Saba Software, Inc. (SABA)

F1Q09 Earnings Call

October 9, 2008 5:00 pm ET

Executives

Bobby Yazdani - Chairman of the Board, Chief Executive Officer

Carol Rice-Murphy - Interim Chief Financial Officer

Analysts

Eric Martinuzzi - Craig-Hallum Capital

Kevin Liu - B. Riley & Company

Analyst for Michael Nemeroff - Wedbush Morgan Securities

Charlie Frumberg - Analyst

Presentation

Operator

Ladies and gentlemen, thank you very much for standing by and welcome to the Saba first quarter 2009 earnings release conference call. (Operator Instructions) I would now like to turn the conference over to your first speaker, Miss Carol Rice-Murphy. Please go ahead.

Carol Rice-Murphy

Thank you. Good afternoon and welcome to the Saba Software first quarter 2009 conference call. I’m Carol Rice-Murphy, Saba's Vice President of Finance and Interim CFO. Today we will discuss our financial results for the first quarter ended August 31, 2008. With me today is Chairman and Chief Executive Officer, Bobby Yazdani.

Before we begin, I would like to point out that certain remarks made in the course of this conference call are forward-looking statements. These statements include but are not limited to Saba's future performance and financial projections, Saba's ability to leverage its on-demand infrastructure to support anticipated growth and expand gross margins, ongoing strong interest in Saba products and accelerated interest in Saba's on-demand offerings, Saba's belief that its on-demand business will grow steadily in coming quarters, Saba's ability to enter into or complete any strategic transaction, Saba's future product introductions and announcements, Saba's ability to grow its business and generate earnings and generate cash from operations.

These statements are based solely on information available to us today, reflect management’s current expectations and beliefs, and are subject to numerous risks and uncertainties. It is important to note that our actual results could differ materially from those contained in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in forward-looking statements is contained in our annual report on Form 10-K for the year ended May 31, 2008, and similar disclosures in subsequent Saba periodic SEC reports. Copies of these reports may be obtained from the SEC. We disclaim any duty to update such statements.

In addition, we intend to discuss today both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP results is included with the financial statements accompanying our earnings release and is available on our website at www.saba.com. Saba's management believes that non-GAAP information is an additional meaningful measure of operating performance because it measures the principal operating results that can be directly influenced by management and provides more consistent comparability to our financial results against historical results and the reported results of other software companies.

Before I jump into those financial results for the quarter, let me turn the call over to Bobby to speak to you on the general state of our business. I will discuss our expectations for 2009 later in the call.

Bobby Yazdani

Thanks, Carol. Let me start by giving you color on our Q1 results. We were pleased with the ongoing strong interest on our products, as evidenced by the 15% overall bookings growth compared to the same quarter last year. Total bookings were around $28 million for the first quarter. In the first quarter, we saw an acceleration of interest in on-demand offerings with more than two-thirds of our product bookings being on-demand, compared to an even split between license and on-demand bookings in Q4. This provided us with a better visibility and ongoing product revenue for future quarters.

We signed a number of important contracts with new and existing customers during the quarter, including ArvinMeritor, Deloitte Touche Thomatsu, Future Electronics, Siemens Medical, Trinity Health, United Surgical Partners, University of Connecticut Health Center, and Yum! Restaurants.

In Q1, we began to see results from our restructuring of international operations with important new contracts from our organizations, including Sydney Water, Media Saturn, and Origin Energy, and ongoing business with existing customers, including Banco Santander, Nissan, and Total Consulting Services, coming outside of North America.

During the quarter, we continued to evaluate strategic opportunities to scale our business and enhance shareholder value. Non-operating costs, including those associated with these activities, added $700,000 of expenses to our GAAP results.

In our last conference call, I outlined our top priorities for Saba -- maintaining our leadership in human capital enterprise market, profitable growth, generating cash, and building our recurring revenue streams. We are making progress toward all of these objectives. In Q1, we generated $600,000 cash from operations and our on-demand contracts grew significantly, building future recurring revenue streams.

We also saw strong overall booking growth, extending our leadership in the human capital enterprise market and made significant progress toward delivering new products that provide innovation in the human capital market.

We have also entered into a strategic relationship with HP Learning Services to provide Saba solutions worldwide, significantly increasing our indirect channel capability. We are already seeing a pipeline in Asia and Latin America as a result of this new partnership.

We continue to believe we can generate EBITDA net margins of 10% to 15%, as we continue to grow the business and manage expenses. We are managing capital and discretionary expenses conservatively and expect to generate approximately $7 million positive cash from operations in 2009, through the 2009 fiscal year. We are confirming the current estimate for fiscal 2009 non-GAAP earnings of $0.25.

Let me now turn it over to Carol to review the financial results in detail.

Carol Rice-Murphy

Thanks, Bobby. Now for our financial results -- total revenues in the first quarter of fiscal 2009 were $25.3 million, compared to $25.5 million in the same quarter last year. Revenues in the quarter were affected by a number of factors -- the continued shift in product mix toward our on-demand business, deferral of approximately $500,000 of revenues until later periods, the result of contractual terms on certain transactions.

In the first quarter, on-demand revenue totaled $4.9 million, up from $4.7 million in the prior quarter and 11% higher than $4.4 million recorded in the same quarter of the prior fiscal year. We are pleased to see traction in our on-demand business and believe that it will build steadily in the coming quarters.

Product revenue from the sale of licenses in on-demand solutions represented 31% of total revenue. The rough breakdown of product bookings for the first quarter was 60% Saba products and 40% Centra collaboration. As Bobby mentioned, on-demand bookings in the first quarter of 2009 comprised more than two-thirds of our total product bookings.

License revenue in the first quarter totaled $3 million as compared to $4.7 million in the same quarter last year. License updates and product support revenue in the first quarter of fiscal 2009 totaled $8.6 million, a modest decrease from $8.8 million recorded in both the same quarter last year, as well as the prior quarter, with renewal rates remaining relatively consistent.

The first quarter of 2008 included the impact from higher reactivations of previously expired contracts. Our recurring revenue stream, the combination of on-demand, license updates, and product support, represented 53% of total revenue.

At $8.8 million, professional services revenue increased 17% from the first quarter of 2008, decreasing 3% from the prior quarter. This decrease from the fourth quarter of fiscal 2008 can be attributed to the historic seasonality in services during the slower summer months and to a one-time favorable adjustment in the fourth quarter of fiscal 2008. Our base line professional service business continued to build steadily, both in volume and sustained margin.

New business booked in the first quarter was about 58% license and license related and 42% on-demand. We added 20 new customers in the first quarter of 2009 and completed 64 license and 71 on-demand deals in the quarter.

U.S. revenue represented 73% of total revenue, consistent with recent quarters. Overall gross margins were 56% in the first quarter, down from the 62% we recorded in both the same quarter last year and in the preceding quarter. Much of this was influenced by lower license revenue mix and the corresponding shift toward on-demand. We will continue to invest in our on-demand business to support its anticipated growth, including gross margin is approximately $300,000 of intangible amortization and $100,000 of stock-based compensation.

In summary, our margins for the first quarter break down as follows: license gross margin, 93%; license updates and product support gross margin, 74%; on-demand gross margin, 51%; professional services gross margin, 33%.

Total operating expenses were $16.4 million in the first quarter of fiscal 2009, compared to $17.1 million in the prior quarter and $17.9 million in the first quarter of 2008. Total operating expenses in the first quarter of fiscal 2009 included amortization of purchased intangibles of $600,000 and stock-based compensation of $500,000.

Depreciation expense for the quarter was approximately $575,000. Capital expenditures for the quarter totaled approximately $1.2 million.

Our first quarter sales and marketing costs were $7.1 million, or 28% of revenue, which was in line with our expectations and significantly lower than the $9.3 million incurred in the first quarter of 2008. This reduction reflects the actions taken previously to reduce the annualized sales and marketing run-rate by approximately $8 million.

G&A expenses were $4.3 million in the first quarter of fiscal 2009, as compared to $3.9 million in the prior quarter and $3.8 million in the first quarter of 2008. Included in G&A cost for the quarter was approximately $700,000 of non-operating costs, primarily related to legal and accounting fees incurred in connection with evaluation of strategic transactions.

Salaries and related benefits increased approximately $200,000 over the same period in the prior year as a result of increased headcount.

Stock compensation expense in the first quarter of the prior year included approximately $600,000 related to acceleration of vesting for certain options. Such acceleration did not repeat in the current period.

On a GAAP basis, our net loss for the quarter was $2.2 million, or $0.08 per share, compared to a net loss of $2.4 million, or $0.08 per share, in the first quarter of fiscal 2008. This loss can be attributed directly to the product mix resulting in lower license revenue and the $700,000 of non-operating cost. On a non-GAAP basis, the first quarter of fiscal 2009 and 2008 were both approximately break-even.

We ended the first quarter with $29.7 million of deferred revenue, consistent with the same quarter in 2008 and down from $31.3 million at the end of last quarter. This pattern is consistent with the seasonality of renewals related to our recurring revenue stream, which are more heavily weighted toward calendar year-end.

The breakdown of our deferred revenue by revenue category is as follows: 2% of deferred revenue from license, 54% from license updates and product support, 34% from on-demand, 10% from professional services.

Cash flow from operations was a positive $600,000. We ended the first quarter of 2009 with approximately $15.5 million in cash, down from the prior year-end balance of $16.6 million, primarily due to capital purchases and the impact of foreign exchange rates.

In summary, we are focused on driving profitable growth for the business. We have been and will continue to be diligent on the reduction of less essential costs and continue to invest in our on-demand business, as planned and in support of demand. We are keenly aware of recent macroeconomic events and remain cautious as a result of them.

Our guidance for fiscal 2009 is as follows: we confirm our prior guidance for approximately break-even GAAP net earnings per share on basic and diluted shares of approximately $30 million. We confirm our prior guidance for non-GAAP net earnings per share of approximately $0.25 on a basic and diluted basis.

We expect our revenues to be slightly less than prior guidance, the result of the impact of foreign exchange rates on prior non-U.S. dollar denominated bookings related to our recurring revenue stream, and lower license revenues in the first quarter.

We expect to generate cash in fiscal 2009 and expect our cash flow from operations to total approximately $7 million.

Now let me turn the call back to Bobby.

Bobby Yazdani

Thank you, Carol. Let me now update you on the key initiatives for fiscal year 2009 that I outlined in our last conference call. From a product perspective, we are continuing to deliver on our strategic themes of people-centric collaboration, unified people management, global enterprise learning, and on-demand.

We have delivered a new release of our Saba Centra platform that provides increased scalability and platform flexibility to meet the needs of large enterprises, and plan to unveil significant additional enhancement to people-centric collaboration at our annual user conference, people 2008, which will be held in Washington, D.C. from October 20th to 23rd.

We believe Saba Centra is a unique asset in the human capital marketplace, with the opportunity for immediate ROI as companies reduce travel. By facilitating connections between people and expertise, we can improve the productivity of remote teams and dramatically increase the value of [conferencing].

In addition, at the HR Technology Conference and Exhibition next week in Chicago, we plan to announce the availability of a new version of the Saba enterprise platform with new capabilities to manage internal recruiting processors and provide [inaudible] planning.

This release will provide enhancement in all areas of our platform, including learning performance and talent management, and it will increase the value of unified people management. Many customers that are expanding their learning solutions across multiple organizational processors, including HP, Intel, Schlumberger, and Credit Suisse, have provided detailed feedback on the new release and have ongoing projects that leverage the new capabilities.

Finally, we have continued to focus on streamlining the operational management implementation of our on-demand solutions. We have completed significant upgrades to our on-demand infrastructure and made investments that are expected to increase margins in our on-demand operation as it grows.

In Q2, we intend to continue to execute our business plan and conservatively manage capital expenditures and non-sales costs to provide financial flexibility, given the risks of the current economic environment. Our upcoming global user conference, People 2008, is an occasion to deepen our customer relationships and provide opportunities for cross-selling and up-selling our global customer base. We have over 500 attendees registered for this event and continue to see strong interest in spite of high travel cost and economic uncertainty.

As companies face an economic slowdown, cost savings and understanding the expertise of their internal teams will be increasingly critical. We will focus on generating leads where companies can achieve immediate ROI from reducing travel and training expenses and drive more business with existing customers, to extend their solutions to provide greater visibility into their organizational capabilities.

Now I’ll turn the call over to the Operator for questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Eric Martinuzzi with Craig-Hallum.

Eric Martinuzzi - Craig-Hallum Capital

I’m curious to know what the -- if you could clarify slightly, I see you are talking about doing less than the $118 million that you had guided to previously for FY09. Maybe if you could quantify the foreign exchange impact and the Q1 license impact -- what was in your mind for what Q1 license ought to be?

Bobby Yazdani

So let’s talk about the exchange rate for a minute. I mean, we have some model, as you know, the exchange rate has moved quite a bit since the beginning of our fiscal year by roughly about 10%. But you know, it could get -- you know, it could get -- we don’t quite know where it’s going to go but roughly in our model, we assumed $1 million that’s going to have a revenue impact.

It’s really not -- it would not have any gross margin impact. It would not really have an impact in terms of the cost. It’s really a -- the margin was still the same. It has a top line impact.

In terms of the revenue in Q1, we pushed out about, as Carol indicated, we pushed out about $0.5 million of revenue out from Q1, which would be recognized in Q2 and Q3. That’s essentially is a booked business. We just didn’t -- we couldn’t take it into revenue in the first quarter.

And then if you’ll recall, we also accelerated some revenue into Q4, where about $0.5 million of consulting revenue was higher than what we originally reported, after we filed our K. You know, the revenue went up by about $0.5 million in Q4.

Carol Rice-Murphy

After the earnings release in our K.

Eric Martinuzzi - Craig-Hallum Capital

So in the aggregate, we’re talking about slightly equal to $2 million?

Bobby Yazdani

About $2 million, correct.

Eric Martinuzzi - Craig-Hallum Capital

Okay. The second question, the declining on-demand margins are a point of concern, and by that you saw a nice growth there, you know, 11% growth on the revenues but we saw the gross profit dollars actually decline by $300,000. Where does that base out? What’s a good margin, gross margin assumption for the on-demand?

Bobby Yazdani

Right, so it was planned, if you’ll recall, we mentioned that Q4 and Q1 and as our capital expenditures indicate, we essentially upgraded the entire infrastructure over the past two quarters, and all expenses are charged into that particular quarter. You will not see that kind of an expenditure going forward. That work was completed. The entire Centra product, Centra on-demand was upgraded and our customer base is now on the new infrastructure, so is the Saba product line. You should expect a 5% incremental increase from the current quarter in terms of the margin going into the Q2 and into the Q3, and then we would stabilize north of 60% going forward.

Eric Martinuzzi - Craig-Hallum Capital

Okay, and then I realize that as part of that, that was the part of the large CapEx in Q1. What’s the CapEx expenditure for the full year, given that you’ve spent $1.2 million already?

Bobby Yazdani

It will drop to roughly about $500,000.

Eric Martinuzzi - Craig-Hallum Capital

For the out quarters?

Bobby Yazdani

Yeah, you can -- maybe a quarter would be around 550, another quarter would be around -- but that’s roughly what you are looking at.

Eric Martinuzzi - Craig-Hallum Capital

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Kevin Liu with B. Riley & Company.

Kevin Liu - B. Riley & Company

Good afternoon. I’m looking just at kind of the main revenues as well as kind of the deferreds there. I mean, it looks like it was kind of down year over year and given that you guys mentioned renewal rates are still relatively stable, just curious if the customers are now kind of delaying when they renew or pushing that out a little bit. Just give us some more color there.

Carol Rice-Murphy

So there are often times in a quarter, we will success in re-engaging with expired maintenance contracts or on-demand contracts and the size of that can vary from quarter to quarter. It can be larger in one quarter than in another, and in the same quarter in the prior year, it was higher than in this quarter. That primarily is the impact.

Bobby Yazdani

So if we are not seeing any retention. We are still seeing around north of 95% --

Carol Rice-Murphy

Renewal rates are the same, yes.

Kevin Liu - B. Riley & Company

All right, and then just kind of getting into the change in revenue guidance a little bit -- I just wondered how much of that might be due to just you guys seeing more traction in the on-demand business than you might have expected going into the year?

Bobby Yazdani

We have modeled and again, we looked at the bottom-up pipeline. We have modeled that the growth is really on demand, as we have indicated, and we are assuming that there essentially licenses would be lower year over year, where on-demand significantly higher year over year. So that mix is in our equation. We have that in our plan. We talked about the impact of the currency -- I mean, you are looking at, you know, we have roughly about thirty-some million dollars that comes from overseas and if there is a 10% currency impact, you can see that that would have a revenue impact for us, based on the exchange.

Kevin Liu - B. Riley & Company

And then just lastly on the strategic initiatives, just curious, how long should we expect these expenses to kind of persist? Is there a deal that’s out there that you guys are -- that might be imminent or is this kind of just an ongoing evaluation of [the possibilities]?

Bobby Yazdani

No, I have to excuse myself from commenting, you know, this conversation, as I indicated from time to time, the company has such conversation and we have not provided any commentary around those, so I apologize for not providing more comments than that.

Kevin Liu - B. Riley & Company

I guess maybe not specific to that then, just in terms of being able to finance any transactions -- I mean, just given where your stock is today, would you guys ever use your stock at this level to pursue a transaction?

Bobby Yazdani

That is of course our board of directors’ decision but as the CEO and the management, we would not recommend that.

Kevin Liu - B. Riley & Company

All right. Thanks a lot.

Operator

Thank you. Our next question comes from the line of Michael Nemeroff with Wedbush Morgan.

Analyst for Michael Nemeroff - Wedbush Morgan Securities

This is David [Gesika] for Michael. Just a couple of housekeeping questions, please -- can you give us a sense of your quota carrying sales persons now?

Bobby Yazdani

Yes, it’s the same as last quarter, which is the mid-30s, just short of 40 people.

Analyst for Michael Nemeroff - Wedbush Morgan Securities

Okay, great, thanks. And I think I missed your CapEx in Q1, can you go over that again, please?

Carl Rubin

It’s about $1.2 million and the predominant component of that was the infrastructure refresh that Bobby referred to earlier.

Analyst for Michael Nemeroff - Wedbush Morgan Securities

Great. Thank you. Given the downturn in what you are seeing, are you seeing any competition grabbing market share from your on-demand business, even though you are able to grow it here? Would this be an opportunity for you to push even harder? Can you give us a sense there?

Bobby Yazdani

Maybe step back and give you sort of like broader thoughts around how we are looking at our go-to-market strategy and how do we execute in the current environment? You know, Saba services today roughly around some 1200 to 1300 customers worldwide. And about one-third of these customers are international clients.

We are not -- we have a fairly good exposure to international markets through a variety of markets. There is not really a single segment that overshadows the other -- you know, we have of course exposure to financial services no different than any other software company but it’s not a significant component of our business.

We believe that in this environment, we have to stay extremely close with our existing customers and continuously help them get more value of their current solution and really have a good value for them and immediate ROI on the current solution that they have deployed. So our sales organization and our folks in the field are intimately engaged with our existing customers and working with them, expanding their existing projects at the footprint so that it is faster ROI for our clients.

In terms of the new, of course, we’ve picked up a number of new customers. We continue to win very well with our new on-demand offering. You know, our customer assets speaks for the standing of the company going forward, the product and the technology that we have and the analyst endorsement of those products is also a great differentiator for us. And we have a sizable customer base, we have a sizable reference customers in a variety of industries, and we are going to use that in our advantage. You know, we are, as I said, we are growing profitably as a business and we’ve been very prudent not to over-extend ourselves in any shape or form, and continue to invest for our customers. That’s why the investment in the on-demand infrastructure going forward.

We believe that our business is sized right. We believe we have a diverse customer assets. We believe we have excellent product and technologies and service capabilities. We have a broad revenue streams of both the recurring revenue as well as professional services with long-term consulting engagements with large clients, including United States Army, Navy, public sector clients. And we are doing everything on our end to mitigate the risks of this downturn that is coming at us.

Analyst for Michael Nemeroff - Wedbush Morgan Securities

Okay. Do you -- on that note, are you seeing deals slip because people just can’t come up with the funding or would this -- along those lines as well, would this economic situation that we are facing make it easier or harder to sell an on-demand solution versus the licenses?

Bobby Yazdani

Let me try to respond say in a different way -- I believe that you would have a better chance of succeeding helping your existing customers getting higher value of their existing investment, so I would say in this environment, existing customers, whether they are licensed or on-demand, independent of that, they provide a better opportunity and they of course [inaudible] ourselves to mitigate the risk of our business.

Now, in terms of the -- whether it’s easier to sell license or on-demand, you know, larger customers in this environment, and we have had a number of those largest customers that are actually growing because of their acquisition that are taking place in this very market, and they are licensed customers.

Analyst for Michael Nemeroff - Wedbush Morgan Securities

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of [Huan Yon-Kim].

Charlie Frumberg - Analyst

This is Charlie [Frumberg]. I have a few questions, real quick. I don’t have this in front of me but if I remember reading from your statements that your auditing fees and accounting fees were well north of $2 million. I think I got that out of your proxy. What --

Bobby Yazdani

You’re suggesting the annual cost?

Charlie Frumberg - Analyst

Yes, correct. When -- can you just give a sense of when those costs were taken? I know the audit is after the year is over, so was there a disproportionate effect of those expenses in this quarter?

Bobby Yazdani

You mean into Q1?

Charlie Frumberg - Analyst

Correct.

Bobby Yazdani

There were elements of it in Q1 but there were broader sort of activity, Charlie, that really -- really the $700,000 we mentioned in our report that it was above and beyond, kind of like the ongoing operating activities.

Charlie Frumberg - Analyst

Right, so at least the accounting and auditing fees are basically accrued through the year?

Bobby Yazdani

That’s correct.

Charlie Frumberg - Analyst

Okay, and you had this extraordinary $700,000 item?

Bobby Yazdani

Yeah, which was really non-operating.

Charlie Frumberg - Analyst

Right. Okay, now you had mentioned HP. Congratulations. It sounds like a nice win here in terms of a partner. Any attempt at quantifying that for us?

Bobby Yazdani

We are -- HP Learning Services, it’s a multi-hundred million dollar revenue stream for HP. They have a presence in north of 30 countries they have this practice, capabilities. Since we have now standard solutions within HP, you know, for their employees and their customers, partners, they would want to offer their internally deployed solution to their customers. So that’s how we end up signing a contract with them last quarter in the first fiscal quarter, where they would essentially have become a partner.

Now, we have an existing pipeline with them. This pipeline is very -- we have a pipeline in multiple territories with them. It’s multiple millions of dollars and I’ll leave it at that. It’s early relationship. We need a few more quarters to get a sense of a run-rate business before we give you color commentary on that. But it’s a -- again, in an environment like this, I think a relationship like HP, a relationship like the one we have with IBM, are quite important.

Charlie Frumberg - Analyst

Do you expect to see any current quarter impact on to revenues from the relationship, or is there a ramp-up time here?

Bobby Yazdani

No, we’ve already sold together and typically the nature of these relationships if you don’t win together, you don’t get to claim the relationship or sign the partnership. We’ve already done that over the course of the past 12 months. We do have, as I said, a live pipeline with them. I am hoping to see that we see converting some of those deals into customers over the next few quarters.

Charlie Frumberg - Analyst

Okay, and the last question is the stock is currently selling at an enterprise value of less than one times your recurring revenues alone. You have modest CapEx expectations for this year and if I heard you right, you’re generating about $7 million of free cash flow.

Bobby Yazdani

Correct.

Charlie Frumberg - Analyst

So why not use at least your excess cash flow generation, if not some money off of your balance sheet, to buy essentially -- buy stock back at a price that is perhaps the cheapest on a relative basis measure to recurring revenues you’ve ever seen?

Bobby Yazdani

Right, so the biggest [inaudible] colors on that, again we are quite sensitized to our shareholders, our stock price. We are clearly looking at all options, as you can imagine. We are investigating and we have investigated strategic alternatives as we have commented in the past that -- you know, we don’t give you the details but those things have been into consideration.

In terms of the stock buy-back, that is a proposal in front of our board. They would like to see this environment stabilize. We have, as I said, if you look at our balance sheet, we’ve paid off all our debt. We have a very clean balance sheet. We have essentially a few hundred thousand dollars of borrowing. We have borrowing capabilities, clean balance sheet, and generating cash business. We have and our board has considered it. It’s in our [deck] to pull the trigger on. We are just waiting for a more rational environment, Charlie, to pull the trigger on it.

Charlie Frumberg - Analyst

Well, I hear you and I respect the view. What we are suggesting here, if you listen to the way I phrased it, is you -- look, subjectively you can’t make judgments of when the environment is stable or less hysterical in the headlines, so you can take measures of how your business is doing. So as and when your business generates cash, free cash, to take that excess cash and reinvest it is totally within your control and total when the business is stable.

So I’m not suggesting doing anything crazy or something that could be disruptive to the current balance sheet. It’s just not additive to the future balance sheet.

Bobby Yazdani

I hear you and I can assure you this very conversation has taken place at our board and that is something that our board is considering.

Charlie Frumberg - Analyst

Thank you.

Operator

(Operator Instructions)

Bobby Yazdani

Well with that, I want to thank you for joining us this afternoon. I wish all of you the best. I know these are very complex and demanding times and again, please reach out to us if we can be of any assistance. We can answer any questions, please let us know. We are here this afternoon. We would be available to you in whatever shape or form we can provide details, please don’t hesitate to reach out to us. Thank you very much. Carol.

Carol Rice-Murphy

Thank you for joining us today and we look forward to discussing our second quarter results probably in January.

Bobby Yazdani

Thanks very much.

Carol Rice-Murphy

Thanks.

Operator

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you very much for your participation and for using the AT&T executive teleconference. You may now disconnect.

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