We'll go again to Brian Kinstlinger with Sidoti & Company.

In the fourth quarter could you tell us how many RFPs you responded to and the average size?

I think you may have gave that last quarter.

I don't have it right in front of me.

We do that have.

I would have to get back to you.

That's okay, we can do that off-line.

I will follow-up.

That gets rid of my second question, but my third one, and final one, is, on the cash flow, what is the sort of range, Brian, you are thinking about in terms of DSO?

DSO would be pretty consistent with where it is.

Or where it has been historically quarter to quarter.

We have not seen a decline in the quality of receivables or the timing of collections, and so the range would be where it is to at the lower end modestly higher DSO.

But we don't expect to see and have not in recent quarters seen any deterioration there.

Great, thank you.

At this time, there appear to be no more questions.

Mr.

Marr, I will turn the call back over to you for closing remarks.

Okay, thank you, Katie, and we appreciate everybody's participation on the call today.

If there are any further questions, feel free to contact Brian or myself.

Thank you.

Have a good day.

This does conclude today's conference call.

We thank you for your participation.