泰勒科技 (TYL) 2009 Q4 法說會逐字稿

Welcome to today's Tyler Technologies fourth quarter 2009 earnings conference call.

Today's call is being recorded.

Your host for today's call is Mr.

John Marr, President and CEO of Tyler Technologies.

Mr.

Marr, please begin your call.

Thank you, Erin, and welcome to our fourth quarter 2009 earnings call.

With me on the call today is Brian Miller, our CFO.

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

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

Brian.

Thank you, John.

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

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 that could cause results to differ materially from these projections.

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

John?

Today we were pleased to report our 35th consecutive profitable quarter and strong full year results.

Overall, business continues to perform well relative to the economic environment.

Tyler posted results for the fourth quarter and full year that generally met or exceeded our expectations.

In fact, we reported fourth quarter and full year 2009 record revenues and earnings.

For the quarter, we posted substantial growth in software licenses, maintenance, and subscriptions that resulted in a strong finish to 2009.

In fact, we reported the highest license revenues in the last five quarters.

However, you should expect some lumpiness due to the unpredictable timing of closing deals and recognizing revenues, particularly in our financial management solutions.

For the full year, Tyler's overall revenue grew by 10%, which was somewhat below our expectations and below our historical growth for the past several years and reflects the [limpid] sales cycle we've been experiencing due to the economic conditions.

Our strong results reflect the solid base of recurring revenues which approximate 50% of our total revenues, as well as our continued improvement in gross margins, which together contributed 21% increase in earnings per share for 2009.

We're especially pleased with our 2009 free cash flow, which excluding our office construction expenditures, was $40 million, which supported some small acquisitions and the continuation of our stock repurchase plan.

As you know, free cash flow is after all product development, which is expensed.

R&D for 2009 was up 53% over the previous year.

While the environment remains fragile and slow-moving, we finished the year with a solid backlog and sales pipeline carryforward in 2010.

Now I'd like for Brian to provide more details on the operating results.

Thanks, John.

Yesterday afternoon, Tyler Technologies reported its results for the fourth quarter ended December 31, 2009.

You all have access to the press release and our Form 10-K has been filed, so I'll limit my comments and focus on providing an analysis to key factors contributing to our results this quarter, then move onto John's comments on the current quarter, our annual results, and outlook for 2010.

In addition, as you know, our fourth quarter 2008 results included the effect of the noncash legal settlement pertaining to warrants.

In the second quarter of 2008, Tyler recorded a one time noncash charge of $9 million.

Because the settlement wasn't tax deductible, the tax rate was affected for the quarter ended December 31, 2008.

The impact of this legal settlement is reflected in net income and net income per diluted share for the fourth quarter of 2008 and in operating income and net income per diluted share for the year-ended December 31, 2008.

For comparability purposes, my comments regarding comparisons between periods reflect the non-GAAP numbers for 2008 that exclude the impact of this settlement.

Our press release includes a reconciliation of our GAAP results to the non-GAAP results in 2008.

Revenues for the fourth quarter were $74.2 million, up 6.7% from the fourth quarter of 2008.

Organic growth for the quarter was approximately 6.5%, and less than 0.5% of our growth as a result of acquisitions we made over the past 12 months.

Our software related revenues, consisting of software licenses, subscriptions, software services and maintenance, increased 8.9% from the fourth quarter of 2008.

Software licenses increased 14.8%, primarily driven by an increase from our courts and justice products that included relatively higher license revenue relative to services, higher rates from improved installation processes, and achieving milestones on several contracts.

This was the third highest quarterly license revenues in the company's history and a jump that's the highest in the last five quarters.

Subscription revenues grew 15.9% 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 three new ASP customers and converted 13 existing customers.

Maintenance revenue growth was 14.3%, with acquisitions accounting for less than 1 percentage point of the growth.

A combination of annual rate increases and new maintenance revenues associated with new customers drove the increase, which was above our overall growth rate.

Together, recurring revenues from subscription and maintenance comprised 49.7% of our total revenues for the quarter.

Software services revenue had a modest decrease of 2.8%, with most of the decrease attributable to lengthened sales cycles for our financial management positions.

Finally, appraisal services revenue was down 15.4%, an expected decline as we successfully completed several revaluation projects in the fourth quarter of 2008 and the first half of 2009, as well as the Orleans Parish valuation project that began winding down in the third quarter of 2009.

However, our appraisal business has been historically been cyclical.

We believe for 2010, the appraisal business will see modest growth, particularly in Indiana where we signed reappraisal agreements with 23 counties totaling over $10 million for their current cycle.

For the fourth quarter of 2009, our blended gross margin increased 320 basis points to 44.8%, compared to 41.6% in last year's fourth quarter.

The improvement is attributable to favorable revenue mix that included more license and maintenance revenue and reduced software amortization costs.

The reduced amortization accounted for about 170 basis points or a little over half of the 300 basis point gross margin improvement we saw for the full year.

Sequentially, gross margins were essentially unchanged compared to the third quarter of 2009.

SG&A expenses were 24.9% of revenues versus 24.1% for the same period in 2008.

The increase in SG&A expenses is primarily attributable to higher stock compensation costs, commission costs, and marketing costs.

Our SG&A headcount at year-end was 4% higher than at December 31, 2008.

Net research and development expense was $3.1 million for the fourth quarter of 2009 compared to $1.8 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 Dynamics AX product for the public sector, as well as increased research and development spending on other Tyler products.

Research and development expense for the fourth quarter of 2009 is net of $895,000 of reimbursable development work, recognized under the amended R&D agreement with Microsoft.

R&D in the fourth quarter of 2008 was offset by reimbursable development work from Microsoft of approximately $857,000.

In the fourth quarter of 2009, we expanded our arrangement with Microsoft to include payroll, human resource, and budget functionality that will result in additional R&D expenses in 2010 through the first quarter of 2012, as well as additional reimbursements from August 2010 through March 2012.

We expect that offsets to research and development expense for this effort will vary by quarter.

Operating income increased 12.8% to $10.9 million versus $9.7 million for the fourth quarter of 2008.

Net income for the quarter was $6.7 million or $0.18 per diluted share compared to non-GAAP net income of $6.3 million or $0.17 per diluted share in the further quarter of 2008.

Free cash flow for the fourth quarter was $10.5 million, excluding office construction costs of $2.5 million, compared to $426,000, excluding office construction costs of $791,000 for the same period in 2008.

The primary drivers for the increase are timing of collections on outstanding accounts receivable and collection on certain annual maintenance billings in 2008 that were build quarterly.

Our days sales outstanding at December 31st, 2009 improved slightly to 98 days from 99 days at December 31, 2008.

Free cash flow for the full year 2009, excluding real estate acquisitions and office construction costs, was $40 million compared to $42.3 million for calendar 2008.

During 2009, we repurchased 1.234548 million shares of our common stock at a cost of $17 million.

We now have about 35.1 million basic shares outstanding.

We currently may repurchase up to approximately 2.2 million additional shares of our common stock under existing Board authorizations.

From 2002 through 2009, we have repurchased a total of 19.2 million shares of Tyler stock at an average cost of $8.37 per share.

We didn't repurchase any stock in the fourth quarter of 2009, but have repurchased approximately 59,000 shares since year-end.

Our backlog at December 31, 2009 was $233.1 million compared to $249.8 million at December 31, 2008.

Backlog increased $1.6 million from September 30th, 2009.

Excluding backlog from appraisal services contracts, software backlog was $209.7 million at year-end compared to $224.3 million as of December 31, 2008, and up slightly from $209.2 million at September 30, 2009.

Appraisal services backlog was $23.5 million at December 31, 2009 compared to $25.6 million at December 31, 2008 and $22.3 million at September 30th, 2009.

On the balance sheet at the end of the fourth quarter of 2009 was $17.7 million in cash and investments with no short or long-term debt, and availability of $23.7 million under our credit facility.

I'd like to turn the call back over to John for his comments.

Thanks, Brian.

Our 2009 results continue to build on what has been relatively consistent and sustained performance improvement from year to year.

As we previously indicated, this quarter marks our 35th consecutive profitable quarter.

Tyler also begins the year with an active pipeline of new business and a strong backlog that grew from the third quarter of 2009.

In fact, in the fourth quarter 2009, we added substantially to our business, as evidenced by many contracts we've announced.

Tyler disclosed six new contracts for our financial and ERP solutions totaling approximately $8 million, and three contracts for our courts and justice solutions for approximately $8.1 million.

In addition, we announced two contracts for our tax and appraisal solutions totaling approximately $4.2 million, and during the year we signed 22 new arrangements for over $10 million with counties in Indiana to provide reappraisal services.

While our results and outlook are not at the levels we have experienced in better environments, we continue to make significant progress toward our long-range objectives.

These are results made possible by the consistently exceptional performance of our team of employees who continue to make Tyler such a successful and great place to work.

During the year we received the following recognitions that reflect the dedication of our employees.

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

In the two states where we have the highest concentration of employees, Texas and Maine, we were named as one of the 100 Best Places to Work in the Dallas/Fort Worth area by the Dallas Morning News, and Tyler was also ranked number three in the annual Best Places To Work in the state of Maine.

2009 was a successful year for Tyler, especially considering the current uncertain economic conditions.

While our revenues and earnings growth certainly slowed from the rates was he achieved in recent years, we had our best year ever in terms of both revenues and earnings, which is quite an achievement in this environment.

We continued to see longer sales cycles in the marketplace, much as we have the last several quarters, which with expended decision processes, more decision makers involved in the deals, and heightened budget concerns.

Nonetheless, the market continues to have a reasonable level of activity.

Again in the fourth quarter of 2009, both the number and total dollar value of new hire fee responses was higher than the same quarter a year-ago.

With our highest fourth quarter revenues ever, we still sign new business at about the same rate we recognized revenue and we entered 2010 with over $233 million in backlog, up slightly from Q3.

A stable base of recurring maintenance and subscription revenues that account for about half of our total revenues and extremely high customer retention.

While we already maintain a strong competitive position in the marketplace, we continue to invest heavily in product development, both enhancing existing products and adding new ones.

During the year of slower growth, we spent more on product development than ever before, even while some competitors cut back on discretionary R&D spending.

We believe this strategy, while reducing current earnings, can serve us well in terms of our long-term competitive position.

Our 2010 guidance assumes the continuation of the current economic environment throughout 2010.

Our plan also reflects our expected continued aggressive investment in our products and businesses to further our competitive position.

Consistent with our historical trends, we expect the first quarter of 2010 will not reach the level achieved in the fourth quarter of 2009, and will likely be below last year's first your earnings.

More than 60% of our annual earnings are expected to come in the second half of 2010.

With respect to our guidance to 2010 calendar year, we currently expect 2010 revenues to be in the range of $314 million to $321 million.

We forecast 2010 diluted earnings per share to be approximately $0.76 to $0.81.

Fully diluted shares for the year are expected to be approximately 36.5 million to 37.2 million.

For the year, estimated pretax expense related to stock options in the employee stock purchase plan is expected to be $5.6 million or approximately $0.12 per diluted share after taxes.

We estimate an effective tax rate for 2010 of approximately 39.8%.

We expect free cash flow for the year to be within a range of $40 million to $45.5 million, with total CapEx of approximately $5.5 million to $6 million for the year and total depreciation and amortization of approximately $11 million.

Excluding capital expenditures pertaining to the completion of our office construction of approximately $2 million, we expect free cash flow to be between $42 million and $47.5 million.

Now, Erin, we'll take questions.

(Operator Instructions).

Our first question comes from Brian Kinstlinger with Sidoti & Company.

Thank you, good afternoon.

First question I have is what amount of your backlog is software license that you expect to turn a revenue this year and what's assumed in your guidance for software license growth, similar to the question I asked last year at this time?

We look for -- in the backlog at year-end, there's about $28 million of licenses and we'd expect that somewhere in the range of $18 million to $20 million of that would be delivered, recognized in 2010.

Then in terms of the mix for 2010 in general, we'd expect that license growth would be around the overall growth level, maybe slightly above, but generally in line with the overall growth level.

Services would likely be a little bit below the overall growth level, prescriptions are likely to grow substantially faster than our overall growth level [off a small base], and appraisal services likely will be above our overall growth level.

I'm interested, last year you had $26 million in software license that you expect in backlog to be booked.

And so, with less this year, why would you expect software license to grow faster than the company?

Right.

You have a lower amount of software license and backlog, but you expect to be higher at the end of the year.

I don't expect it to be much higher.

Right, right.

Modestly.

And that's obviously -- licenses are the areas that are the most difficult to predict, and subject to actually buying deals and timing and most difficult to predict.

When you look at the range of our guidance, they biggest variance is in the license size.

What's the right number?

$26 million from last year?

That you had in backlog?

$18 million to $20 million?

That sounds about right.

I'll get back in the queue for another question.

Okay, thank you.

We'll take our next question from Nathan Schneiderman with Roth Capital Partners.

Hi, John and Brian, thanks very much in advance for taking my questions.

I want to ask you a handful of quick ones on data items.

On total backlog, what's the dollar amount current versus long-term?

Total backlog, the $233 million total backlog, about $170 million is expected to be recognized in 2010.

And about $63 million beyond that.

Okay, and then could you give us the number of deals over $100,000?

And the ASP?

For the year?

For Q4.

I don't have that at my fingertips.

The full year number is in the MD&A and our 10-K.

I can do the math on that.

John, you referenced a few different times, the sales cycles have increased, but if you look at the sale cycles in Q4, relative to the recent quarters, let's say Q2, Q3, very they gotten longer relative to that?

Are they stable?

Are they getting better?

It's a moving target.

In Q4 deals, we would have had in mind as we described the marketplace in Q2 and Q3, made progress, but I guess I would say it continued to lengthen.

Again, deals we were thinking of as we would have talked about, things continuing to move forward, but slowly move from the award stage to the contract stage, but they're still not to a point where we'll sending people to the site and billing them and recognizing revenues.

I would say they have continued to lengthen.

Final question for you.

Can you characterize the extension to the Microsoft agreement for HR payroll and in budgeting?

How significant a deal is this?

When do you expect these three products to be completed?

And when do you expect revenue from them?

Thanks very much.

Sure, yes, I think it's significant, Maybe the most important significance of it is obviously the recognition by the partners, Microsoft and Tyler, that we believe we're having a lot of success developing a great product together.

And we both want more of it, and we're both encouraged by the productivity, the quality of the product, and our anticipation of the reception that we'll get in the marketplace.

So I think that's all very good.

I also consider it significant because I've always felt that a core financial product includes payroll and human resources as well as budget certainly in the local government marketplace.

The biggest difference between accounting and local government versus the commercial sector is it's strictly tied and actually legally tied to the budget and the whole idea of budgets and encumbrances are very strict and important to that process.

So I think it's important to have a budget preparation system that's seamlessly integrated to a financial system.

If you looked at schools, for example, which you know is a significant part of our business, as much as 80% of the school budget is payroll and human resources.

Again, a seamlessly integrated payoll, human resource system I think is going to very much support better reception of the financial system as well.

We think it's significant and we're very excited and probably would have been disappointed for the partnership not to go in this direction.

In terms of timing, we continue to look at a spring of next year release of the original products included in our relationship.

And this is still early, even getting out of the block on payroll, human resources.

So we want to be careful of upgrading an expectation that's too specific, because again, we're still defining the scope of that project and so forth.

But was I expect it would be released at least 12 to 18 months after the release of the original system.

Sir, does that answer your question?

Yes, thank you very much

Okay, we'll hear next from Raghavan Sarathy with Dougherty & Company.

Thanks for taking my questions.

I have two questions and the first one has three parts.

About Microsoft project, John and Brian, you both talked about -- first of all, could you help us understand how much additional total investments that you are trying to make in R&D this year, including Microsoft?

How much would be related to Microsoft?

And how much do you expect to get reimbursed?

Okay, we expect that our total R&D spend in this year will be up about 35% from around $11 million to around $15 million.

That's the R&D line.

There are also incremental spends that are expensed to services.

So as we indicated, we're continuing to increase our investment in product in general.

Certainly there'll be -- there are people being redeployed from the original project, as we actually get closer to completion on that, and there are certainly new heads as well for the payroll, human resource, and budget project.

The net spend is actually not considerably different than the historical net spend, as a result of increased reimbursement.

But beyond that, I'd rather not get too specific.

I think our R&D spend and getting too granular on that is a competitive issue.

So I'd like to leave it at that.

Okay, I guess what I'm trying to understand is you're expecting only 40% earnings in the first half of the year.

I'm wondering if there is maybe a taking R&D expenses up, but the reimburse might start back half of the year.

Can you help us understand that -- ?

The net spend for Microsoft really won't be materially different in the first half of the year.

It would be some increased spend in other Tyler initiatives and it would be lighter revenues in the first half of the year, and it's really increased revenues in the second half of the year.

And that's not really just banking on a better environment.

These are specific deals that we have on the calendar, and in some cases, POC contracts in backlog.

It's just the way it lays out.

All right, and okay, so my second question is about leverage.

If you look at the year-over-year growth at the midpoint of your revenue, EPS and cash flow from operation guidance, we are looking at 9% for revenue growth, 7% for EPS growth, and 13% for cash flow from operations.

So this implies that you're expecting leverage on the cash flow from operations line, but not on the EPS line.

So I'm wondering, whether you consider the EPS guidance or are you going to take some expenses, but [related] anticipated bookings, but recognize them later.

How should I think about the lack of leverage in P&L related to cash flow?

The P&L side is primarily -- the R&D would be the biggest piece there.

As John said, we're looking at going from the $11 million range to $15 million in R&D expense, as well as other development expenses up in the operations line.

Just that $4 million increase in R&D line is about $0.07 of EPS change.

On the cash from operations, it's more of a function of the cash flow from the -- or the leverage that we get from increasing maintenance, increasing subscriptions, and some of the timing of payments, new deals where we're collecting cash more upfront, but may have deferred revenue recognitions, POC revenue recognition that pushes out revenues that hit the P&L.

All right, thank you.

Our next question comes from Torin Eastburn with CJS Securities.

Good afternoon, just a few quick ones.

First I'm trying to make sense of the very specific financial guidance you've given.

Do you have an expectation about gross margin and whether it'll be up or down next year?

The current -- I mean if you do the math from the top and the bottom line, it implies relatively flat gross margins.

Okay.

It -- about 10% range of growth.

We would -- with the investments that we're making in some of the product initiatives, at this investment level, we don't get a lot of gross margin improvement.

And as we start to ratchet up the growth, we start to see that margin improvement more in the 50 basis point, 100 basis point improvement that we talked about more as our long-term annual goals at that double-digit growth.

Okay, and my other question, in this environment, are you finding that your customers are more willing to spend on any certain product suite or product type?

No, not necessarily.

Okay, thank you.

We'll hear next from Kirk Materne with Rafferty Capital Markets.

Thanks very much for taking my question.

I guess, John, maybe what I'd like to explore on the incremental R&D spend for 2010 was, was there a point in the last quarter where you all saw something in the market that you saw that -- I guess was there a change in your thinking around the level 2010 spend over the last few months or was this something you had planned for a while?

I knew you weren't going to address 2010 guidance with us before now.

I'm trying to get a sense on whether something's changed either competitively in the market, technology-wise, and you guys are incrementally -- pulling up spend incrementally to take advantage of that, versus maybe this will just serve your long-term plan all along?

That's a good question.

I apologize for not getting too granular here, because I think some of this is competitive, obviously if we get real granular about exactly what we're doing.

The answer is across the board, certainly the majority of what we're doing are long-term projects that we continue to support.

And none of the long-term strategic initiatives that have been planned in our long-range planning, none of those have been compromised as a result, and we think that's the right decision.

There is also some incremental spend going on in the other categories you mentioned.

Both of them, really.

There are some market issues, and some competitive issues that we feel is important to be responsive to as we would have been historically, and so we've gone ahead and addressed those things.

Tyler has never said this before -- we certainly focus on earnings, but we have never had a well-supported, well-justified product investment that we haven't funded.

We continue to do that and there have been some of those as there have been in the past.

And then your other area was driven by technology and there's some of that as well.

I won't again get too granular, but there certainly are some new technological releases, tool sets, development environments, et cetera, that have been enhanced that we use to give us an opportunity to improve our product dramatically by applying that new technology to existing products.

And we're certainly going to be very aggressive about applying that new technology.

The majority of the spend would be the core ongoing long-term projects that have been underway and in the plan for a long time, but there certainly are some incremental spends to address competitive issues as well as to take advantage of new technology that's been made available to us.

That's great, that's really helpful.

Thanks.

I guess just maybe, my second question -- sorry if you addressed this in your prepared remarks, but can you give us some color on the -- if there's been any real change in inflection in terms of demand for some of your on demand offerings recently?

Well, I think we had it continues to be consistent with what we've talked about in the past.

I think we signed three new ASP contracts in the quarter, which is pretty healthy.

But we had 13 conversions to existing clients moving into the ASP environment.

So I would say, as I think we said last quarter, we're seeing some modest increase in that.

Obviously it reduces their initial spend for the new clients and that's helpful in this environment.

And for existing clients that may have turnover in personnel or capital requirements in their infrastructure, they may look to us to get into a more consistent spend that eliminates those capital investments or replacing FTEs as they go offline.

So we've seen at least some modest increase in that.

And we have in addition, Kirk, we've added new products that are delivered in that hosted ASP environment that we rolled out in the fourth quarter.

Odyssey Online, which is a hosted version of the Odyssey product, and have -- are starting to see some traction in the market there.

Okay, thanks very much.

Sure.

We'll go now to David [Duchamp] with Madison Williams & Company.

Good morning, guys.

Help us conceptualize on this R&D spend as you ramp it up this year on an absolute basis, knowing that you're supporting new initiatives here as well as bringing on enhanced versions of what you already have.

Should we be thinking longer term though that your R&D's going to be a certain percentage of spending, or is it going to ebb and flow on a dollar basis point of view?

It'll be driven by some of the things that I talked about addressing Kirk's question.

Certainly it's hard to predict what the competitive environment is, the kind of technological opportunities we'll have and we wouldn't want to paint ourselves into a corner.

Again, it's not that we give our development managers every body they ever ask for, but again, if there's a good fundamental argument for a particular investment, it gets supported at Tyler.

I do think our increase right now is pretty significant in relation to revenues and I would expect that we're ramping that up to a level that should serve us well for some period of time and we should see leverage as we come out of this year.

That's my expectation, but again, we'll be opportunistic about what the marketplace and technology gives us.

Okay, then as a follow-up to that, when you talk about the leverage in your R&D, how do you visualize as you roll out the product early next year?

How do you visualize how that's going to happen?

Whether it's going to be a lot of your effort, or is it going to see more royalty income potentially coming out of Microsoft's sales support here, or give us some sense as to what your initial impressions might be as you go to market with it?

So obviously you're thinking of the rollout of the Microsoft product, which I just want to make sure is clear, shouldn't imply that's the entire spend of the increase in R&D.

Again, Tyler has a wide range of products and a lot of that spend is going into the various products that we sell.

And again, we have a multiple of that spend that is expensed through cost of maintenance and for existing products as well.

There's a lot of this going on.

In regard to Microsoft specifically, we haven't encouraged anyone to forecast an awful lot of revenue next year, even though the product will be released.

It's hard to predict how quickly products will ramp up, and while there are early adopters already in place and we'd expect to have references and a product that's more ready for market than things have been historically, it's hard to put a big number on that for 2011.

But certainly after that, we'd expect to see those revenues be more and more meaningful.

I think that we'll see -- I think we'll see revenue from both channels.

We're supporting Microsoft's efforts with their partners.

They have interested partners in different parts of the world in markets we don't currently support, and we certainly would expect to see new revenues from their channel, and all of those revenues obviously are incremental.

We're already introducing the product to our sales channel and selectively to clients, and I think it will get a certain share of our existing marketplace.

And certainly our hope and expectation is that it will also make us competitive in certain segments of the market where we've been less competitive historically.

So we'd like to see some incremental revenue on our direct lines as well.

Okay, that's it for me, thanks.

Sure.

We'll take a follow-up question from Brian Kinstlinger with Sidoti & Company.

Great, thanks.

David just mentioned the rollout timing.

I just wanted to be clear, when is Dynamic?

I know you're pushing the market lightly right now, but when is the official launch expected?

First quarter of next year?

Second?

Uncertain?

Can you give us a sense for that?

Dynamics, sorry.

Yes, it'll be the late first quarter or into the second quarter.

I mean, there's not a specific date, but a little uncertainty -- but at this point, we don't expect any meaningful change to that.

And just a follow-up.

I want to be clear, the $15 million you mentioned is after reimbursements, right, for R&D for the year?

Total R&D?

Correct.

That's correct, but across all products.

No I'm aware, I just wanted to make sure -- after you've been reimbursed.

For acquisitions for the year, you did a couple of small ones.

What is the contribution in your guidance, A in software license, and B overall for acquisitions, please?

That you are expecting?

It's pretty small -- in total, probably in the $3 million ish range.

That's overall.

Yes.

And license, the mix is probably a little less license than our overall mix, so probably more than the maintenance or recurring revenue side.

By my calculations, you don't provide a bookings number, but we can come to it, obviously we can calculate it for the most part.

You're up 8% year-over-year in 2009 and about $280 million that's what I get, maybe I'm wrong -- but if it's up 8%, I'm wondering, excluding acquisitions, why you are seeing a modest deceleration in revenue growth?

I know you're talking the length of the sale cycles, but you started this year pretty strong as well.

Is there concern for how the rest of the year plays out?

I think there's -- I don't think the difference is very much, but I think it's a little bit of a lack of visibility particularly as you get later in the year and more uncertainty over the license side.

So what we'd expect really is -- from what we see, we would expect to see better bookings in the coming months.

Bookings were decent in the fourth quarter, we'd expect bookings to be -- I don't want to say strong, but modestly better and a little more encouraging as we go forward, but right now we're working on a book of business that's not as robust as it's been.

Our utilization, really, if you want to look at it that way, of people, the licenses they drag on POC contracts, et cetera, has US a little bit slow right now.

And we'll see that in the first quarter, as we indicated in the prepared remarks around and maybe into the second quarter, a little bit.

And then I think the contracts we signed in the fourth quarter the announcement of South Dakota that isn't in that, and other deals that we're in contract negotiations on will start to drive up utilization rates for people that drag license revenues in the second half of the year.

So it's really the softness in this first half of the year, which is a little bit of a tail on weaker market last year, that I think keep us in that growth range.

Follow onto that, I think the mix of the bookings in 2009 probably had a little higher proportion of things recognized on a percentage of completion basis, some of the bookings particularly in the latter part of the year.

As John mentioned, the South Dakota contract we announced a couple days ago, the first quarter bookings -- there's more POC stuff that is recognized over a longer period of time and those -- some of those push on out past 2010.

One more question.

Odyssey, qualify or quantify, if you can quantify, that'd be great -- the courts and justice pipeline, and maybe update us on the Ohio partnership.

Is Ohio moving forward right now or having delays there as well?

Pushing out RFPs and stuff like that?

I think Ohio is -- the relationship is evolving and growing but we don't have meaningful announcements in terms of new business there or expect that to play a big role certainly in the first couple quarters of the year.

The backlog, I think is really, as you know, a couple years ago, their backlog was high, higher than we'd even want it to be in terms of being responsive to it.

And we worked it down a little bit and have got a pretty stable level at this point.

Thanks, and finally, can you quantify what software amortization looks like this year given we've seen falloff will there be a modest falloff again this year?

Hang on just a second.

For the expectation for software amortization for 2010, yes, a modest falloff.

It fell from internally developed software -- total software amortization we went from about $6.6 million to $2.2 million from 2008 to 2009.

There's a modest falloff from the internally built software, goes down to couple hundred thousand.

There's a bit of an increase from amortization from acquisitions we've made in the last year.

So actually total software amortization will be up a couple hundred thousand dollars in 2010 relative to 2009.

All that amortization you're talking about is on the software license line, not the amortization below the gross margin line, right?

That's right.

Thank you very much.

Next we'll go to Stephen Rogers with [Jay & Whitney].

Hi, thanks for taking the question.

Could you give us a feel for the revenue you still need to find?

If you take the $170 million of revenue from backlog, plus I guess there's always some maintenance because contracts are anywhere in the yearly cycle -- if you put an estimate for that, how much revenue do you need to actually win and recognize in the year?

As we go into the year, if you look at revenues coming from either -- recurring revenues, maintenance and subscription, or things that are already signed and back logs for licenses, services and appraisal services.

That makes up roughly 75% of our planned number.

There's about 25% we need to go find.

Maybe half of that would be things that are already in the pipeline somewhere.

We have a name, we have a percentage, it might be something we're already awarded but haven't signed the contract.

There's pretty good visibility over that in terms of something happening.

What's a little less visible than in a normal year is the timing of that, whether it be first quarter, second quarter or how that will fall out.

So it might be -- those things combine, whereas pretty good visibility might add up to somewhere close to 85% to 90% of our revenues.

And that remaining 15%, 10% to 15%, you'll need to find in the next -- in the first and second quarter.

Is that a fair assessment?

For the most part.

There's certainly, there's not a lot of stuff that pops up for the first time within a quarter to get signs.

Most of that, there's certainly things that'll be signed late in the year and recognized late in the year.

Those would be things that would start to become visible as we move into the first half of the year.

Thanks, that's helpful, appreciate it.

(Operator Instructions).

We'll take another follow-up from Raghavan Sarathy with Dougherty & Company.

Thank you, if I can go back to this courts and justice, to try to get (inaudible) here.

I was wondering, when do you expect to start recognizing revenues from this?

From the South Dakota deal we announced earlier this week?

Yes.

I'm not exactly sure of the timing, but I'd expect it'd be beyond the first half of this year, so that would be something that would likely ramp up in the second half of the year.

And one final follow-up.

It'll be over a number of quarters.

Percentage of completion, as most of our Odyssey deals are, over several quarters.

All right -- if I can go back to sort of the bookings, seasonality, I think John talked about it.

Across different product lines, how should we think about other than bookings growth across different product lines based on the pipeline we have?

Well, it's really hard to get, it's very lumpy.

Especially in courts and justice, where obviously they signed a big deal this quarter.

Their number will be strong, and I'd encourage you not to look at -- not really so much seasonality, it's just that the deals are significant in size in relation to the business, and it'd be very difficult to look at individual quarters and year-over-year types of comparisons there.

In terms of the financial side, I don't think it's seasons.

I think it's a lot of these deals that didn't get signed, but we're progressing in the process and the second half of last year will get signed in the next quarter or two.

So I think you will see some increase in bookings there.

It's not going to be a repeated seasonal type of a cycle.

It's really just a reflection of the current market environment.

Thank you.

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

Mr.

Marr I'll turn it back to you.

Thank you, Erin, and thank you all for joining us on our call today.

If there are further questions, please contact myself or Brian.

Have a good day

Once again, ladies and gentlemen, that concludes our conference.

Thank you all for your participation.