泰勒科技 (TYL) 2010 Q2 法說會逐字稿

Hello and welcome to today's Tyler Technologies second quarter 2010 earnings 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, Karen.

And welcome to our second quarter 2010 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 will have some preliminary comments, Brian will review the details of our operating results, I will have some 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 refer to you our form 10-K and other SEC filings for more information on those risks.

This quarter was our 37th consecutive profitable quarter.

Our operating results were somewhat mixed, but generally in line with our expectations.

Total revenues grew only slightly, impacted by declines in software licenses and software services.

However, we continued to see strong growth in our recurring revenues that for the quarter comprised approximately 54% of our total revenues.

We also improved our gross margin percentage which was up by 40 basis points over the second quarter of 2009 and expanded by 170 basis points sequentially.

Contract signings for the quarter were also fairly robust, resulting in significant improvement in our total backlog both sequentially and year over year.

During the quarter we had some nice wins across our product lines including a $5.5 million multi-suite contract with the city of Madison, Wisconsin for our financials and municipal court solutions.

Madison is the nation's 81st largest city.

We also signed a $5.3 million contract for our Odyssey Courts and Justice solution with El Paso County, Texas.

El Paso is the nation's 75th largest county.

And we signed an $8.1 million contract for Appraisal Services as well as some tax software with Allegheny County, Pennsylvania which includes the city of Pittsburgh and is the nation's 30th largest county.

We are encouraged by this quarter's level of bookings and the growth in backlog.

However, with the continued uncertainty in the market, we are cautious about whether this is increased activity or isolated to the quarter.

Now I would like Brian to provide more details for our results.

Thanks, John.

Yesterday Tyler Technologies reported its results for the quarter ended June 30, 2010.

Everyone has access to the press release, and our Form 10-Q has now been filed, so I am going to limit my comments to focusing on providing an analysis of the key factors contributing to our results this quarter, then move onto John's further comments on the current quarter and our outlook for the rest of 2010.

Revenues for the second quarter were $72.6 million, compared to $72.2 million for the second quarter of 2009.

Organic growth was a negative 0.7% and acquisitions provided approximately $934,000 of revenues for the quarter.

Software license revenues decreased 11.9% from last year's second quarter.

The decrease in license revenues is mainly attributable to longer sales cycles as well as extended implementation timetables on some signed business which is consistent with the conditions we have seen for the past several quarters.

We continued to see strong growth in subscription revenues, up 39.6% over last year's second quarter.

Approximately half of this increase was the result of our acquisition in January of Wiznet which provides electronic document filing solutions for courts and law offices.

The other half of the growth reflects revenues from new customers and existing customers that have converted to our ASP and other subscription models from in house installations.

During the quarter we signed ten new subscription customers and converted 15 existing customers who previously had our software installed in-house.

Software services revenue decreased by 13.2%, primarily due to lower software license bookings in recent quarters.

Maintenance revenue growth was 9.9%, a combination of new revenues associated with license sales in the past year and annual rate increases for existing customers.

Together, recurring revenues from subscriptions and maintenance comprised 53.7% of our total revenues for the quarter and grew 13.5% year over year.

Finally, appraisal services revenue decreased 2.6% in the second quarter, primarily due to completion of the ongoing commercial property revaluation project in New Orleans.

We have since signed a follow on contract for additional appraisal services in New Orleans as well as several other significant reappraisal contracts that will contribute to growth and appraisal services revenues in the second half of 2010.

Most notable among these is an $8 million contract with Allegheny County, Pennsylvania that includes about $7 million of reappraisal services.

We expect that for the full year appraisal revenues will be moderately higher than in 2009.

For the second quarter of 2010, our blended gross margin increased 40 basis points to 44.7% compared to 44.3% in last year's second quarter, with gross margins for each revenue category except appraisal services improving over last year.

Sequentially gross margins increased 170 basis points from 43% in the first quarter of 2010.

The improvement from last year is primarily attributable to leverage in the incremental maintenance and subscription revenues and an improved mix of proprietary versus third party software licenses.

SG&A expense increased 2% and as a percentage of revenue was 24.0% compared to 23.7% in last year's second quarter.

The primary driver of the increase was higher noncash compensation expense.

Sequentially SG&A expense declined in absolute dollars from the first quarter of this year, and as a percentage of revenue SG&A declined 110 basis points from the first quarter.

Net research and development expense increased 31.9% to $3.7 million for the second quarter of 2010, compared to $2.8 million for the same period last year.

R&D expense was offset by cost reimbursement recognized under our agreement with Microsoft of $1.1 million in the second quarter of 2010 and $857,000 in the second quarter of 2009.

Gross R&D expense before the effect of the Microsoft reimbursements increased approximately $1.2 million from the second quarter of 2009, and was primarily driven by the increased head count and related costs associated with the Microsoft dynamic development effort which was expanded in the fourth quarter of 2009 to include payroll, human resource, and budget functionality as well as redeployment of existing development staff to other Tyler R&D projects.

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 September 2008 as well as additional reimbursements associated with the recent expansion of the agreement which will vary from quarter to quarter.

Operating income was $10.5 million versus $11.4 million last year and net income for the quarter was $6.2 million or $0.17 per diluted share, compared to net income of $6.9 million or $0.19 per diluted share in the second quarter of 2009.

The fully diluted share count declined by approximately 500,000 shares as a result of our stock repurchases.

Free cash flow for the second quarter was a negative $8.6 million and negative $6.1 million for the same period in 2009.

The lower cash flow is primarily due to the timing of certain vendor payments and higher receivables including those associated with midyear maintenance renewals.

Days sales outstanding and accounts receivable at June 30, 2010 was 111 days compared to 98 days at December 31, 2009 and 104 days at the end of June, 2009.

Our maintenance billing cycle typically peaks at its highest level in June and second highest level in December of each year and are followed by significant collections in the subsequent quarter.

As a result, our DSO usually increases in the second and fourth quarters.

During the second quarter we repurchased 739,856 shares of our common stock at an average cost of $16.85 per share.

Year to date we have purchased 868,489 shares for an average price of $17.13 a share.

We now have about 34.7 million common shares outstanding, and this week our board of directors authorized the repurchase of an additional 2 million shares of our common stock.

With this increase we currently have authorizations to repurchase up to a total of 3.4 million shares.

Our backlog at June 30, 2010, was $258 million, compared to $235.3 million at June 30, 2009, and $218.8 million at March 31, 2010.

Backlog related to our software business, which excludes backlog from appraisal services contracts, was $223.9 million, compared to $209.4 million at June 30, 2009 and $195.9 million at March 31, 2010.

Appraisal services backlog was $34.1 million at June 30, 2010 compared to $25.9 million at June 30, 2009 and $22.9 million as of March 31, 2010.

On the balance sheet we ended the second quarter of 2010 with $8.3 million in cash and investments and outstanding borrowings of $14.6 million under our credit facility.

Second quarter is seasonally our lowest quarter for cash flow and the third quarter is our strongest with significant maintenance collections from our July 1 renewals.

Since June 30th we have reduced our borrowings by over $11.4 million to approximately $3.2 million outstanding as of yesterday under our credit facility.

We are currently in discussions with a group of banks to replace our existing $25 million revolving credit facility which matures this October with a four year $150 million facility to provide us with additional flexibility.

As with our previous facility, the use of the borrowings would be for working capital needs, potential acquisitions, and stock repurchases.

We have received commitments from several banks and currently expect to have the new facility in place in August.

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

Thanks, Brian.

Our results for the quarter while mixed reflected the strength of our recurring revenues and ability to continue to improve our gross margins and continue to make what we believe are well timed investments in our existing and future products to maintain and enhance our competitive position in the marketplace.

Our market remains active.

In fact, the pipeline is at a historically high level even though new RFPs remain flat at a level 25% below the high point of two or three years ago.

This is the result of processes lengthening as local governments exercise caution as a result of the uncertainty they are experiencing.

Generally their primary direct revenues of property taxes, utility revenues, and other local fees remain stable.

But local aid from states is under pressure and not as reliable as in a normal environment.

Still, contract bookings for the quarter were particularly strong.

In fact, for contracts with license fees of $100,000 or greater, during the second quarter we signed 17 contracts with average license fees of approximately $424,000 compared to 15 contracts with average license fees totaling $201,000 for the same period in 2009.

These improvements are attributable to better market share on larger opportunities rather than greater market activity.

I'm particularly pleased with the efforts of Tyler staff.

Their skilled and unique knowledge of our market continue to make our offering compelling and enable us to perform and gain market share.

This is critical to the continued -- for us to continue to make progress in a difficult market.

We entered the second half of the year with significantly improved backlog that gives us some increased confidence in our expectations for stronger operating results in the second half of the year.

However, we do continue to see extended sales cycles and in some cases longer implementation timetables that make it difficult to predict the timing of signings and revenue recognition.

In addition, as I mentioned at the beginning of the call, while we are encouraged by the contract signings and backlog position, it is difficult to determine whether this is the beginning of a trend or isolated to the quarter.

Our earnings guidance is unchanged from the communication at the end of the first quarter.

However, we have slightly adjusted our revenue and free cash flow expectations.

2010 guidance -- for 2010 guidance we currently expect revenues to be in the range of $298 million to $302 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 million to 36.4 million.

For the year, estimated pretax expense related to stock options and the employee stock purchase plan is expected to be $6.1 million or approximately $0.13 per 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 $35 million and $40.5 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 $37 million and $42.5 million.

Now, Karen, we'll take questions.

(Operator Instructions).

Brian Kinstlinger with Sidoti & Company.

Great, thanks.

Hi, guys.

I missed the software backlog number, if Brian can repeat them.

But I guess, John, my question is, the relatively poor software license coupled with the exceptionally strong bookings, can you just reconcile those two and with that bookings, what should you expect or what should we expect for software licensing in the second half of the year?

Sure.

There are a number of factors.

Obviously timing is part of it, the number of contracts coming in late enough in the quarter that they aren't executed on within the quarter.

But the bookings obviously were considerably better than what was recognized in the quarter.

As you know, there's a lot of seasonality in the maintenance, so I think $14 million of the increase in backlog comes from maintenance renewals.

There's also been an uptick in our subscription services which are multiyear arrangements normally.

So I think there were 14 flips or deployed clients moving to a hosted environment and generally that moves them from a single year of maintenance to maybe three to five years of an arrangement that goes into backlog.

And there were 10 new subscription customers as well, so some of those are multiyear and make the booking look bigger than it would be for a single year agreement.

Also, as you can see, the average sales price was up dramatically and those tend to be larger contracts that often are recognized on a percentage of completion basis.

So rather than delivering and recognizing a significant portion of the license in the quarter it was sold, they go into backlog and it's recognized over the period of time that the project is executed which could be 18 or 24 months.

And just in general with respect to the expectations for the second half of the year, we clearly expect to recognize more software licenses in Q3 and Q4 than we did in the first half of the year, but for the full year we still would expect that licenses would be down perhaps in the 8% to 10% range over last year's full year.

So if I can paraphrase what you said, John, it's not a huge jump because that $112 million or so of bookings, ASPs [are] perpetual versus the software license, they're bigger and you recognize smaller chunks annually.

Is that what you were trying to say?

Yes, there's no question it was a strong bookings quarter and we're pleased with that and we're anxious to see if it's a trend or not.

So there's no question that even traditional business was strong, but again, obviously it was -- the numbers themselves are very large for us in the quarter and backlog has grown very dramatically.

And some of that is attributable to the fact that some of them are multiyear subscription arrangements.

And again, some of them are large contracts that will be earned over a longer period of time, up to two years.

Great, I'll get back in the queue.

Thank you.

Corey Tobin, William Blair.

Good morning.

A couple if I could please.

Let's start with R&D if you don't mind.

The R&D level that we saw this quarter, should it remain consistent at this level for the rest of the year?

Or do you expect that to continue to tick upwards given the arrangement with Microsoft and the expansion of the scope there?

I think the spend, the total gross spend will remain consistent.

But reimbursement will be a little higher in the second half of the year so the net spend will be a little less.

Got it.

And I guess that's the second question I have with respect to R&D which is can you give us a feeling for -- I mean you mentioned, Brian, I think in your prepared remarks that the reimbursement should tick up.

Can you just give us a feeling for how much you're talking about there in terms of magnitude?

I think the expected magnitude is for the next couple of years is I think through the end of 2012, is about $6 million in total.

It's difficult to tell exactly which quarters that will fall in because of the timing of the work.

But that's -- over 2010 through 2012 I believe it's about $6 million of reimbursement in total.

So I just want to be clear.

$6 million in total over two years, over three years here?

Correct.

And that's -- okay.

That's the incremental piece or that's the total including what you're currently being reimbursed?

That's the incremental piece.

That's the incremental piece.

Okay.

And then there's $850,000 a quarter that runs through 2010.

Gotcha.

So roughly $500,000 a quarter or something if my math is correct?

Yes, it won't happen straight line.

And we don't really have a way to give guidance on how that would fall out by quarter.

Understood.

Okay, two others if I could, one a housekeeping question.

Can you just give us the breakout for software revenue between financial, education and Courts and Justice please?

Courts and Justice was about $1.7 million of software licenses and appraisal and tax was a little less than around a half a million.

And the balance is financials and education.

Okay, great.

And a final one with regard to the balance sheet, clearly you guys like the stock at the current level, and I just wanted to get a feeling for how -- I guess how leveraged are you willing to take the balance sheet in terms of taking on debt to buy back stock?

Well as Brian mentioned on the call, we're in the process of putting a $150 million facility in place which is about 2.5 times EBITDA.

Certainly wouldn't expect to draw on all of that.

We need to continue to be in a strong position.

But if the opportunity were compelling enough, we certainly would be willing to use a considerable amount of that line to purchase stock.

Okay, great.

Thank you.

Nathan Schneiderman, Roth Capital.

Thanks very much.

Hi, John.

And hi, Brian.

Nice to see the backlog surge the way it did.

That's certainly refreshing to see.

On the backlog issue, the COGS are now positive across the board on total backlog, software backlog, and appraisal.

But if you were to -- what we have is that number in aggregate and I was wondering if you look at that portion that's current, how is that looking year over year?

What sort of changes do you see year over year on a percentage basis in these three different categories - total, software, and appraisal?

I'm not sure I'm clear on your question.

You mean in terms of the percentage of the increase or what we would expect --

Well if you -- say you've given us total backlog, but that's a combination of current and long term.

So if we look at the current backlog and compare it to what it would have looked like in the year ago period, how much has that increased?

I don't currently have the June 30, 2010 backlog all timed out.

So just in a general sense we'd expect that the current portion would be higher than it was a year ago.

But probably modestly because again, as John described, a number of these new contracts are multiyear or multi quarter implementations and revenue recognition.

So I'd say probably the makeup of the current backlog is generally longer term in nature than it would have been a year ago.

And the increased size in it probably offset some of that, so I'd say probably the current portion is modestly higher than it was a year ago.

So we should think of that as maybe mid single digit or less?

I would think so.

Probably mid single digits would probably be reasonable.

Okay.

And I guess if the, if the backlog ended the year at about this level or maybe up just -- let me ask this question.

Is your current belief that you would see the backlog increasing sequentially from these levels between now and year end?

I would think that our non-maintenance backlog -- I think there's a reasonable chance that our non-maintenance backlog will increase sequentially through the end of the year.

It's hard to predict the timing as we've been saying consistently for some time now.

But provided the business we're looking at occurs where we currently see it happening, we do think there's a reasonable chance that the non-maintenance backlog will continue to grow throughout the balance of the year.

Obviously it has to grow significantly for total backlog since we just had our big renewal in the quarter.

Okay.

And if the business progresses the way you think, from a backlog point of view, what kind of growth do you think that would support for next year?

Between the environment and it still being early, that's hard to say.

This year is obviously looking like a low growth year as new business types of revenues, licenses and professional services have been off, and yet our recurring has grown very nicely throughout the year, I think 13%.

So obviously we go into next year with more than half of our revenues having grown significantly, so having a larger base.

And I would think that that larger base with any recovery in new licenses would allow us to have growth at a higher level next year.

It's still early to know, but I think it is reasonable to expect high single digit to 10% or 11% top line growth next year.

Okay, and a final question area for you, the Courts license business looks like took a step function down.

I wasn't sure if you just had projects completing, but maybe if you could talk about the dynamic in courts and then also what's your outlook for that for the second half of this year and into next year?

Thanks very much.

A Portion of the court decrease as we had -- in the first part of the year we had a little bit higher level of sort of cliff revenue recognition.

And in particular we also restructured the arrangement we have with the Consortium of Counties in Texas.

And as a result, rather than recognizing revenue under that license agreement on a pro rata basis over a number of quarters, we'll now recognize that as we install individual contracts.

So there was a pro rata revenue recognition that went away that will be replaced by future revenue contract by contract going forward.

The level of backlog and the level of business in the Courts and Justice area actually rose this quarter as well.

And Mr.

Schneiderman, do you have anything further?

No.

No, that's it.

Thanks very much.

Matt Williams, Rafferty Capital Markets.

Hi, guys.

Most of my questions have kind of been answered.

But just sort of looking at some of the press releases that come out, it looks like the appraisal business and some of the tax business and property assessment has been fairly -- fairly positive over the last couple of quarters.

Is that somewhat of a surprise?

Is there more of an opportunity there going forward?

Or what's kind of driving some success in that market?

No, the appraisal and tax business we have pretty good visibility on that.

We know the cycles in the states and we've known that Pennsylvania had a cycle coming up.

You don't know for certain which business you're going to win, but on the larger deals like Allegheny, we are very strongly positioned.

There really aren't that many large companies in this space that can deliver on projects of that scope.

So we've had pretty good visibility on that for some time.

Okay.

Great.

Well that's really all I had, so thanks a lot.

Torin Eastburn, CJS Securities.

Good afternoon.

John, what would you need to see to become more comfortable that the strong bookings were a trend?

Just some more of it.

As I indicated the pipeline provides that opportunity.

The deals we're tracking, really in all areas of our business, the opportunities are there.

So it's not that we're saying where is this business going to come from and that makes us concerned, it's just that obviously over the last six quarters or so, we've learned that it's hard to predict even when it looks like schedules should have decisions coming, it's hard to predict or count on that.

So sure, we'd like to see over the next quarter or so that things become a little more normal in terms of these decision processes going through the routine and coming to a final decision and then actually getting a contract done.

All of those steps have been taking considerably longer in recent quarters and so we're encouraged by what happened in the second quarter and I think if that's the case in the second half of the year, then we'll feel much better about things.

But it's still hard to see and all deals are still not behaving that way.

But we did have some good experience in the second quarter.

Okay, and then my other question, there was an article in the newspaper in La Porte, Indiana this week about how you had been I guess the second bidder for a reassessment contract and your bid was only nominally more expensive than the winning bid.

And the assessor wanted to go with your bid because he felt that you were a larger and more reliable company, but the article says the city council is having trouble accepting that they should pay extra money to you.

Is that something you're seeing elsewhere in your business?

No.

I think that's -- obviously cost is a determinant and it's given more consideration in the current environment, but no, I think still people get the best value that they see out there.

And if it happens to be a higher cost but they see the value in that offering, they'll go ahead and support that decision.

So I would say that's a little bit anecdotal.

The result is that it helps us and hurts us.

There are segments of the market, in the lower end of the market in particular, where we could be more expensive and it may be a little harder to support.

And there are certainly segments of the market where we're a much better value, generally on our higher end.

And I think that may be one of the reasons we're having a little more success and the average sales price is up a little bit.

It takes only a few of those larger ones to move that needle and we're happy to have them put more emphasis on cost.

Thank you.

Raghavan Sarathy, Dougherty & Company.

Good afternoon.

Thanks for taking my questions.

First for John.

John, you mentioned the RFP activities were flat.

Was that sequential or was it year over year?

Year over year.

I think if you look at like a trailing 12 month RFP activity, it's been flat for maybe six quarters or so in this environment.

And as I indicated, that's flat off 20%, 25% from kind of the peak activity before we entered this environment.

And then, so in terms of obviously you're signing some of the larger deals in the last couple of quarters, was it driven by, from a product perspective, was it driven by appraisal/tax type of software or was it coming from more on the financial management side?

Can you give us some color on that?

It's across the board.

Courts and Justice has won some nice deals and they have traditionally done larger deals, but El Paso this past quarter and some other deals, South Dakota have contributed to that.

Allegheny deal is a big deal, obviously drives that up as well.

But we mentioned Madison, Wisconsin and there are some other contracts in there for financial management.

So I would say that as has historically been true, Courts and Justice and Tax and Appraisal have contributed some large deals, but I would say there's been an uptick on the financial side of moving up into that kind of tier two space and having more success in that space than we have had historically.

And I'd attribute that to that we've had some random success in the past and we've executed well on those projects and now have a strong reference base in that area and that's enhanced our competitive position in that segment of the market.

I just have a couple of questions for Brian.

So first on the software services, the software services revenue [has declined] year over year, actually has decelerated year over year.

How -- you seem to be signing up big deals and how should we think about these services revenue the back half of the year?

Well the services revenues typically trail behind the licenses revenue, so where we have upfront revenue recognition, we'll recognize a license typically, or a significant portion of the license, closer to the front end of the contract when we install the software.

And then the services are recognized over the trailing, the next few quarters.

The percentage of completion contracts, Courts and Justice and some of the larger financial systems, both the license and the services are recognized pro rata at the same rate.

So the lower rate of licenses that we've recognized in the last few quarters, really you were seeing the trailing effect of that in a lower level of software services.

And in the second half of the year, again, we probably expect services to be at a somewhat similar level to what we've seen in the first half of the year.

And so for the full year we're probably looking at a low double digit decline .

So maybe in the 10%, 11%, 12% range decline year over year which is similar to what we've got in the

Okay.

And then in terms of the software backlog, of the $224 million, how much of it was license versus maintenance versus services?

Maintenance is about $86 million of that.

I don't have a separate breakout of the licenses and services, so I can just give you the maintenance number.

And then what was it during the first quarter?

Maintenance was about $72 million.

Okay, great.

Thank you.

(Operator Instructions).

Brian Kinstlinger, Sidoti & Company.

Great.

Maybe one of you guys can comment on -- I know you've mentioned oftentimes that you have really two strong cash flow quarters and this is the first time really I've ever seen in the long time I've covered you, no cash flow generation either the first quarter or the second quarter.

So are we expecting the second half of the year to really make up for all of that?

Or what may have changed in the first half of the year versus the traditional model we've seen?

Well obviously cash flow can jump around quite a bit.

As you saw, DSOs are up a little bit and A/R up a little bit, so working capital consumed more cash flow than it typically does in the first half of the year and kept it negative.

You saw we revised the total free cash flow for the year, the range, down around $3 million.

So obviously our analysis tells us that we're still going to see very strong cash flow in the second half of the year and generate virtually all of our cash flow plus what we were short in the first half and it will come up marginally below what we would have seen coming in.

Again, cash flow is going to jump around a little bit, but the cash flow characteristics haven't changed.

You really have your net income, the difference between D&A and CapEx, the stock options expense, and then picking up on the deferred revenues.

And over the long run that's the way cash flow is going to perform but it will bounce around a little bit.

Just drilling down a little bit deeper into that, the receivables are up year over year so we expect to see a minimum amount of that to turn in the second half and turn into higher collections particularly with respect to that large increase in maintenance billings that were booked in Q2 but will be collected in Q3.

So we do expect what is normally a very high third quarter for cash receipts from those receivables to be higher again this year.

We also had, compared to last year, there's about a $7 million higher use of cash for reducing accrued liability.

And that's a variety of factors, mostly timing issues, but we've had an additional pay period this year compared to last year and a typical pay period is $4 million to $5 million for us, so the timing of one payroll period can change that number by that range.

We had higher bonus paid out earlier this year than we are accruing at the rate for this fiscal year.

And we've had some timing on payables and accrued vacation payments.

And then we also had about $1.5 million higher income tax payments this year in the first half of the year than we did last year.

And we expect that to be lower in the second half than we did last year.

Thanks.

And at this time there appear to be no more questions.

Mr.

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

Okay, thanks, Karen.

And thank you for joining us on the call today.

If you have any further questions, please feel free to contact Brian or me.

Have a good day.

Once again, that does conclude our conference for today.

Thank you again for your participation.