Bottomline Technologies, Inc.
Q1 2014 Earnings Call Transcript

Published: 1 Nov 2013

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Bottomline Technologies First Quarter 2014 Earnings Conference Call. Statements made on today's call will include forward-looking statements about Bottomline's future expectations, plans and prospects. All such forward-looking statements are subject to risks and uncertainties. Please refer to the cautionary language in today's earnings release and Bottomline's most recent periodic reports filed with the SEC for discussion of the risks and uncertainties that could cause the company's actual results to be materially different from those contemplated in these forward-looking statements. Bottomline does not assume any obligation to update any forward-looking statements. During this call, Bottomline's financial results are presented on a non-GAAP basis. These non-GAAP results include, among others, gross margins, operating income, EBITDA, net income and earnings per share. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the Investor Resources section of Bottomline's website, www.bottomline.com. Bottomline will be providing forward-looking guidance on the call. A summary of the guidance provided during the call is available from the company upon request. I would now like to turn the conference over to our host, Mr. Rob Eberle. Please go ahead, sir.

[Robert A. Eberle:]

Good afternoon. Thank you for your interest in Bottomline Technologies and welcome to the first quarter of fiscal '14 earnings call. I'm delighted to report on what was a very strong quarter for Bottomline Technologies. I'm joined by Kevin Donovan, our Chief Financial Officer, who will provide a detailed review of the quarter's financial results and an increase in our forward-looking guidance. We'll both be available for questions following Kevin's remarks. Q1 was a very strong quarter on all fronts. The highlights of strong financial performance were the record revenues, record subscription and transaction revenues and record EBITDA. Paymode-X channel sales proceeding well ahead of plan with 12 new vendor pay deals, 10 new legal spend management deals closed in the quarter, and we completed 2 complementary acquisitions, establishing Bottomline as the global leader in financial messaging. I'll cover each in more detail during my remarks. Beginning with the financial highlights, for the quarter, subscription and transaction revenues were $31.5 million. That's an increase of $3 million from the prior year, representing a run rate of over $126 million annually. We remain focused on this important revenue stream and confident it will drive future revenue growth, margin expansion, multiple expansion and shareholder value. First quarter revenues overall grew to $67.2 million or 9% year-over-year. EBITDA was a record $13.4 million, up 11%. Operating income was $11.6 million, up 12%. We ended the quarter with a cash balance of $196 million, and we recorded EPS of $0.28 for the quarter, well ahead of our target and expectations, so very solid financial performance in the quarter. I'm delighted to report the continued growth of our cloud-based offerings. The results we are achieving is a validation of the decision to move more of our offerings to the cloud. While the financial results portray our success, the real story is in the customers and the market. Across the board, we are seeing strong demand for our cloud offerings, legal spend management, banking solutions and Paymode-X. We have made key significant investments in these platforms and that investment is paying off. We're benefiting from an important trend in the market. The demand for cloud offerings is increasing as the acceptance of cloud applications at larger and larger institutions, particularly banks, becomes commonplace. This is a very positive development for Bottomline and aligns perfectly with our investment. There are a number of reasons cloud is in demand. The benefits to the customer include enhanced capabilities, lower cost and speed of deployment. The benefits to Bottomline are existing customer retention and optimization, new customer traction, expanding market opportunities and compelling economics, particularly the scale. While we are in the very early innings of the opportunity, there is no doubt we are in the right place and at the right time. Touching on legal spend management. We had another strong quarter with 10 new deals representing $1.8 million in ARR or annual recurring revenue. Our next-generation legal spend management platform, Legal-X 10.0, was released during the quarter and customer reaction has been very, very positive. Platform has been widely embraced and universally praised. Several industry experts have made the comment that it's hands down the best product in the market. We re-architected the entire user experience, providing greater ease of use and efficiency for both our customers and the law firms. We now provide a single but detailed complete audit trail for every change made in the legal build, including the reason why. Other productivity and features include enhanced appeals functionality and budgeting capabilities. I could not be more confident of our continued leadership in this space. We have the right technology, a large loyal customer base and an outstanding team. We have a leadership position from which to introduce new capabilities and offerings. We are well positioned to see years of revenue growth and expanding margins. Turning now to our banking solutions. Exciting development in the market is the expanding openness to cloud-based technology. Every quarter, we see more and more financial institutions expressing their preference for the cloud. And perhaps an even more powerful driver of the expanding market is a continually increasing size of banks considering or requiring cloud solutions. This past quarter, we saw an existing customer come to us for a variety of reasons, cost, IT resource constraints, time to revenue, access to market-leading capabilities, all the typical things we see. They told us that going forward, they will look to deploy our solutions in a cloud delivery model. In the past, cloud was popular with smaller institutions, primarily based on cost. But now we are seeing many of the larger banks moving in this direction, and it plays directly in our strategy and should yield significant new subscription and transaction revenue growth in the quarters and years ahead. Turning to Paymode-X. Paymode-X is our settlement network for businesses and the largest and fastest growing network of its type. We believe this is a disruptive technology and it has the potential to revolutionize business payments. Our aspiration is for Paymode-X to become the network by which all businesses pay each other. During the quarter, we continued to grow the network, and we are on track to have over 250,000 vendors by the end of the calendar year. We have channel partnerships with Bank of America, Citizens Bank and the Royal Bank of Scotland. These banks include Bottomline's Paymode-X in their treasury management offerings, allowing them to offer their corporate customers the ease and efficiency of the world's largest and most effective business payments network. These channel relationships continue to exceed our expectations. We signed 12 new vendor pay deals in the quarter, 6 of which were signed by our bank channels. Looking ahead, the outlook is extremely positive. We could not be more excited about Paymode-X and our opportunity. We have a vision. And everything occurring so far, customer reception, bank channel activity, vendor network growth all supports and is in line with that vision. So finally, let me provide an update on the 2 acquisitions we completed during the quarter. The integrations are going extremely well at every level

[Kevin M. Donovan:]

Thank you, Rob. We had a strong start to the fiscal year with financial results that were ahead of expectations. Based on the strong Q1 results, we are raising our full year revenue, operating income and EPS guidance. I'll comment further on the guidance increase later in my remarks. We continued to execute on our strategy to drive more and more of our business to SaaS and recurring revenue-based offerings as evidenced by the record subscription and transaction revenue results achieved in the quarter. On an annualized basis, our subscription and transaction revenue is now over $125 million. Other key metrics of the first quarter were revenue of $67.2 million, a 9% year-over-year increase. Operating income of $11.6 million was up 12%. EBITDA of $13.4 million increased 11%. Backlog of $123.3 million was up 30%. Operating cash flow was $8.5 million and EPS of $0.28 was well ahead of guidance. In summary, another strong quarter. Now I will take a more detailed look into the financial results of the quarter and comment on the increase in our fiscal 2014 guidance. Strategically, we continue to invest in and grow our cloud-based recurring revenue platforms. Revenue of $67.2 million was driven by growth in subscription and transaction revenue. Subscription and transaction revenue was $31.5 million in the quarter and represented 47% of overall revenue. Subscription and transaction revenue is the largest component of recurring revenue, which was a record $48.4 million, and recurring revenue represented 72% of our overall revenue. Revenue in the quarter was stronger than expected, driven by an accelerated revenue ramp on several recent legal spend management deals and the contribution from the Simplex acquisition, which had previously been expected to close after the end of quarter. The revenue upside helped drive stronger earnings with EPS of $0.28, coming in well ahead of the original $0.16 guidance. Also contributing to the stronger earnings were higher service and maintenance gross margins, as we continue to transition away from large lower margin services engagements for our bank clients. We also saw an acceleration of acquisition synergies in our recent transactions, which drove lower operating expenses than expected. And we had a $0.04 benefit from a favorable tax rate in the quarter as compared with our earlier guidance. In addition to the strong results in the quarter, sales execution drove new subscription and transaction-based deals across our legal spend management, Paymode-X and banking solutions, which are not yet reflected in the financial results. During the quarter, we closed 10 new legal spend management deals and signed 12 Paymode-X deals under the new vendor pay model, including 6 which were delivered via our bank channels. While these subscription and transaction-based deals do not result in any current quarter revenue or earnings, they are very attractive to us because of the highly predictable nature of the long-term revenue stream and the leverage in the financial model. The revenue growth drove year-over-year expansion in gross margins, operating income and EBITDA. EBITDA was $13.4 million and operating income was $11.6 million, each increasing more than 10% on a year-over-year basis. Gross margin of 57% increased 1% from last year, driven by software license margins of 92%, service and maintenance margins of 60% and subscription and transaction margins of 52%. From an operating expense standpoint, we continue to invest in sales and marketing to drive future growth. Sales and marketing expense was $13.9 million, representing 21% of revenue, while product development expense was $7.9 million, representing 12% of revenue. Looking at the balance sheet. Cash at the end of September was $196.2 million. During the quarter, we used $109 million of net cash in the acquisitions of Sterci and Simplex, and we generated $8.5 million of cash flow from operations. In addition to the strong cash balance, we have a significant backlog. Backlog at the end of June, excluding commercial banking orders and Bank of America Paymode revenues, was 123.3 million, up 30% from last year. Next, I want to comment on our financial trajectory and the significant opportunity in front of us. Based on the strength of our Q1 results and our go-forward outlook, we are raising our annual guidance. We are increasing our full year revenue outlook to $298 million, our operating income to $51 million and EPS from $1.05 to $1.19. Our guidance includes the impact of the Sterci and Simplex acquisitions completed earlier in the year. These acquisitions will be dilutive in the second quarter as a result of the standard purchase accounting deferred revenue haircut, and then turn to breakeven in the third quarter and accretive to earnings by the fourth quarter. We are providing updated annual revenue guidance of $298 million, in line with the stronger first quarter results. The quarterly guidance for the remainder of the year is $73 million in Q2, expanding to $77.5 million in Q3 and closing the year at $80.3 million in Q4. We are also raising our operating income guidance on the year to $51 million, representing 20% growth from the $42.7 million reported last year. From a quarterly perspective, operating income is expected to be $10.6 million in Q2, increasing to $13.5 million in Q3 and further expanding to $15.3 million in Q4. Operating income in the second quarter will be down year-over-year and quarter-over-quarter, solely as a result of the first quarter acquisitions. In addition to the dilution from the acquisitions, earnings per share for the year will be impacted by an $8.2 million increase in tax expense, as we move from a tax benefit last year to tax expense this year. Tax expense is projected to be $1.8 million in Q2 followed by $1 million in Q3 and $500,000 in Q4, for a full year tax expense of $4.3 million, which is slightly below the guidance provided at the beginning of the year. Turning to earnings. We are raising our EPS guidance from $1.05 to $1.19 on the year. EPS is projected to be $0.22 in Q2, increasing to $0.32 in Q3 and expanding further to $0.37 in Q4. A schedule with all of the guidance numbers covered on this call is available from the company upon request. Now I have presented a lot of guidance number during my remarks. To understand our confidence in our financial trajectory, if one were to step back and annualize our projected fourth quarter results, they would see that we would exit the fiscal year with a revenue run rate of $320 million, an operating income run rate of $61 million and an EBITDA run rate of $70 million. In summary, we had another strong quarter and an excellent start to the new year. We executed on our strategic goals and objectives; completed 2 acquisitions; and grew revenue, operating income, EBITDA and backlog. Looking forward, our focus on delivering innovative market-leading solutions, combined with our leverageable financial model, positions us very well for continued growth. We will now open up the call for any questions.

[Operator:]

[Operator Instructions] And our first question will come from Richard Davis with Canaccord.

[David E. Hynes:]

Rob, Kevin, it's DJ on the line for Richard. So maybe first, an easy one. The vendor pay deals in the quarter, were any of those from Bank of America?

[Robert A. Eberle:]

Where they what, sorry?

[David E. Hynes:]

The vendor pay deals on Paymode-X, were any through the BofA channel?

[Robert A. Eberle:]

We're not doing channel by channel just from a competitive standpoint. What we're starting see is more overlap with those channels, which is good for us. But we're not going to reveal for those, for our channels, who has so many deals.

[David E. Hynes:]

Sure, yes. I mean part of the growth story obviously is that perhaps with Citizens and RBS going to market with the vendor pay that it would force change on BofA. I mean, is it...

[Robert A. Eberle:]

No, no, it isn't. No, there's 2 different -- there's a different way maybe for me to answer that question. Bank of America is actively marketing the vendor-pay model. They started being larger and being in the market with an existing different business model. They've been slower to do that, but there's no question they're behind that today. So we'll see that it's going to take a period of time, but that is certainly the biggest opportunity. So how is it going with Bank of America? I can answer that rather than a certain number. It's going really well. They're definitely behind it. We were participants in their user conference just recently. And it's certainly as -- it is our largest channel relationship and has the potential that, by far, the biggest impact on the vendor-pay model.

[David E. Hynes:]

Okay, good. That's what I was getting at. Perfect. And then maybe if we think about the Intuit commercial banking, I mean, where are we in terms of the bleed-off of the legacy to customers, maybe you can comment on kind of how retention efforts have been with those who had told you that they were perhaps going to drop the service? And when do we kind of lap that transition?

[Robert A. Eberle:]

Well, I'll let Kevin comment on the specifics of the lap of the piece. What I want to say about that market is while we pay for it in the way with the lap of the customer -- we acquired customers that we knew were leaving, so we acquired a declining revenue base. The fabulous thing about it is it was a catalyst for us to enter into a cloud-based commercial banking platform. And what we found is, as I mentioned in my remarks, almost every quarter, we're surprised to see the bar raising of larger and larger institutions that wanted the banking and cash management platforms via the cloud. And the Intuit piece is particularly useful for us because we were able to marry our experience, which is principally with the largest global banks and centered around multinational customers with the small business capabilities we acquired with Intuit. So what we're doing is we're putting together what we believe we're building the leading mid-market cash management platform, cloud-based platform and it is a central component of that. So to get specifically to your question, Kevin can answer on the bleed-off, which is still continuing but certainly not as big as it was from prior quarters.

[Kevin M. Donovan:]

Yes, and DJ, if you think about the transition, both from a sequential basis and on a year-over-year basis, we are coming to the bottoming of that transition on a sequential quarter basis. So we would expect moving forward here that we had bottomed out at that revenue transition. But when you look at it on a year-over-year basis, it will still represent a headwind for us throughout this fiscal year when compared to the revenue results of where this business was 12 months ago.

[Robert A. Eberle:]

One comment I would just make for anyone newer to our business or newer to our call, a component of that, we bought a business that was in a state of decline, which is a fabulous value, fabulous strategic impact to Bottomline. So there isn't a surprise in that. We fully expected that. It's just one of the -- in my mind, it's a different way of paying for the acquisition rather than cash. We pay for it with some impact in our results.

[Operator:]

We'll go next to Brett Huff with Stephens Inc.

[Brett Huff:]

Just a couple of quick questions. Can you give us the inorganic rev for the quarter? I know that the new deals would start to roll in for at least part of the quarter. Can you give us that stat?

[Kevin M. Donovan:]

We actually -- because we have an existing financial messaging business, Brett, we actually combined those operations. So they're today one single operation. There is no inorganic growth associated with it. There is some different product revenues from the companies we acquired, but we're really viewing that as one business. We took the 2 acquisitions and combined them with an existing business, and that represents now our go-forward financial messaging business.

[Brett Huff:]

Okay. And then in terms of the gross margin upside that we saw in sub and tran, can you detail what drove that, whether that's sustainable going forward? Because I know eventually you guys think you can really expand that margin. Or if there was something that was going on that maybe brought that particular extension early and it's going to be kind of up and down. Can you give us a sense of sustainability?

[Kevin M. Donovan:]

Yes, I mean at 60%, we were expecting gross margins for service and maintenance to be a little bit lower than that. And part of that would have been a sequential decline associated with the acquisitions and some of the impact of the deferred revenue haircut on maintenance. But particularly, what drives some of the upside is the transition away from large low-margin services engagements with our large banking clients. And as we move those over to more of the SaaS subscription and transaction models, the revenue shows up on the subscription and transaction line as opposed to the services line with high costs associated with it for personnel.

[Brett Huff:]

Okay. And then can you tell us a little bit about the -- I think you mentioned a mobile application that you launched, did you develop that in-house or is that with a partner? And kind of what is that addressing?

[Robert A. Eberle:]

That was done with a partner, a partner in whom we've actually taken a small equity stake, but it was still with a partner.

[Brett Huff:]

And is that -- when I read through it, is that a cash management application or is it an Internet banking? Kind of what segment is the sort of...

[Robert A. Eberle:]

It's not a way to think about -- the way to think about cash management is probably not in the investor sense. The cash management term is really Internet banking for businesses. You can hear it called -- you'll hear it referred to as treasury services, commercial banking or cash management, and it's the online banking experience for businesses. So that's the key component that we provide in our banking solutions. And as you move into -- particularly as you move into more of the small and medium-sized businesses, the ability to have anywhere, any channel access and mobile capability becomes more and more important, and that's why this was such an important release for us.

[Brett Huff:]

Okay. And then last question from me. Rob, as a follow-up to, I think, a question asked before on Bank of America. You said that BofA is behind sort of the new vendor pay pricing model. I think a question on everybody's mind is that -- is that just them looking forward as they sign new deals? Or are you...

[Robert A. Eberle:]

Well, I think, today, that's definitely -- I'm sorry to have cut you off. I think I got the question. I think today that's definitely them looking forward and that's where you start. And then I think what will happen in my expectation which is really just to forecast what we see as part of our vision is, it's such a compelling model. I would see in the future at some point working back then against the existing base. We've had some dialogs with existing payers today, but our principal focus is on new customers coming on.

[Operator:]

Our next question is from Mayank Tandon with Needham & Company.

[Elizabeth Colley:]

This is Elizabeth Colley for Mayank. I'm curious, are you guys still on target to get to that 25% operating margin in 3 years? And I'm just curious, how are you guys thinking about margins long term, and what are some of the levers that you see today?

[Kevin M. Donovan:]

Yes, our operating margin target over a 3-year period is still 25%. We would expect to see that in the beginning part of calendar 2016.

[Elizabeth Colley:]

Okay. And could you talk about some of the levers that you guys see to get there?

[Kevin M. Donovan:]

Sure. I think the biggest lever you'll see is on gross margin and particularly the subscription and transaction gross margin. Today, we're heavily investing in our cost of subscription and transaction and the leverage in the financial model. As we continue to drive revenue growth, we'll drive an expansion of gross margins on the subscription and transaction line. So today, gross margins are at 52%. And we would expect to see the ability to expand gross margins over a multiyear period as the revenue ramps from our legal spend management, Paymode-X and commercial banking solutions.

[Elizabeth Colley:]

Okay, so does that mean that margins in the other business lines should stay about flat?

[Kevin M. Donovan:]

Yes, I would expect that we'd see gross margins on software right in that low 90% level. I think that service and maintenance margins in the 60% to low 60% level is appropriate as well.

[Operator:]

We'll go next to Wayne Johnson with Raymond James.

[Wayne Johnson:]

Could you just give me a reminder here or a refresher? So how many vendor-pay vendor guys signed up so far? Like what's the total number of vendors on the vendor-pay model today?

[Kevin M. Donovan:]

We have 230,000 vendors on the network. We don't break out discreetly the number of vendors that are on the vendor-pay model as of this time.

[Wayne Johnson:]

All right. I guess I'll just go back and try to add them up. So...

[Kevin M. Donovan:]

It's a -- it's a smaller portion of our vendors because it's newer model.

[Wayne Johnson:]

Right. And then, how should I think about the trajectory going forward of adding new vendor-pay models -- new vendor-pay customers? So a good quarter -- seems like a good quarter with 12 new vendor-pay additions. Should we expect 5 in the current quarter? 10 in the current quarter? 20? Like how should we think about that going forward?

[Robert A. Eberle:]

No, I think the level we're at right now is probably what we would see over the next couple of quarters. I think then, what -- we've got a tremendous pipeline effect. Just this past week, our team was at AFP, very strong feedback from AFP, which is the Association Financial Professionals, so banking conference and banking and treasury conference. But I think the level we're at is with now is what we'd see over the next couple of quarters. What we are seeing is some larger organizations, some larger enterprises, which means the overall revenue contribution and the overall networks usage fee can be much higher. But I think we'll see around the same levels for the next couple of quarters, and we'll continue to report on it every quarter.

[Wayne Johnson:]

That's helpful. And then did I miss it? Did you guys mention any new payer wins in the quarter?

[Robert A. Eberle:]

Hey, Wayne. Well, we signed a dozen deals, if that -- so we did...

[Wayne Johnson:]

Well, on the vendor-pay side. But on the corporate side, right? So...

[Robert A. Eberle:]

No. This is a little embarrassing. I'm sure we didn't, I don't know the answer to that. We would have had out a normal -- particularly Bank of America channel. We're probably signing, on average, we're signing 20, 25 deals a quarter, so I would expect we probably did somewhere around that same level. It has less of a revenue impact on us based on the business model.

[Wayne Johnson:]

Right, understood. And just another quick one, then I'll get back in queue here. But are you guys still adding 3,000 new vendors per quarter in total?

[Robert A. Eberle:]

Yes, that's correct. It's 3,000 per month. It's 3,000 per month.

[Wayne Johnson:]

3,000 per month. My apologies. Thank you for the correction. What is the basis point percentage per invoice that you guys are charging on the vendor-pay model?

[Robert A. Eberle:]

Yes, that, for competitive reasons, that's not something we're talking about.

[Operator:]

Our next question is from George Sutton with Craig-Hallum.

[George F. Sutton:]

Many of my questions have been asked, but one note you made in your press release was on the health care vertical. And I know at one time, you were considering an acquisition in that area. And I'm just wondering if you could give us the strategic plans for that health care vertical.

[Robert A. Eberle:]

Sure. We've -- about a year ago, we -- well, we've always had an interest in health care, tremendous market, huge size. We've always had a lot of health care customers that have come to Bottomline for our payment capabilities, for our different products set, document-management products and the like. We focused -- just over a year ago, we put more focus to our health care group, brought in some more industry talents. So while it's still small, it doesn't represent anything like a financial services vertical does for the company. We see the potential, we continue to look at. We have a very interesting product capability to bring patient onboarding on tablets, which feeds electronic health record and other systems within core systems within the hospital. And we're in the process of trying to branch out and create more relationships with channel partners as well as broaden the capability that we can bring. By channels, I mean, the core systems providers broaden the capability of the products that they were offering. So I look at health care as a very early market where we are actively looking at the best opportunities for Bottomline.

[George F. Sutton:]

Now relative to M&A, I'm curious if you could just give us a sense, are you predominately looking within your currently defined areas? Or are you taking a broader look at opportunities?

[Robert A. Eberle:]

Well, I think I'd say we'd take a broader look, but I - we're not going to stray outside of things that we -- outside of our business, I mean. Ideally, what you want to do is to buy a business that is much more than the person selling it. What we don't want to do is move into areas where we don't have any experience and we don't have any scale. But if you look at existing footprint, both from customer -- we just touched on health care. Obviously, financial services, we have 70 some odd of corporate -- of the Fortune 100 and thousands of corporate customers. So it gives us a pretty broad range to look at capabilities, as well as to look at different types of functionalities, so to look at things like mobile, to look at analytics, to look at security and how would we layer those on. So we have a pretty active program. And frankly, it's a core competency of Bottomline. I think we've done it very well, and I'm confident we'll continue to have M&A being an attractive way for us to add technology, markets, geography and customers.

[George F. Sutton:]

Lastly, for Kevin. Your initial guidance was 4 million to 5 million of dilution in the first half from the acquisitions. And I'm curious if your updated guidance changed that level at all.

[Kevin M. Donovan:]

Yes, we expect to see a little bit smaller level of dilution in the 2 quarters than what we would have originally guided to.

[George F. Sutton:]

Can you be more specific with smaller level?

[Kevin M. Donovan:]

I don't have a specific number to provide, but it's come in less than we would have expected.

[Operator:]

We have a question from Peter Heckmann with Avondale Partners.

[Philip Benavides:]

This is actually Philip in for Pete. So I just have a couple of questions for you. The first being did the company finish a conversion of the large P&C insurance carrier for legal spend management announced in the fiscal second quarter? And if not, when can that be expected?

[Kevin M. Donovan:]

I'm not sure exactly which customer that would represent, but we did have an acceleration of a couple of our key accounts with incremental revenue in the quarter. So my expectation is that, that would have occurred.

[Robert A. Eberle:]

Yes, well, I would qualify it just a little bit. Yes, we began the live and realized revenue. I think you used the word finished, and we're never finished. What's very interesting and wonderful opportunity about the market is we're never finished because the organizations continue to have different departments, different areas. Plus we can always increase the percentage of usage they have, whether using additional law firms that bring it on. So actually, one of the interesting ways that we continue to grow the business is by more volume from existing customers. So we would like to say every day is renewal day, and we certainly are never finished with an implementation of a customer there. But if your question was have we gotten the biggest one live, yes, we did in the quarter and saw some of the revenue just beginning to flow.

[Philip Benavides:]

Okay, great. That helps. And then next, when looking at the model, can you help us understand the tax rate that's applied to the pro forma add backs to get to the core net income?

[Kevin M. Donovan:]

Yes, we use a tax rate that's equal to our GAAP tax rate, so our core tax rate is the same as our GAAP tax rate.

[Philip Benavides:]

Okay, great. That helps, too. And I think you touched on this. Did you provide some guidance as to the tax rate for the next year? Did I miss that?

[Robert A. Eberle:]

We're projecting a tax rate for the full year of $4.3 million.

[Operator:]

We have no further questions in queue, so please go ahead with any closing remarks.

[Robert A. Eberle:]

Well, thank you, everyone. I think we continue to execute on our strategy, drive more of our business to the cloud. I think we had strong financial results in the quarter and look forward to reporting back to you at the conclusion of Q2.

[Operator:]

Okay, thank you. And ladies and gentlemen, this conference will be available for replay after 7 p.m. today through midnight, Thursday, November 14. You may access the AT&T executive playback service at any time by dialing 1 [phone] and entering the access code 305949. International callers dial [phone] using the same access code 305949. That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.