泰勒科技 (TYL) 2010 Q1 法說會逐字稿

Hello and welcome to today's Tyler Technologies first quarter 2010 earnings conference call.

Today's call is being recorded.

Your host is John Marr, President and CEO of Tyler Technologies.

Mr.

Marr, please go ahead.

Thank you, Karina, and welcome to our first quarter 2010 earnings call.

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

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

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

Brian?

Thanks, 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 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 which could cause actual results to differ materially from these projections.

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

John?

This earnings release marks our 36th consecutively profitable quarter.

However, our results were below expectations and reflect the ongoing lengthened sales cycles we have been experiencing as a result of the current economic environment.

The lengthened sales cycles resulted in weakness in our software license and service revenues, that together declined 15%.

However, Tyler's strong growth in maintenance and subscription revenues of approximately 17%, and which now comprise over 50% of total revenues, offset the licenses and service revenue declines, resulting in an overall software revenue growth of 2%.

Tyler also posted improvement in gross margins across all its revenue categories, although the overall gross margins were down slightly due to the unfavorable revenue mix, including less software license revenues.

In addition, our earnings for the quarter include a 57% increase in our R&D spending compared to this time last year, as we continue to make investments in existing and new products that we believe will drive long-term revenue growth and increase shareholder value.

Tyler's results, while not to our expectations, demonstrate the strength of our business model.

We were able to achieve modest revenue growth in reasonable earnings, while continuing to make significant investments in our current and future products.

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

Yesterday afternoon, Tyler Technologies reported its results for the first quarter ended March 31, 2010.

You all have access to the press release, and our Form 10-Q has now been filed, so I will limit my comments to focusing on an analysis of the key factors contributing to our results this quarter, and move onto John's comments on the quarter and our outlook for the rest of 2010.

Revenues for the first quarter were $69.8 million, compared to $69.6 million for the first quarter of 2009.

Our software-related revenues, which consist of software licenses, subscriptions, software services, and maintenance, increased 1.7% from the first quarter of 2009 to $64.2 million.

Software licenses decreased 21.4%, mainly due to longer sales cycles to negotiate and close contracts, and delays in purchasing decisions associated with budgetary constraints related to the current economic conditions.

Subscription revenues grew 32.1% over last year's first quarter, of which 16.7 percentage points relate primarily to the acquisition of Wiznet early in the first quarter of 2010, and 15.4% is organic growth.

Organic growth represents revenues from new customers as well as existing customers that have converted to our ASP model.

During the first quarter, we signed signed five new ASP customers and converted eight existing customers who previously had our software installed in-house.

Maintenance revenue growth was 14.7%, of which 14.3 percentage points were organic, and together recurring revenues from subscription and maintenance comprised 55.4% of our total revenues for the first quarter.

Software services revenues declined 11.3%, with decreases driven by fewer software license implementations during the quarter.

Finally, appraisal services revenue decreased 12.6% in the first quarter, as we substantially completed the New Orleans revaluation project mid-2009, and while we began implementing several new revaluation projects in the fourth quarter of 2009 and in this quarter, the total revenue from these new projects did not completely offset New Orleans.

Currently, we expect appraisal revenues for the full year will be slightly higher than last year.

For the first quarter of 2010, gross margins across all product lines improved.

However, our blended gross margin of 43% was down slightly, due to a product mix that included less software license revenue.

Sequentially, gross margins decreased 180 basis points from 44.8% in the fourth quarter of 2009, also primarily due to a product mix that included less software license revenue.

SG&A expenses as a percentage of revenue at 25.1% were essentially unchanged from last year's first quarter.

The change in total SG&A expense from the first quarter of 2009 was mainly comprised of higher noncash share-based compensation.

Net research and development expense was $3.5 million for the first quarter of 2010, compared to $2.2 million for the same period last year.

R&D expense for the first quarter of 2010 was offset by $1.2 million recognized under the amended research and development agreement with Microsoft.

R&D expense in the first quarter of 2009 was offset by approximately $857,000.

Gross R&D expense before the effect of the Microsoft reimbursements increased approximately $1.6 million from the first quarter of 2009, and was primarily driven by increased head count and related costs associated with the Microsoft development effort.

We currently expect reimbursements of approximately $850,000 each quarter through the end of 2010, under the terms of the agreement we signed with Microsoft in 2008.

In the fourth quarter of 2009 we expanded our research and co-development effort with Microsoft to include payroll, human resource and budget functionality, that will result in additional reimbursements from August 2010 through December 2012.

We expect that offsets to R&D expense for this effort will vary by quarter.

Operating income was $8.1 million versus $10 million for the first quarter of 2009.

Net income for the quarter was $4.9 million or $0.13 per diluted share, compared to net income of $6 million or $0.16 per diluted share in the first quarter of 2009.

Free cash flow for the first quarter was $5.9 million, excluding real estate capital expenditures of $1.2 million related to construction of our office facility in Lubbock, Texas; versus $11.4 million, excluding real estate CapEx of $1.5 million, for the same period in 2009.

First quarter free cash flow included $1.8 million in payments related to the adoption of a new vacation policy that eliminates carryover of unused vacation from year to year.

In addition, cash income tax payments for this quarter were higher by $800,000 compared to last year.

Our accounts receivable performance remains very good, as our day sales outstanding at March 31, 2010, was 81 days, versus 85 days at the end of March 2009.

During the first quarter we repurchased approximately 129,000 shares of our common stock at a cost of $2.4 million and an average price of $18.75 per share.

We now have about 35 million basic shares outstanding, and we have approximately 2.1 million shares remaining under our existing repurchase authorization.

Our backlog at March 31, 2010, was $218.8 million, compared to $234.2 million at March 31, 2009, and $233.1 million at December 31, 2009.

Backlog related to our software business, which excludes backlog from appraisal services contracts, was $195.9 million, compared to $209.4 million as of March 31, 2009, and $209.7 million at December 31, 2009.

The sequential decline in backlog from December 31 is the result of two factors.

One, maintenance backlog seasonally declines in the first and third quarters, because of higher levels of maintenance renewals at December 31st and June 30th.

This accounted for about $9 million of the sequential decrease.

The remainder of the decrease in backlog was related to lower contract signings for the current quarter.

Appraisal services backlog was $22.8 million at March 31, 2010, compared to $24.8 million at March 31, 2009, and $23.5 million as of December 31, 2009.

On the balance sheet we ended the first quarter of 2010 with $11.2 million in cash and investments, no outstanding debt, and $21.7 million of availability under our revolving line of credit.

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

Okay.

Thank you, Brian.

Our 2010 first quarter results were clearly below expectations, as we continued to see delays in purchasing decisions and longer sales cycles.

We continue to see a reasonable level of new purchasing processes being initiated, as represented by the number and dollar value of new IRPs.

As a result, the pipeline of new business that we are pursuing is generally strong.

Although the contract signing process has lengthened in the current economic environment, we continue to see a steady stream of new contract signings.

Included in our contract signings for the quarter were the following that we publicly announced.

We signed contracts totaling $2.3 million for our financial and school solutions with union and Muskogee public schools in Oklahoma, the Antelope Valley Transit Authority in California, the Boston Public School District and the Parkway School District in St.

Louis.

We also announced new arrangements for our courts and justice solutions, totaling approximately $14.6 million, with Amarillo, Texas; Angelina County, Texas; the State of South Dakota; Bowie, Texas; and Walla and Comal Counties.

In addition, we signed contracts for our tax and appraisal software and services totaling approximately $4.5 million with Yuma, Arizona; Coconino, Arizona; and Gwinnett County, Georgia.

We entered the second quarter of 2010 with a set of factors that we believe will contribute to continued financial performance for Tyler.

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

Approximately half of our total revenues are generated through recurring sources, such as maintenance and subscriptions, with an extremely high renewal rate.

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

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

However, the broad economic conditions, and the related effects on local government budgets, remain a concern, and have certainly resulted in an extended sales process.

Based on our backlog, and our current view of our pipeline, we continue to expect significantly stronger results in the second half of the year, although timing of new business remains difficult to predict in this market.

Considering all of these factors, our annual guidance for 2010 is as follows.

We currently expect 2010 revenues to be in a range of $300 million to $307 million.

We forecast 2010 diluted earnings per share to be approximately $0.72 to $0.77.

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 and 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 $37 million to $42.5 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 for real estate of approximately $2 million, we expect free cash flow to be between $39 million and $44.5 million.

Now we'll take your questions.

(Operator Instructions)

Our first question is from Brian Kinstlinger from Sidoti & Company.

Thanks very much.

My first question, John -- how are you?

You mentioned the second half, expecting to be stronger.

It is similar to the seasonality we saw maybe four or five years ago.

I am curious if you think that's based on the normal seasonality that you used to see that you haven't been lately, or more based on an improvement in contracting through the course of the year?

Well, it does resemble what we had, and had made progress working away from, and I think we will again do that.

I think the seasonality, given the size of our business, the geographical disbursements, and the move from more project oriented recognition to POC accounting will return to level that out more.

I think it is more related to really getting at the bottom of this cycle, that is not the annual cycle this year but the economic cycle.

We did probably a little better last year than a lot of people fared in this environment, and I think that was because we were selling into budgets that had been created in the previous year, and now we have the reverse of that.

We're selling into budgets that were created at the height of the downturn.

For most States that will expire in June 30.

So we have good activity in the sales pipeline.

We have relationships with sites that we feel good about maybe have been told it is our business, that these are cycles that sales cycles that will do well on their way, but pulling the trigger and getting the contract signed, and us being in a position to send bodies to their sites and build them and recognize license revenue is going to be pushed out into the second half of the year.

And then, Brian, maybe you can update us on some visibility numbers.

I think at the end year, normally I think you said it was 75%, 80% of revenue is visible, with the software license being the part of the business that is uncertain sometimes.

Maybe give us a sense where you are now?

I think you were below that at the beginning of the year with the guidance change.

Are you more at that, or are you still slightly below where you normally are in a given year?

I think we're still probably a little below that.

I think we talked about, as we look at our visibility, there is a certain amount that's in backlog that's either being recognized on a POC basis or will be delivered and recognized through the year.

There is another part of the visibility that are things we have very high visibility, we have been awarded or pretty far along in the pipeline, and as we went into the year there was more in the latter category where we had what we believe was name a percentage, dollar amount on it, and our ability to predict the exact timing of that and whether that is going to be something that closes in the second quarter or the third quarter, and when we will be starting to recognize revenues, continues to be less than we see in a normal market.

So I think as far as the stuff that's actually signed that we have very solid visibility over is still a little lower level than we have seen in normal markets.

Is that like 70%, like 80%?

I will get back in the queue.

Where is it normally around the second quarter, maybe if you don't want to give today where it is?

Normally it improves as you move through the year, because some of the stuff you have had early has been signed, but so it is probably would improve from that 75%.

I don't have a percentage I can put on it, but I would say it still lags behind what we probably saw -- what we normally see this time of year.

Okay.

Thank you.

Next question comes from Raghavan Sarathy with Dougherty & Company.

Good morning, and thanks for taking my questions.

I have two questions, one for John and a follow-up for Brian.

John, you kind of touched upon when you answered the last caller's question.

So you are selling into lower budget that was created at the height of the crisis, and you are anticipating some improvement in the back half of the year.

At the same time you also said in the press release that the RFP activities is less than robust so the RFPs that you see now, are they coming from the existing budget or you are seeing RFPs from the next fiscal year budget?

Can you help us kind of understand and reconcile these two data points?

Sure.

Any new RFPs we'll be seeing now are clearly projects that will be funded in a future fiscal year, so the fact that they're initiating those show that they either have that money in those budgets or they're confident that those projects will be funded, so I think that's encouraging that we're trending up and out of the cycle to some degree in our business.

The current pressure, these are RFPs we responded to a year or 18 months ago where we have been selected, we have maybe negotiated a contract or in that process, but the projects are being slowed and held until they can get funding in next year, so those are the lengthened sales cycles that we talk about.

There is really fairly good certainty in the business actually being ours, and something we will execute on at some point in time.

It is just been difficult to project when we will be given the kind of the notice to proceed to wind that project up and have it productive for us.

Rag, our comment on the RFP activity, this quarter again for our major business units in the software side, the number of RFPs and the dollar value of those was modestly above the same quarter a year ago, so we continue to -- and that's where we say it is not a real robust number a year ago, but the activity now is a bit ahead of that.

That's helpful.

Brian, you had $219 million in the total backlog at the end of March.

Could you help us understand how much of that the backlog will be converted into revenues, how much of the software backlog would be converted to revenues, and then I guess on the license side as well, how much license would come from the backlog?

Well, going into the year we expected the software backlog, and it still is pretty similar, we expected about $18 million to $19 million of our December backlog to be delivered by the end of the year, and some of that was worked off in the first quarter and we signed new stuff, so I don't have the breakdown of the March backlog and how much of that come in in the remainder of the year.

But the numbers for the full year, I think the full year license is about $18 million to $19 million coming out of the backlog at the beginning of the year.

Signings actually this quarter were up somewhat modestly above last year's first quarter, typically our bookings in the first quarter lag the other quarters, but the bookings actually were up slightly over last year's first quarter.

Thank you.

Next we'll go to Nathan Schneiderman with Roth Capital.

Hi, John and Brian.

Thanks for taking my questions.

Brian, I was hoping you could give us the license -- within license the software license revenue, how much of the revenue was in the financial education area and how much was courts and justice?

Of the recognized licenses?

Yes, the reported income statement license revenue, software license?

Because it looks like you may have done a recategorization again in your Q?

We're reporting in the Q now in line generally with our segment reporting.

Licenses in courts and justice were around $2.8 million, and in the financial area close to $5 million.

$5 million.

Got it.

And what was, John, just in thinking about the slowdown from the RFP cycle to when that contract is signed, what was the magnitude of the incremental -- what was the magnitude of the slowdown you saw versus recent quarters?

Well, it continues to expand.

It continues to expand.

It has been a moving target.

So there are definitely awards now that are nearly a year old that we've been awarded, various stages of contract, and still not yet in a fully implementation type of a mode, so it is pretty extreme.

Is your sense that things have pushed out one quarter or two quarters, or just what's the magnitude of the pushout?

It is deal by deal.

There are certainly some deals that it would be three quarters, and if we tried to -- I would say most deals seem to get pushed out a quarter or so, but again I am thinking of some specific names that there is no question we're going on a year from award, and normally from award 90 days later we would be in a full implementation mode at that site.

And I just want to be clear, because this is a dynamic that's been -- you have been dealing with for a while now.

What actually caught you by surprise during the first quarter?

Well, there are a number of things.

There are some service projects, software is a service, where pulling the trigger and starting the meter on that slipped entirely out of the quarter for things that looked relatively certain to occur within the quarter, so there is a couple of those projects that were meaningful in size.

There is a lot of service people, a lot of our professional service people that their utilization, as you'll see, of our services were not strong.

Normally, the only variable we're managing in the short-term is licenses, but our utilization rates are down because we do see business returning to that level credibly.

These are specific names and contracts we're managing, and so we certainly need those people to execute on those projects.

But currently it is not as if they're not working, but their utilization is off considerably, so that contributed a fair amount, and that's something you don't make up; licenses, you have a chance to make up.

And then again, the number of the signings and being able to deliver and recognize licenses slipped as well.

So I know we're saying the same thing we've said for a couple of quarters now, but none of the deals we have been tracking have fallen off the table.

They do move forward, but it has been frustrating they don't get to the point that we can deliver software and send a number of our professional service people to their sites, which is what obviously gets the revenue moving.

To follow up on John's point there on the pushout in some of these deals that he specifically has in mind that have pushed out getting from award to signing and starting to implement, some of those are relatively large deals that will be percentage of completion accounting, so they will be spread over a number of quarters, so we don't get to catch that up this year.

Some of the catch up will be on next year.

So that's part of the reason for the change in the revenue outlook, is that if it is a typical perpetual license where we recognize it up front, if it is pushed out a quarter it still would be in this year, but some of these POC things that have been pushed out we can't make up this year.

Got it.

And final question area for you.

Is the Microsoft joint product still on schedule for Q1 2011, and have you all planned any incremental restructurings or cost savings initiatives because of the step function down in revenue?

Thanks very much.

Either first quarter or very close, within weeks.

So it is obviously a huge project, and that's a little bit of a fluid situation, but there isn't any major slippage in the release of that.

You don't release a product and immediately reduce heads dramatically.

We would expect that some of those heads would be reduced, probably redeployed, so those listening don't become concerned; there is always shuffling, but the head count there over some number of months and quarters following the release would be expected to go down a little bit.

But as you know we're also very engaged in the payroll and HR project, the budget project, and a lot of these people are being reshuffled and redeployed across the different projects.

The net heads on the financial of the original project itself have already come down, and a lot of those people are being redeployed on the payroll and HR.

So there will be some modest reduction or redeployment of people, but the total burn rate won't come down that much, and the expectation is that reimbursement will remain strong as licenses ramp up, and eventually obviously licenses will overtake that and become the support component there.

We'll go next to Kirk Materne with Rafferty Capital Markets.

This is Matt Williams actually in for Kirk.

Most of the questions we have have been answered, but I was wondering if you could talk a little bit, obviously the deal cycles are stretching out, and it is quite a difficult environment you guys are dealing with.

Is that hitting any product set more than the other?

Are you seeing more courts and justice deals push back or is it more munis or just maybe some of the dynamics there?

It would be more in the financial groups.

Courts bookings are pretty good.

Obviously they're on fewer projects, and any one project could be I guess disruptive, but their book of business has been pretty good, and they're certainly not the area that we're softest.

It is more in financials where things are slipping, and as Brian indicated, some of the larger financial deals will be POC, and in some cases they have been assumed to be regular recognition, so the bigger impact is in the financial divisions.

Okay.

Great.

That's helpful.

And then I guess maybe one other follow-up.

It sounds like it is a situation of waiting for some of these budgets to be reset.

Is that unique to any particular geographies across the country or is it kind of widespread?

It really isn't.

We're doing -- we see some pretty good business in some of the States you hear are the worst off, so we're glad that we've achieved some real big geographic growth and can draw on all of those markets, but it is really a similar picture across the country.

Thanks for taking the question, guys.

Take care.

Sure.

The following question comes from Torin Eastburn with CJS Securities.

Good morning.

I just have one quick one.

Could you talk about the Wiznet acquisition.

and provide more detail, and why you thought it was attractive?

Sure.

E-filing is definitely something our clients want and are going to pursue from another vendor, which is what Wiznet net does, so this is -- law firms who need to make a filing at the courthouse that traditionally have done it manually, this is a system that allows them to do it electronically.

Those systems have been out there for some time.

There is a trend, and I think the current economic environment in this case is helpful, there is a trend that that becomes mandated, at least certain types of transactions, and we have some contracts if that's the case, and the volumes are going up very nicely.

So it is an E-filing system.

We had a number of sites in common, so the interfaces already existed, and it is a combination of click-based or software to service-based relationships with our clients, and traditional sales where we install and buy the software, but it has gone well.

In the [quick]-based environment the numbers have gone up nicely, and again it is a great add-on to our case management system.

Thank you.

Sure.

Now we'll go to Jeff Osher with Harvest Capital.

Hey, guys, thanks for taking my questions.

Just two questions, I guess, as it relates to the maintenance renewals.

Are you seeing renewals run at similar rates to what you have seen historically?

Then just one quick follow-up on that.

Yes.

I think they probably go over the bill a lot more intently, occasionally they will find an application that they realize they're not using and maybe drop it from the list, so there is modest little things like that, but in terms of a complete name-dropping maintenance there is no more of that going on right now than ordinarily.

Okay.

As it relates to that question, looking at the deferred revenues, year-over-year, they were down about 2%, and as far as I can see that's the first we have seen that occur in some time.

Can you just remind us what the breakdown is of deferred revenues, how much of that is actually maintenance versus term software?

Significant part of the majority of it is maintenance, and that year-over-year is up but will move down sequentially from December, so the maintenance -- deferred maintenance was about $86 million of deferred relative to $81 million a year ago and the balance would be software, and that -- the software really depends upon the timing of payments; so to the extent we've received cash in advance, and there was some contracts that we recognized on POC where we received cash in advance, and now have worked off some of that, resulting in the decline, and we had a couple of large contracts -- particularly a year or so ago, a couple of large tax contracts where we had significant up-front payments that are now being recognized into revenue.

Great.

Brian, I missed that.

You said -- of the $92.9 million, what was related to maintenance versus prepaid software?

About $86 million is maintenance.

$86 million.

Fantastic.

What was that number a year ago?

About $81 million.

Okay.

So it is the software component related to prepayments that fell off a bunch?

That's correct.

Thanks a lot, guys.

I appreciate you taking the questions.

We'll take a follow-up question from Brian Kinstlinger.

One follow-up, Brian.

When you look at the cost of software license, it looks like the third party costs went down substantially.

Is that something we should think about going forward, or did something different occur in this quarter than traditionally other quarters?

It can bounce around from quarter to quarter depending on the mix of what kind of which third party software we're selling, and what the costs are, and I would have to go back and look and see what -- I am not sure --

Seems like it was an all-time low.

That was why.

At one point $1 million of costs, most of which is third party costs, it was down substantially.

This quarter there was less third party, so it was less than $1 million of third party, and the margin was better.

The margin was around 20% on third party stuff, but I am not sure what makes up the mix.

I will have to check on that.

Did you mention how much software license Wiznet added in the quarter?

I didn't write that down fast enough as I heard you.

No, we didn't, but there is almost no license.

I don't think there was any license from Wiznet.

What was the software services?

Services and/or ASP?

Yes, and there's -- with fallen subscriptions or software services, and they accounted for in the quarter about $800,000, mostly in the subscriptions line, about $660,000 of that was subscriptions.

Great.

Thanks very much, guys.

Now we'll go to Corey Tobin with William Blair & Company.

Hi.

A couple of quick ones, if I could.

John, just following up on your comment before, you mentioned the financial segment was the piece that has seen the most weakness, and I apologize if this is in the Q, I haven't had a chance to go through it yet, but can you just give us a breakout within the financial piece?

Is it the educational market that's causing the concern, the financial market, or both?

It would be both.

Is there any way to -- okay.

That will work.

Second question goes on the RFP activity.

I know you mentioned it was up slightly both in dollar and numbers of RFPs year-over-year.

Can you give us a sense of where it is coming sequentially?

Sequentially it was down a bit from Q4, but typically as with bookings, typically Q1 -- well, it bounces around.

It was down somewhat from Q4 in the RFP activity, but again year-over-year up.

Can you remind us in the fourth quarter -- how did that track year-over-year?

It was also up modestly, and I think this is maybe the fifth or sixth straight quarter that the RFP activity has been modestly up year-over-year; modestly in number, a little more so not robust but a little more so in terms of dollars, so the average dollar size is a bit bigger.

That's been the trend for the last five or six quarters.

Okay.

When you look -- just to tie it back to a prior question, when you look at RFP activity, does what you see there, those segments being up, is it all because of courts outperforming the financial, or the financial and education piece, or if you segmented the RFP activity would you see increases across education, financial outside of education and the court segment?

We would see -- there are definitely increases in financials and education as well.

That is where the volumes are meaningful enough to mean something, so that is predominantly what we're talking about here.

Courts, as you know, has a very high average sales price, and they could actually have a quarter where they don't do an RFP and wouldn't be alarming.

So when we're talking about these as a matrix, it really is financials and schools.

Great.

Final one, you mentioned booking was up slightly in Q1.

Do you expect bookings -- based on where the pine line is today and the projected close and whatnot, do you expect bookings to be up in the second quarter as well?

We're not doing real well in that type of a timing prediction.

I would say this, while we guided down for our revenues and earnings for the year, we still expect bookings for the year to be what we expected.

So some of the things we talked about, some of the bigger deals being POC, something happening later in the year and getting a smaller percentage of the revenues in those deals, and for a whole host of reasons we actually think our sales and bookings for the year will be what we thought they would be coming into the year.

So if we're trying to look at this over a longer period of time, obviously that's a good thing, but now that we've slipped a little bit into the year, more of those revenues are going to fall out of the year, and that's the reason for the adjustment in guidance.

Got it.

One more, if I can sneak it in.

With respect to the second part of the Microsoft project, not the piece that will be released here in 2011, but the payroll and budgeting and other pieces, what's the outlook right now for what point that will be released?

Since you guys take good notes, we'll be -- the best -- so I don't recall it the release date, but the best case would be that it wouldn't be much more than a year after this original drop.

So we're under way and it's and aggressive schedule, and we would like to get that on the street as close to a year, but it is certainly is a big project, and if you were thinking in the 12 month, 18 month timeline, that would be a reasonable expectation.

It is important to get it out, or even for the market to know that it is coming, so that a site that wants an integrated financial payroll HR system will look at that suite as an option, and many of them we think would choose to implement financials, and then follow on with payroll and HR after it is deployed.

So 12 months to 18 months would be what you should be thinking.

Thank you.

Sure.

(Operator Instructions)

Next we'll go to Greg Speicher with Moss Creek.

Hey, guys, just one quick one.

Going back to some of the earlier comments, you said a couple of the larger subscription software to service deals slipped out of Q1.

Did you say you expect those to begin in Q2, or is it uncertain at this point?

End of Q2.

We won't see much revenue from them in Q2.

And we referring to both subscription deals and some percentage of completion, traditional license deals.

Right.

Those will obviously happen, but the subscription deals will happen late enough if the quarter that they won't contribute much, but we do expect them to be fully recognizable in the second half of the year.

Okay.

Great.

That's it for me.

Thanks.

We have another follow-up from Brian Kinstlinger.

Sorry, one more follow-up.

Brian, maybe my numbers are not correct.

At least they seem not to be.

I am just taking the change in backlog plus the revenue earned, and I get bookings of $55 million to $56 million this quarter versus $60 million this year , but you said they were up.

What am I missing to reconcile my

I said last quarter was $54 million; beginning backlog of $250 million and ending backlog of $234 million, and 72 million of recognized revenues -- I am sorry, $70 million of recognized revenues, last year's Q1.

Okay.

And just one last question.

How much backlog did Wiznet add to your total backlog?

A minimal amount.

$1 million?

Well, the click business doesn't really go in backlog, so you have them on, it is mandated, you that there is X number of transactions at X price, but because of the way it happens, it really doesn't get represented in backlog.

They didn't really have anything in the way of unimplemented systems that -- going into the quarter, so click stuff doesn't ever hit it.

Okay.

Thank you.

Sure.

At this time there appear to be no further questions.

Mr.

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

Okay.

Thank you very much.

We appreciate all of you joining us on the call today.

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

Have a great day.

Once again, this does conclude today's conference.

We do thank you for joining us.