S1 CORPORATION Q4 2008 EARNINGS CALL TRANSCRIPT.

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S1 Corporation Q4 2008 Earnings Call Transcript
Page 1 out of 10| March 05, 2009 | about stocks: SONE

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S1 Corporation (SONE)

Q4 2008 Earnings Call

March 5, 2009 8:30 am ET

Executives

Johann Dreyer - President, Chief Executive Officer

Paul Parrish - Chief Financial Officer

Jan Kruger - President, Global Enterprise Business

Analysts

John Kraft - D. A. Davidson & Co.

George Sutton - Craig-Hallum Capital

Brett Huff - Stephens, Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the S1 fourth quarter and full year 2008 earnings call. (Operator Instructions)

I'd now like to turn the conference over to our host, Johann Dreyer, Chief Executive Officer. Please go ahead, sir.

Johann Dreyer

Thank you very much and thank you for joining us today. I am doing this call today from Cape Town in South Africa and the rest of the team is in Atlanta, so we might experience slight delays on the line. We hope that the event turns out to be technically working well.

In Atlanta we have Paul Parrish, our new CFO, who joined us since the last earnings call. I would like to welcome Paul in this forum. We're looking forward to a long and successful relationship. Also in Atlanta I have Jan Kruger, who heads up the Enterprise division worldwide

Before I hand over to Paul to review our financial results I'd like to remind you that on today's call we will be making forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act. These include statements with respect to our financial condition, results of operations, and business, and these statements, including statements regarding expected revenue from State Farm, are based on our current beliefs as well as assumptions made using information currently available to us.

Because these statements reflect our current views concerning future events, they involve risks, uncertainties and assumptions. Therefore, actual results may differ significantly from the results discussed in the forward-looking statements. The risk factors included in our reports filed with the Securities and Exchange Commission provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.

Except as provided by law, we undertake no obligation to update any forward-looking statement.

I will now hand the call over to Paul to review our financial results. Paul?

Paul Parrish

Thank you, Johann, and good morning to everyone on the call. I will begin with a high level review of our operating results.

Starting with revenue, the quarterly comparisons to prior year and as the press release indicates, our total revenue increased 10% to $58.6 million during the 2008 fourth quarter compared to the 2007 fourth quarter, representing a 7% increase in the Enterprise segment and a 12% increase in the Postilion segment.

NOTE: the starting of the quarterly compaison to prior year and as the press realeas indicates

For the year ended December 31, 2008 compared to the same period in 2007, our total revenue increased 11%, representing a 13% increase in the Enterprise segment and a 10% increase in the Postilion segment.

Net income for the 2008 fourth quarter compared to the 2007 fourth quarter decreased $1.1 million. Included in the 2008 fourth quarter was $3.5 million of stock-based compensation expense as compared to $600,000 in 2007 fourth quarter. Excluding the stock-based compensation expense in comparative quarters, our net income increased $1.8 million or 25%.

Net income for the year ended December 31, 2008 compared to the same period in 2007 increased 12%. Stock-based compensation expense included was $8.1 million in 2008 and $8.5 million in 2007.

Basic and diluted EPS was $0.10 per share for the 2008 fourth quarter as compared to $0.11 per share for the 2007 fourth quarter. The effect of share-based compensation expense included in the EPS calculations were $0.06 per share for 2008 fourth quarter and $0.01 per share in the 2007 fourth quarter.

NOTE: the basic and diluted ESP was $0.10 per shares for the 2008 fourth quarter as compared to $0.11 per share for the 2007 fourth quarter.

Basic and diluted EPS for the year ended December 31, 2008 was $0.38 per share as compared to $0.32 per share for the year ended December 31, 2007.

Adjusted EBITDA increased to $10.5 million in the 2008 fourth quarter, a $400,000 improvement from the 2007 fourth quarter. For 2008, adjusted EBITDA was $43 million compared to $38.1 million for the same period in 2007. The increases in adjusted EBITDA reflect the growth in our revenue tempered by our continued investment in customer satisfaction, as we have highlighted throughout the year. Those figures exclude stock-based compensation expense.

Cash flow from operating activities increased 8.9% for the full year 2008 over 2007, which reflects the increase in net income year-over-year.

Now I'll take a closer look at the numbers. I'd like to highlight three items regarding our revenue growth.

First, the revenue growth is organic.

Second, the total revenue from international operations increased 3% for the quarter and 26% for the full year compared to the same periods in 2007. This includes foreign exchange rate fluctuations which adversely impacted our revenue in 2008 fourth quarter by $2 million and for the full year 2008 by $1.3 million. I will discuss in more detail the impact of the foreign exchange rate fluctuations in a few moments.

Third, excluding the State Farm relationship, revenue from all other customers increased 15% for both the fourth quarter and for the year ended December 31, 2008 compared to the same periods in 2007. State Farm revenue was $42.1 million in 2008. As previously announced, we expect approximately $80 million in revenue from State Farm business from 2009 until it concludes at the end of 2011, of which we expect $35 to $37 million in 2009.

Now focusing on expenses and our financial statements. Approximately 17% of our revenues and 21% of our operating expenses were transacted in currencies other than U.S. dollars. We believe most of our international operations are naturally hedged for foreign currency changes as our international locations generally invoice their customers and satisfy their obligations in their local currency. Therefore, our revenue may be impacted by foreign currency fluctuations from these international operations, but the impact to our net income is generally minimized.

However, our development centers in India and South Africa are not naturally hedged as our costs are in the local currency, but they are funded in U.S. dollars or British pounds. Accordingly, currency fluctuations in the Indian rupee or South African rand may impact our net income. For 2008 fourth quarter, expenses were positive impacted by $2.7 million and for the full year 2008 was positive impacted by $2.5 million. Operating income was positive impacted in the 2008 fourth quarter by $701,000 and for the full year 2008 by $1.1 million. Operating income was adversely impacted in the 2007 fourth quarter by $297,000 and the full year 2007 adversely impacted by $840,000.

For the 2008 fourth quarter, direct costs increased 4% compared to the prior year primarily in the cost for professional services, support and maintenance, which is line with the growth in revenue from professional service projects, and customer support, partially offset by the favorable foreign exchange rate fluctuations. As a percentage of revenue, the direct cost declined from 48% in fourth quarter 2007 to 46% in 2008 fourth quarter, mainly due to the better margins on a higher volume of professional services, partially offset by foreign currency fluctuations.

Sales and marketing costs were higher in the 2008 fourth quarter as compared to the same period in 2007 as both segments had higher commission expense due to increased bookings, increased sales staff to support growth and higher share-based compensation expense, which was partially offset by favorable foreign exchange rate fluctuations.

Sales and marketing was 18% of total revenue for the 2008 fourth quarter. Included in sales and marketing was $1.3 million of share-based compensation expense. Excluding the share-based compensation, sales and marketing was 16% of total revenues for the 2008 fourth quarter.

Product development expenses increased in the 2008 fourth quarter compared to the same period in 2007 primarily as the Enterprise group continues to build out product functionality across all channels for both domestic and international customers, offset by favorable foreign exchange rate fluctuations.

General and administrative expenses increased in the 2008 fourth quarter compared to the same period in 2007 primarily due to the higher share-based compensation expense, partially offset by the favorable foreign exchange rate fluctuations.

For the full year 2008, direct cost increased 8% compared to the prior year, primarily in the cost of professional services, support and maintenance, which is in line with growth in revenue, partially offset by foreign exchange rate fluctuations. I'd like to point out that the 2007 third quarter includes a reversal of a $1.3 million contract loss reserve which reduced this expense line item in 2007. The contract loss reserve had been accrued as an expense in the 2005 fourth quarter.

As a result of increased commissions on higher bookings during 2008, sales and marketing costs increased for the full year 2008 as compared to 2007. Sales and marketing was 16% of total revenues for the full year 2008 as compared to 15% for the full year 2007. Excluding share-based compensation, sales and marketing was 15% of total revenues for the full year 2008.

Product development expenses increased for the full year 2008 compared to 2007 primarily as the Enterprise group continues to build out product functionality across all channels for both domestic and international customers, partially offset by lower compensation expense and foreign exchange rate fluctuations. As a percent of revenues, product development expense was 13% for the full year 2008 as compared to 12% in 2007.

General and administrative expenses decreased $400,000 for the full year 2008 compared to 2007. The decrease was related to higher professional consulting fees in 2007 and the benefit of foreign exchange offset by additional stock-based compensation expense in 2008. Total general and administrative as a percent of revenue was 11% for 2008. Excluding share-based compensation, G&A was 10%.

Turning to the segments, let's discuss the Enterprise segment first. And you can find the Enterprise segment information on Table 5.

Enterprise segment's total revenue increased 7% for 2008 fourth quarter as compared to the 2007 fourth quarter.

Software license revenue increased in the 2008 fourth quarter as compared to the same period in 2007 due primarily to high demand for our Treasury Online solutions. Professional services revenue increased by 9%, reflecting an increased number of customer projects, especially for our Treasury Online solutions. Our data center and support and maintenance revenue was relatively unchanged except for foreign exchange rate fluctuations.

As we communicated to you in the last quarter, there will be no revenue recorded in the license line from the international to large international agreement that we entered into in the 2008 third quarter. While we expect the agreement to be a profitable relationship for S1, the services required by this customer will represent an investment in the development of functional enhancements which we plan to leverage in the region. This investment resulted in discounted professional services which GAAP requires us to allocate from the license amount to professional services revenue.

For the full year Enterprise segment's total revenue increased 13% as compared with the same period in 2007.

Software license revenue increased 36% due primarily to high demand for our Treasury Online solutions and for our $600,000 settlement in 2008 with an international customer of an amount previously reserved as uncollectible in 2007. Support and maintenance revenue increased 5% due primarily to an increase in licensing for our Treasury Online solutions and international business. Professional services revenue increased 12%, reflecting an increased number of customer projects for our retail and Treasury Online solutions and work related to a multi-channel implementation for a large international bank. Data center revenue increased 11% due primarily to the migration of a Postilion self-service banking customer to Enterprise in 2007 and an increase in transaction volumes for our existing Enterprise customers.

For the quarter and yearly comparisons, excluding State Farm revenue, revenue from all other Enterprise customers increased 18% and 22%, respectively. The Enterprise segment improved gross profit margins 208 basis points to 50.4% in the quarterly comparisons and 238 basis points to 51.1% for the yearly comparisons.

For the 2008 fourth quarter as compared with the 2007 fourth quarter, product development costs increased as the Enterprise group continues to build out product functionality across all channels and we had higher share-based compensation expense, but our operating expense benefited from foreign rate fluctuations.

Enterprise generated $1.7 million in operating income in the 2008 fourth quarter, a $2.6 million decrease from the same period in 2007. Enterprise adjusted EBITDA was $5.1 million in 2008 fourth quarter, a decrease of $900,000 from the same period in 2007. For 2008, Enterprise generated $11.8 million in operating income as compared to $10.8 million in 2007 due to higher revenues and gross margin improvements tempered by investments in customer satisfaction initiatives. Enterprise adjusted EBITDA increased $1 million to $21.8 million for 2008 as compared to 2007.

Let's now discuss our Postilion segment. For the Postilion segment, as presented to Table 6, total revenue increased 12% in the fourth quarter of 2008. This included a 23% increase in licenses revenue when compared with the 2007 fourth quarter, primarily due to increased licensing activity for our payment processing and card management solutions.

Postilion segment software licenses revenue includes subscription revenue of $2.7 million in the 2008 fourth quarter by comparison to $2 million in the fourth quarter of 2007. As we previously highlighted, this is a long-term recurring revenue being generated by the subscription model, even though it is appearing in the software license revenue line.

Support and maintenance revenue increased to 8% and professional services revenue increased 52%, reflecting Postilion's continued strong licensing activity in the payment solutions business, tempered by foreign exchange rate fluctuations.

Postilion data center revenue is down 18% in the 2008 fourth quarter as compared with the prior year, partly due to the conversion of customers to long-term subscription contracts and customer attrition in our self-service banking business.

For the year end, Postilion segment's total revenue increased 10%. This includes a 20% increase in license revenue when compared with the same period in 2007, partly due to increased licensing of our Postilion payment solutions. Postilion segment's software license revenue includes subscription revenue of $9.2 million by comparison to $6.4 million for the same period in 2007.

Support and maintenance revenue increased 9% and professional services revenue increased 29%, reflecting Postilion's continued strong licensing activity in the payment space, tempered by foreign exchange rate fluctuations.

Postilion's data center revenue was down 12% as compared with the prior year, partly due to the conversion of customers to long-term subscription contracts, the migration of Postilion self-service banking customers to Enterprise, and customer attrition in the self-service banking business. Postilion data center revenue for 2008 also includes a hosted payments customer that went live in late 2007.

We have described the Postilion subscription revenue on previous calls as including the right to use software and the right to revenue maintenance support and enhancements. In some cases these subscriptions include data center services. The continued growth in subscription revenue reflects the broader acceptance of Postilion's self-service banking products and the subscription model in the community and regional space. Over time we anticipate that growth and subscription model will have a negative impact on support and maintenance revenue and data center revenue, while a positive impact on software licenses revenue.

Postilion segment improved gross profit margins 226 basis points to 59% in 2008 fourth quarter as compared with the prior year quarter. Postilion operating income increased $300,000 in the 2008 fourth quarter compared to the fourth quarter of 2007.

The benefit we received from foreign exchange rate fluctuations for our operating expenses were offset by higher share-based compensation expense for the quarterly comparisons. Postilion's adjusted EBITDA increased $1.4 million in the 2008 fourth quarter as compared to the same period in 2007.

Gross profit margins were relatively unchanged at 58% in the yearly comparisons. For the full year, Postilion's operating income increased $3.9 million compared to the same period in 2007, reflecting growth in revenue while holding margins flat, lower share-based compensation expense, and the bottom line benefited from foreign currency fluctuations. Postilion's adjusted EBITDA increased $3.9 million in 2008 as compared to the same period in 2007.

Now turning to the cash flows on Table 3, cash and cash equivalents plus short-term investments were $65.3 million as of the end of 2008, down $3.5 million from the prior year. We used our cash from operating activities to fund our capital expenditures, capital lease and debt payments and our share repurchase program. Purchases of property, equipment and technology totaled $1.5 million for the 2008 fourth quarter as compared to $1.3 million for the 2007 fourth quarter. For the full year, capital expenditures totaled $8.7 million for 2008 as compared to $9.7 million for 2007.

Under our authorized share repurchase program, we repurchased 2.8 million shares for approximately $14.9 million during the fourth quarter of 2008 and 4.4 million shares for approximately $25.1 million during the full year 2008. Since December 2006 we have repurchased 21.5 million shares with a total cost of $131 million.

We have approximately $6 million of restructuring charges remaining to be paid after paying out approximately $3.5 million in 2008. We expect to pay $2.3 million over the next 12 months and then the remaining balance through the middle of 2011.

For S1's income taxes, income tax expense relates partially to cash expenses for state income taxes, alternative minimum tax in the U.S., and taxes in international jurisdictions where we do not have net operating losses. We anticipate our international operations continue to grow, our cash taxes will increase as we do not have NOLs in most international jurisdictions. Additionally, we released approximately $2 million of our valuation allowance for deferred taxes in the fourth quarter 2008 related to some international jurisdictions. As we continue to evaluate our business going forward, we may release additional valuation allowance for deferred tax assets as soon as the second half of 2009.

As of December 31, 2008, S1 has approximately $220 million of domestic NOLs which are fully reserved. Of this amount, $200 million relates to stock option expense, the benefit of which will go directly to shareholder's equity if ever used. Currently for income tax purposes we recognize deferred revenue as taxable income in the United States which creates a temporary tax difference. In 2009 we intend to adopt a tax accounting method that is consistent with the financial reporting method, which should offset our financial income for tax purposes and possibly increase our domestic NOLs. It is anticipated the change will significantly reduce our U.S. federal income taxes and state income taxes in 2009.

So with non-option-related NOLs remaining in U.S. and foreign jurisdictions, we expect our tax provision should have an effective rate of 17% to 20% for GAAP purposes for 2009 and 37% or more after 2009, even though a significant portion of this GAAP tax provision would be noncash through the utilization of the option-related NOLs.

Looking forward to 2009, we've estimated the full year 2009 revenues to be in the range of $240 to $245 million and adjusted EBITDA in the range of $47 to $50 million. Excluding State Farm, we expect year-over-year revenue growth of 10% to 11.5%.

That concludes my discussion on the 2008 fourth quarter and full year financial results, and I'll turn the call back over to Johann.

Johann Dreyer

Thank you, Paul.

Well, to start off, I am very pleased with the results of the fourth quarter and of the full year. I think it was a very solid quarter, a very solid year. We've added a number of large new customers in the fourth quarter and throughout 2008 we sold significant deals.

At a high level I would like to touch on the following topics today. Obviously, the most important topic is the effect of the economy on our business, so I will address that first, and then I will discuss the general state of our business, both the Enterprise and Postilion segments, and provide some color around the numbers that Paul just went through. So let's start off with the impact of the economy on our business.

If we look at the S1 Corporation pipeline, the pipeline remains very strong and, as a matter of fact, is growing. Now typically what people say in a recession or a recession environment, one of the first signs that you see is that your pipeline is growing, but no deal comes out of the pipeline. That is not the case with what we've seen over the last several months. We track our pipeline flow on a very regular basis, and we have not seen any slowdown in the deals that we sign or new deals moving into the pipe. So we do not see the impact of what's happening out there on our pipeline at this tie.

In the fourth quarter we signed - it was one of the best bookings quarters since this management team came onboard, a very, very good bookings quarter. We signed a number of key strategic deals that I will talk about later. And the irony is actually that we've signed such large deals that, in the case of Postilion Payments, that our revenue recognition for some of those deals will change from upfront licenses to percentage of complete revenue recognition, which makes the visibility for the rest of the year pretty solid; however, it might have some softening impact on the first quarter as a result of that revenue recognition treatment.

So if I look at the pipe and if I look at the deals that we've booked over the last three months and I take it even up to the end of February because a lot of businesses saw slowdown in January and February - you know, if I take our last 12 trailing months - the February that just passed was our [fifth] best month in the last year. So we haven't seen a slowdown in the first two months of this year yet either. So if I look at our pipe, I cannot see the effect of the economy out there.

Now having said that, obviously it's a very unstable environment out there, and so one has to consider to what extent you trust what's in your pipe. There's no guarantee that customers or prospects that's in our pipe right now might decide to defer any new purchases for any period of time, and obviously we don't have visibility into that. But if I purely have to look at the pipeline, the pipeline flow up to this point, we have not seen that.

Now obviously giving guidance in this very, very uncertain environment is difficult. We try to err on the conservative, realistic side rather than on the aggressive realistic side. But if I look at the current pipe and the bookings that we've had over the last three months, I'm pretty confident about the numbers that we put forward.

Again, having said that, a very unstable environment out there, very unpredictable, but our pipe looks very good.

I would like to carry on and talk about the general state of our business, both the Enterprise and Postilion segments. As I mentioned before, it's one of the best booking quarters that we've had since the current management team was put in place 2.5 years ago both in terms of size of deals, both in terms of strategic value of deals, as well as the profitability of the deals.

On the Enterprise side, as we mentioned in the press release, we licensed a new customer for multiple applications and with extremely good cross-sells. Now, you will remember that throughout last year I spoke about customer satisfaction and the need for us to up our success rate in cross-sells. Two years ago, three years ago, our success as a result of our low customer satisfaction in the Enterprise group, our success rate in terms of cross-selling was lower than I would expect.

Now, we've put a lot of effort into customer satisfaction over the last two years. What we do, just as background, we send out a customer satisfaction survey to all our customers on a yearly basis. It's very simple; it's 15 portions where customers rank us on a scale of 1 to 10 on our customer support, our professional services, our product and the company in general, and then we score each customer according to that response.

Over the last two years the Americas division of Enterprise increased customer satisfaction by 23% and on the international side - we did not do a customer satisfaction two years ago - over the last 12 months, their customer satisfaction has increased 13%. Fairly significant numbers over the last two years, and I would say that as a result of that our ability to effectively cross-sell into our existing customer base has increased significantly. We are much more active in any new deal that comes up at an existing customer for a different application.

I want to give you one or two examples. We have one of the top five banks in the U.S. as a customer and we measured their satisfaction two years ago, a year ago, and again this year. As a matter of fact, the last customer set went out about four weeks ago. And this bank moved from a score of 3.27 two years ago to a score of 8.43 four weeks ago. Significant movement - that was in our Treasury Online division - and we are pretty pleased about the significant progress that we have made in customer satisfaction.

I think there's still room for improvement; we will still invest in that. But our goal is to exist this year as the financial services software company with the highest customer sat in our space. I believe it is crucial in the current economic environment that we have extremely happy customers because that is where we'll get our revenue from in the next year.

On the Postilion Payments side, again, a great quarter. We signed yet another top 10 retailer in the U.K. We now have five of the top 10 retailers in the U.K., and you might remember that we entered 2008 with two of the top 10 retailers in the U.K. as customers and we added three of the top 10 retailers in 2008. So a very, very successful year, where we've gone from a minor player in that market to the dominating player in that market.

We continued to expand our strategic position in Saudi Arabia by signing the Arab National Bank. Another very strategic deal for us was signing the first large merchant acquirer in the U.S. for our company. We have a long history of providing systems to merchant acquirers throughout the world, but we've never had success with that product in the U.S.; we've never broken into that market. But in December we did sign our first significant deal with a significant merchant acquirer in the U.S., and so we're pretty excited about that. We believe that that is opening up a potential new market for us.

And then also in the fourth quarter we signed a deal with one of the largest quick service restaurants and fast-food chains that operates internationally based in the U.S. in the world again, a great achievement there.

And then going on to the Postilion community and regional financial institution, signed three new customers, all substantial bookings, and we're very pleased about that. You might have heard from the numbers that we had some attrition during the year in that area of our business. We believe that that will bottom out during this year and that we are extremely well positioned with our new product to pick up new customers, sign new customers and then start growing that business in 2010.

So in closing, again, we are very pleased with the quarter. We obviously have a strong balance sheet and the cash flow from our operations is very, very solid. We have a strong recurring revenue stream. Our headcounts are at the right levels. Our pipelines are looking really healthy and there's good deal flow into and out of the pipe. We're very well positioned in the marketplace with a modern product set, good geographical diversification, good industry diversification. We have substantially increased our customer satisfaction. So it might be a difficult environment it is a difficult environment out there - but we are looking forward to the remainder of 2009.

Thank you very much for joining the call. I will now hand back to the operator to answer any questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from John Kraft - D. A. Davidson & Co.

John Kraft - D. A. Davidson & Co.

My first question is about the stock comp. It was higher than we were looking for. I know that the SARs can cause some volatility, but was there anything one-time in there, anything catchup or anything related to why that was so much higher than it's been recently?

Paul Parrish

The stock price is the main driver on that.

Johann Dreyer

And if you can recall, John, our stock price was $8 on the 31st of December, so a significant driver there.

John Kraft - D. A. Davidson & Co.

And then in the domestic community bank Postilion business, the new wins are obviously encouraging there. I don't recall you talking about wins in that area for a long time. Is that related, do you think, to the improving reputation, customer satisfaction and all that, or is that the new products that people are getting excited about?

And also, as far as the implementation status, what's the status of the new product and implementation of the customer base?

Johann Dreyer

In terms of why are people buying the product, obviously the product is fairly unique in the marketplace or actually completely unique in the marketplace in that it addresses all the frontend channels for a community bank on one platform. So I think we have a compelling product for anybody that's looking around to buy a new product.

Obviously, the biggest impact on customer satisfaction in our existing customers over the last several years were our lack of investment in the legacy product starting seven, eight years ago, and since the release of the new product, obviously, we've addressed that.

So I think there's truth in both those first two questions of yours. What was the third point, John? I didn't jot that down.

John Kraft - D. A. Davidson & Co.

Well, as far as the implementation of how many -

Johann Dreyer

Oh, how many have we implemented? I don't have the exact number for you, but currently we're probably in the mid-20s to light 20s have been implemented.

John Kraft - D. A. Davidson & Co.

And that's going to be primarily a 2009 event?

Johann Dreyer

It's going to spill over to 2010. And obviously it does have some cost implications for us and has had some cost implications. We said with between our voice and our personal Internet banking or retail Internet banking and our business, Internet banking, we said in excess of 1,000 customers. So you can make the sum. It's quite an exercise to convert all of those. And while we're doing that and for the past year or year and a half or two years we've been carried deal costs in terms of product development, in terms of professional services, and so forth.

So we see that 2009 is a major conversion year, but some of that will bleed into 2010.

John Kraft - D. A. Davidson & Co.

Okay, that's what I was getting at, when that headwind evaporates.

Paul, as far as the FX, are you for 2009 assuming basically things stay about flat?

Paul Parrish

Well, my crystal ball on FX is never as clear as I want it to be, so you can just look at what's occurred the first two months of this year and significant changes that are continuing. I don't know if that's now bottomed. I just don't have that crystal ball. But through the end of February there were still significant fluctuations in the currency.

John Kraft - D. A. Davidson & Co.

But you're not assuming -

Johann Dreyer

I think, John, the point is that really to a large extent we are naturally hedged, okay? The only exposure that we would have - in that our international revenue and our international costs in these currencies typically match up - our only real exposure would be on the Indian rupee. If that were to strengthen without any of the other currencies strengthening against the U.S. dollar, that would affect our bottom line.

The effect of foreign currency is really a top line effect for us. As the foreign currencies weaken against the U.S. dollar, we will see our revenue going down, but we won't necessarily see an impact on EBITDA. Typically our EBITDA stays pretty close to flat.

John Kraft - D. A. Davidson & Co.

Along the sales and marketing, the bookings, are these new percentage of completion projects, are the commissions paid going to be paid ratably along that -

Johann Dreyer

No, the commissions are paid upfront.

John Kraft - D. A. Davidson & Co.

For everything you sell?

Johann Dreyer

For most of our deals, commissions are paid upfront and that's why you saw a pretty - you know, you've got to incent your sales force. And effectively, I'm a firm believer that you reward a win as quickly as possible. So most of our deals the salesperson is paid pretty much upfront and that's why you would see significant commission numbers in Q4, but the revenue in many cases actually only hits afterwards.

Operator

Your next question comes from George Sutton - Craig-Hallum Capital.

George Sutton - Craig-Hallum Capital

Johann, I wanted to have you spend a little bit more time on Treasury Online, obviously something you addressed a few times in the call. Could you explain why that has been as strong as it has, what's unique about it in the market?

Johann Dreyer

Well, you know, it's, I think, the investment that we've put into the product over the last several years is finally bearing the fruit that we anticipated. It's a very strong product suite. It has some unique ACH features. The way its entitlements are structured, it's very well geared towards the corporate banking, Internet banking for the large corporations of a bank.

And I think we've engaged our customers. Many of them are in the top 15 banks in the U.S.; we've engaged them. We've guilt a product that really meets of the market. We've stabilized it. We spend a lot of investment on it and we spend a lot of time with our customers. And we built our customer relationships over the last 2.5 years.

George Sutton - Craig-Hallum Capital

Is that a product that might benefit in this kind of very challenging environment, where banks are really looking for stability in the treasury area?

Johann Dreyer

Look, it is the one area where it seems banks are willing to spend. It's in the part of business of the bank where money is made, okay? The banks make money with this product. And it's crucial for the banks to maintain a great service for their large corporations. And we believe our Treasury Online product is best of breed and we've been very successful with that.

George Sutton - Craig-Hallum Capital

You know, we've been hearing and reading a lot about the strength of mobile applications and you, of course, came out I believe in the fall with your capabilities there and announced a certain number of initial customers. Can you give us an update on the mobile side of the business for you?

Johann Dreyer

You know, we've actually signed quite a few mobile deals during the quarter in 2008, but I just don't have the actual numbers with me, but a fair amount of deals. However, the value of mobile deals is not nearly as big as the value of a Treasury Online deal.

George Sutton - Craig-Hallum Capital

Paul, with respect to share repurchases, can you update us on what is still remaining under authorization and if you can give us any sense as to, you know, should we expect the same level of activity that we've seen from you of late?

Paul Parrish

Well, we evaluate that regularly on what we ought to be doing with our funds. I believe remaining under our agreement's about $9.6 million remaining is authorized that could be purchased. And no decisions around how active we'll be in that market, but it's clearly something we evaluate regularly.

George Sutton - Craig-Hallum Capital

There's nothing that necessarily changes in your rules of the 10b-5?

Paul Parrish

No.

Operator

(Operator Instructions) Your next question comes from Brett Huff - Stephens, Inc.

Brett Huff - Stephens, Inc.

One quick question on the sales and marketing line. This was asked a little bit differently before. Even if I - I think my math is right - even if I back out the implications for share-based comp both in 4Q '07 and 4Q '08, I still get a pretty reasonably high - something like 80 basis points higher - expense as a percent of revenue year-over-year. Is that a good proxy for the impact of those commission dollars that were paid or is there something else in there, Paul?

Paul Parrish

As we referenced in my comments, that's what we're pointing to - it's the increased commissions on those bookings, and Johann had discussed that in his comments, too.

Brett Huff - Stephens, Inc.

And so just to make sure, those are one-time payments and so the revenue coming in from that won't cost us anything more from a sales point of view in general?

Paul Parrish

Correct.

Johann Dreyer

Now, Brett, hopefully we can have the same level of bookings every quarter, in which case unfortunately you're never going to see the costs coming down.

Brett Huff - Stephens, Inc.

That's right. Have you guys seen any change in your receivables at all, doubtful accounts, things like that in terms of ability to pay or worries about that at all?

Paul Parrish

The company has made significant progress over this past year in receivables and brought to a very good status receivables, and we haven't seen any change in that over the last few months. Clearly in an environment like this it's something you want to focus on, but we haven't seen any indications of those changing.

Brett Huff - Stephens, Inc.

And then the last question I had was when I look at the mix of revenue from last quarter or the year-over-year to now, obviously the license number was stronger than either of those two comparisons, yet it doesn't look like the gross margin, at least on a GAAP basis, was up all that much. Aside from the share-based comp, is it the customer sat investment that's going on there or is there something else?

Paul Parrish

We also got the improvement to licenses for subscriptions. That increases the licenses, and that's coming out of your maintenance and your data center lines.

Operator

And we have no further questions, so please continue.

Johann Dreyer

Well, again from my side, thank you very much for joining us today. Just to reiterate, we're pretty pleased about the quarter - pipelines are strong, pipeline flow is good. We obviously are facing a difficult environment out there, but I have the full confidence that we will have a good year in 2009 and we are looking forward to the remainder of the year.

Thank you very much for joining us today.

Operator

Thank you. And ladies and gentlemen, this conference call will be available for replay. The replay of the conference starts today, March 5 at 10:30 a.m. Eastern Time in the United States. The replay runs for two weeks until the date of March 19 at midnight Eastern Time in the United States. You may access the AT&T teleconference replay system by dialing 1-800-4756701. Please enter the access code 984488. International participants dial 320-365-3844. Those numbers again, 1-800-475-6701. International participants dial 1-320-365-3844. The replay access code, 984488.

Well, that will conclude our conference call for today. We thank you for your participation and for using AT&T's executive teleconference service. You may now disconnect.

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5 STOCK IN A STAILSPIN

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Mar 6, 2009 6:38 AM ET | Feedback | Site Changes | Help
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5 Stocks in a Tailspin

By Dave Mock
March 5, 2009 | Comments (0)

Recs
5

Individual stocks can surge 10%, 25%, or even higher in a short period of time. And they can fall just as far, just as quickly. For example, shares in Gannett fell almost 24% Tuesday after S&P downgraded its credit rating to junk status.

Big drops in share price can sometimes signal material defects or new risks. But at other times, they're simply pullbacks along with the larger pessimism facing the market today. Fortunately, we have Motley Fool CAPS, a great resource to help us understand the larger picture behind big price drops.

Is the sky falling?
CAPS contains more than just the crowd's opinions. Its best-performing members' votes count more in shaping each company's rating than do the picks of their poorer-performing peers. That way, investors can intelligently use the collective wisdom of more than 130,000 CAPS members to make better decisions.

NOTE: the big signals in share price can sometimes signals can defects on a materials.

We'll use CAPS' handy stock screening tool to quickly zero in on companies that have been slashed by at least 30% in the past four weeks, and which have a market cap greater than $100 million and a beta of less than 3. If you want to run this screen for yourself, please do -- just keep in mind that the results will update with the market.

Company


CAPS Rating
(out of 5)


4-Week
Price Change

KB Home (NYSE: KBH)


*


(42.0%)

HSBC (NYSE: HBC)


*


(31.8%)

Goodyear Tire & Rubber (NYSE: GT)


**


(47.8%)

MannKind (Nasdaq: MNKD)


**


(45.7%)

InterDigital (Nasdaq: IDCC)


****


(30.5%)

Source: Motley Fool CAPS. Price return Feb. 6 through March 3.

KB Home
New-home builders like KB Home and Pulte Homes (NYSE: PHM) are competing with foreclosures and short sales, which continue to flood the market. KB Home has aggressively cut costs and recently introduced a new product line, giving buyers more options to tailor price to their budgets. KB Home sits on $1.13 billion in cash, which puts it in a better position than some others like Hovnanian, but not enough to earn high favor in CAPS -- only 39% of the 1,224 members rating KB Home expect it to beat the market.

HSBC
HSBC, Europe's largest bank, decided that the business in the U.S. isn't so good after all and announced plans to shut down its U.S. consumer lending unit, which was a big drag on profits last year. The move will cut 6,100 jobs out of the 35,000 employees it has in America. It also seeks to raise $17.7 billion in new capital through a rights issue, turning to investors rather than government aid. Rubbing more salt in the wound, the company cut its dividend and warned it could be reduced again. As such, only 66% of the 702 CAPS members rating HSBC have confidence that the company can beat the market.

Goodyear
The global slowdown has Goodyear experiencing lower sales, leading to a $330 million fourth-quarter loss, despite North American market share gains and higher tire prices. With major customers like GM and Chrylser in a wreck, Goodyear plans to cut more staff, reduce capital expenditures and sell noncore assets to weather the storm. It's also among many companies dealing with hefty pension-related charges. In CAPS, Goodyear gets a lukewarm reception, with 82% of the 407 members who weighed in rating it bullishly.

NOTE: the global slowdown has a good year experiencing lower sales, the north american market shares gains and higher tire price.

MannKind
Increased manufacturing costs for drugmaker MannKind's inhaled insulin candidate, Afresa, led to a fourth-quarter loss of $83.3 million. While it reported no revenue, the company had positive phase 3 results and plans to seek FDA marketing approval for the drug this year. Some CAPS members are unsure of the potential of an inhaled insulin product, though, after an unsuccessful attempt by Nektar Therapeutics and Pfizer (NYSE: PFE), leading to an overall thumbs-up percentage of only 75% of the 388 members rating MannKind in CAPS.

InterDigital
Since the lifeblood of technology developer InterDigital is patent licensing revenue, the $4 million drop in recurring patent royalties in the fourth quarter wasn't the surprise investors were looking for. Increased development expenses led to lower fourth-quarter profit, which missed analyst expectations. Many CAPS members remain bullish on the company's ability to sign deals and protect its base of patents from infringement, though, and 95% of the 1,014 members rating InterDigital think it will beat the market.

Ultimately, whether you believe a fall in any stock is warranted, your own research is more important than collective opinions. But CAPS can help you quickly focus your due diligence, and even point out potential pitfalls you may not have seen.

Add your take on these or any of the more than 5,300 stocks that 130,000-plus members have covered in Motley Fool CAPS. It's totally free to be a part of the community, and the payback is more than worth it.
Like this article? Get our best articles delivered direct to your inbox at no cost. Sign up for Foolwatch Weekly by entering your email below.

The Motley Fool Stock Advisor service looks for companies with strong management poised to beat the market over the long haul. InterDigital is one such company chosen by the service and recommended to subscribers. To see all the stocks that have helped Tom and David Gardner beat the market by 30 points on average, take a free 30-day trial.

Fool contributor Dave Mock habitually looks for silver linings in even the darkest of clouds. He owns shares of Pfizer, which is a former Income Investor recommendation and a current Inside Value selection. The Fool's disclosure policy is made of sugar and spice and everything nice.

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THE STOCK MARKET BROKE TO NEW OLWS AND WHAT IT MEANS FOR GRAINS

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The stock market broke to new lows and what it means for grains!
3/5/2009

The stock market broke to new lows today erasing yesterday's gain. This helped to cast a very negative tone over the Ag complex today. Granted, I believe the market is oversold and I'm preparing to buy a bearish Supply/Demand report and test of old lows but upside potential really seems limited. Today we also saw the dollar moving higher along with gold. So what does it all mean for the grain and livestock markets?

NOTE: The stock market broke to new lows today erasing yesterda'sgains.

Frankly, I'm having to go back to school just like many of you in learning the relationship between bonds and interest rates as it reflects to inflation and subsequently on Ag. prices. As I said I'm a student right now not a master so I'm asking as many questions as I can answer but here are some of the ones that are on my mind.



1. The bond market has been in a bull market since 1981 when interest rates hit their high and bonds their lows. The easy money policy plus with global demand especially stimulated by China have all contributed to last year's price event. Was this a multiple year high? Are we structurally moving into along term pattern of tighter banking regulation and loaning policy? What will be the effect on agriculture if banks move from an asset loaning strategy to an income based loan? Will it have an effect on carrying charge spreads? If you're a borrower of short term or long term money what's the risk and how do you defend?



2. What causes inflation? The books suggest it caused by grow in money supply plus active participation by consumers to buy (i.e. more money chasing fewer goods). One way to measure is velocity; we have experienced a drastic drop and in fact the biggest drop in over 48 years of data in the recent quarter. Without velocity, you don't have inflation. How fast can velocity (consumer buying) come back? What impact will this have on commodity and subsequent land values? I will be talking about this in my upcoming seminar here in New Richmond, Indiana.


I have a ton of questions to ask, but that's another day. In conclusion the outside markets are doing things that we haven't seen in our life time and the current administration is enacting policy to punish business rather than stimulate. More than ever as corn and bean producers we need to increase our knowledge of the outside markets so we can make effective and informed decisions about the future.

NOTE: in conclution the outside markets are doing things and tthe adminisration is enacting pulicy to punish the business.

If you want to go over details or would like to read more daily recommendations regarding reownership or marketing strategies, email me at utterback@utterbackmarketing.com or laura@utterbackmarketing.com.



BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE "RISK DISCLOSURE STATEMENT" AND "OPTION DISCLOSURE STATEMENT" AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2009.








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EVOLVING SYSTEM, INC. ADOPTS STOCKHOLDER RIGHTS PLAN

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Evolving Systems, Inc. Adopts Stockholder Rights Plan
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updated 7:45 a.m. ET March 5, 2009

ENGLEWOOD, CO - Evolving Systems, Inc. (NASDAQ: EVOL), a leading provider of software solutions and services to the wireless, wireline and cable markets, announced today that its Board of Directors has adopted a stockholder rights plan that is designed to strengthen the ability of the Board of Directors to protect Evolving Systems' stockholders. The plan was not adopted in response to any unsolicited offer or takeover attempt.

"This plan is designed to enhance the Board's ability to protect stockholders against unsolicited attempts to acquire control of the Company that do not offer an adequate price to all stockholders or are otherwise not in the best interests of the Company and its stockholders by encouraging potential buyers to negotiate directly with the Board," said Thad Dupper, president and CEO of Evolving Systems. "The plan is similar to plans adopted by other publicly-traded companies and is intended to provide the Board with sufficient time to consider any and all alternatives to such an action and is a replacement of the rights plan adopted by the company in 1999 that expired in February of this year."

NOTE: this plant is designed to enhance the board's ability to protect the stockholder other wisenot in the best interests of the company.

Under the Plan, each common stockholder of the Company at the close of business on March 16, 2009 will receive a dividend of one right for each share of the Company's common stock held of record on that date. Each right will entitle the holder to purchase from the Company, in certain circumstances described below, one one-hundredth of a share of newly-created Series C junior participating preferred stock of the Company for an initial purchase price of $8.00 per share. The rights distribution will not be taxable to stockholders and the distribution of rights under the Plan will not interfere with the Company's business plans or be dilutive to or affect the Company's reported per share results.
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Initially the rights will be represented by the Company's common stock certificates and will not be exercisable. The rights will generally become exercisable ten business days after any person has become the beneficial owner of 22.5% or more of the Company's common stock or has commenced a tender or exchange offer which, if consummated, would result in any person becoming the beneficial owner of 22.5% or more of the common stock of the Company.

If any person becomes the beneficial owner of 22.5% or more of the Company's common stock, each right will entitle the holder, other than the acquiring person, to purchase Company common stock having a value of twice the exercise price. In addition, if there is a business combination between the Company and the acquiring person, or in certain other circumstances, each right that is not previously exercised will entitle the holder (other than the acquiring person) to purchase shares of common stock of the acquiring person at one-half of the market price of those shares.

NOTE: any person has becomes the beneficial owner of 22.5% or more of the company's common stock, if there the business combination between the company and the aquring person.

The Company may redeem the rights at a price of $0.001 per right at any time prior to the date on which any person has become the beneficial owner of 22.5% or more of the common stock of the Company. The rights will expire on March 4, 2019, unless earlier exchanged or redeemed.

The Company will file with the Securities and Exchange Commission a Current Report on Form 8-K describing the stockholder rights plan. The Form 8-K will include a copy of the Rights Agreement governing the Plan as an exhibit.

About Evolving Systems®

Evolving Systems, Inc. (NASDAQ: EVOL) is a provider of software and services to more than 70 network operators in over 40 countries worldwide. Its portfolio includes market-leading products for Service Activation, Service Verification, Process Management, Dynamic SIM Allocation, Number Portability, Number Inventory and Mediation solutions. Founded in 1985, the Company has headquarters in Englewood, Colorado, with offices in the United Kingdom, Germany, India and Malaysia. Further information is available on the web at www.evolving.com.

CONTACTS:
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Jay Pfeiffer
Pfeiffer High Investor Relations, Inc.
303.393.7044
Email Contact

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© MarketWire 2009

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GUILT TRIP: LUXURY TRAVELERS TONE IT DOWN IN HARD TIMES

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Guilt trip: Luxury travelers tone it down in hard times
Posted 9h 45m ago | Comments 5 | Recommend 8 E-mail | Save | Print | Reprints & Permissions | Subscribe to stories like this
During these tough economic times, the desire to tone down consumption is affecting how some Americans vacation -- or at least how they say they vacation.
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During these tough economic times, the desire to tone down consumption is affecting how some Americans vacation -- or at least how they say they vacation.

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By Jayne Clark, USA TODAY
She had planned to visit the Medina in Fez, the souks in Marrakesh and the mosques in Casablanca. But the Moroccan vacation would have set Nancy Yale back $15,000 for her family of five. And after laying off a full- and part-time employee last fall, the travel agency owner in Fairfield, Conn., decided to scrap the December trip.

"I just didn't think it was prudent. It wasn't a good message," she says.

Call it luxury shame, stealth wealth or guilt downsizing. Even if you've "got it" — and maybe especially if you've got it — economic times like these are no time to flaunt it.

In a time when posh has become a four-letter word, forget about keeping up with the Joneses. It's more socially expedient to stay down with them. Economic turmoil is giving luxury a bad name, it seems, and not just among the private-jet set, either. The desire to tone down consumption is affecting how some Americans vacation — or at least how they say they vacation.

It's the sort of environment that has people claiming they got that winter tan on the local ski hill, when in truth, they were skiing in Gstaad. Or, for appearances' sake, hailing a cab from the airport instead of pulling up to the hotel in a town car — never mind that the fare's the same.
FIND MORE STORIES IN: San Francisco | Connecticut | Asia | Caribbean | Securities and Exchange Commission | Athens | Rome | East Coast | Pasadena | Fairfield | Moroccan | Ritz-Carlton | Casablanca | Far East | Bentley | Friedman | Medina | Champagne | Waikiki | Joneses | Barbuda | New York Times Magazine | Anguilla | Gstaad | Cristal | Arthur Levitt | Cognac | Marrakesh | Encore Las Vegas | Maserati GranTurismo | Palms Place Hotel

The sentiment resonates in cyberspace and includes travelers who say they're lying or feeling guilty about their vacation plans or simply keeping mum about them.

Even former Securities and Exchange Commission head Arthur Levitt hasn't escaped a guilt trip, telling the New York Times Magazine he canceled a spring trip to the Far East, because "I don't feel right about spending large sums of money in this environment."

"Luxury shame is very real," says travel industry analyst Henry Harteveldt of Forrester Research. "When your neighbors are losing their jobs and you're doing well, you don't flaunt your success. Of course, there are still people who will continue to enjoy the fruits of their success. They may still rent the beachfront home and continue to fly in the G5 and tool around in the leased Bentley, but they're not going to go home and brag that that's what they did on vacation."

In a recent survey of travelers' intentions, Forrester found the solidly middle class intended to cut back on travel, but so did 28% of those with household incomes of $100,000 and above. "It shows that the well-to-do are not being spared by this recession," says Harteveldt.

Neither are the wealthy, even if it's just for appearances' sake. One of Yale's best clients canceled a pricey trip to Asia explaining, " 'It's too embarrassing to tell anyone I took a $40,000 vacation,' " she says.

Josh Friedman, a luxury travel consultant in San Francisco, relates how a wealthy Pasadena couple, "the kind of people who book $3,000-a-night suites," called him to say they're cutting back 50% on everything and had him redeem frequent-flier miles for a trip to the East Coast. Another client who booked a $30,000 luxury European cruise with extra nights in Athens and Rome lopped a night off to assuage his guilt over spending so much. It cut the price by a mere $1,000 or so, but "it made him happy," says Friedman. "He realizes times are tough."

NOTE:the luxury european cruise w/ extra nights,thew athens and rome re lopped a night off t assuage his guilt over spending so much.

Beverly Hills-based Gary Mansour, CEO of Mansour Travel Co., says his affluent clients are still traveling: They're just being more discreet about it. Maybe they'll downgrade from their own private jet to a seat in a shared one. Or they'll pop open a bottle of Cristal in the privacy of their hotel room rather than in a restaurant, he says

Not that excess — wretched as it may be regarded these days — isn't thriving in some decadent corners of the beleaguered economy. In fact, at the newly opened Encore Las Vegas casino, the nightclub, XS ("where too much is never enough"), offers a $10,000 Cognac and Champagne cocktail (includes stingray cuff links for the gentleman and a gold necklace for the lady). A few miles away, the Palms Place Hotel and Spa has reintroduced its $120 Veuve Clicquot Pedicure, back by popular demand.

The upscale Caribbean island of Anguilla issued a press release in January boasting about the traffic jam of private jets on its runway over the holidays. A marketing pitch for an $18,000-a-night private resort in Barbuda asks without a hint of irony, "Who says luxury isn't still affordable in tough economic times?" And in Waikiki, the Halekulani Hotel just rolled out a fleet of over-the-top vehicles, including a custom Maserati GranTurismo and Lotus Exige S, for its well-heeled guests to tool around in. (Those booked in the $7,000-a-night Premier Suites get the cruisers at no extra charge.) While CEO Peter Shaindlin acknowledges that tough times can spark traveler guilt, the flashy cars are "about quality. I don't think there's anything embarrassing about quality."

NOTE; the upscale carribean island of aguilla issues are press realease and its about the traffic jam of private jets on its runway over the holiday.

Perhaps. But in some quarters, lean times have sparked a shift in marketing messages. The Ritz-Carlton chain, which in the past has trumpeted luxury amenities bordering on the absurd (bath butler, anyone?), is playing up its altruistic side. Give Back Getaways, launched in April, puts willing guests in a half-day local volunteer effort. Response so far has not been huge, says spokeswoman Sue Stephenson, but a sister program, Meaningful Meetings, which donates 10% of a participating group's room revenues to charity, has resulted in $420,000 in donations since 2007.

Virtuoso, a travel-agent network that specializes in luxury travel, has similarly tweaked its message. In December, it launched a "Return on Life" advertising campaign that stresses authenticity over opulence.

"People are traveling less for bragging rights these days," says Virtuoso spokeswoman Misty Ewing. "Luxury travel had an (image) of self-indulgence. But the mind-set has changed. It's really about wanting to spend quality time with family and friends."

The Leading Hotels of the World group of high-end lodgings has shifted its emphasis, too. "In contrast to last year, we aren't marketing over-the-top. We're marketing more value-driven packages," says senior marketing vice president Claudia Kozma Kaplan.

At Abercrombie & Kent, which bills itself as "the world's premier luxury travel company," interest in trips that incorporate a philanthropic element is on the upswing, says spokeswoman Pamela Lassers. The company now offers six itineraries, up from two. Conversely, a sale in February that promoted savings of up to 60% on trips such as luxury African safaris and Egyptian cruises signals less-than-vigorous bookings on A&K's more self-indulgent tours.

Some in the industry believe the recession is sparking a behavioral shift that will continue even after the economy improves.

"We're witnessing a change in consumption patterns," says Karen Weiner Escalera, a publicist who writes a newsletter and blog on luxury travel trends. "People are looking more at function and comfort and authenticity."

She predicts that luxury as a marketing pitch will lose ground to messages that focus on niche interests as people pursue true passions rather than indulgence for the sake of indulgence.

Not that so-called luxury shame is necessarily bad for business. On Grand Cayman, The Reef Resort, a midscale all-suites hotel on a predominantly upscale island, director Tom McCallum believes he has gained some guests this season who in better times would be checking into digs that cost more than the $250 a night he has been charging.

"We're definitely getting people who would have grabbed a luxury hotel last year," he says. "People still want a Caribbean vacation, but they want to tell themselves they haven't spent as much money. They're being more selective."

But they're still traveling. At Ellison Poe's Little Rock travel agency, sales of midrange package tours to Europe may be down, but bookings to exotic locales such as Sri Lanka and Madagascar are up, thanks to deals being snapped up by people whose bank balances or credit limits still allow it.

"I feel like a Turkish rug salesman," she says. "These deals won't be here in three months, so if you have the money, you should take advantage of it."

That's Jackie Ross' sentiment exactly. The retired Bellingham, Wash., hypnotherapist sailed the eastern Caribbean in February, her third cruise in a year. She and her husband have always been avid travelers, and it's not unusual for friends to ask them where they're off to next. These days, however, her responses are more circumspect. "I'll say, 'Oh, we're just going somewhere warm for a while,' " she says. "It's general sensitivity. There are just so many people who are going through so much. We've been affected by the stock market, too. But we'd planned this cruise, and we're going to go."

They'll be sailing again next year, too. "We weren't going to," Ross says, "but a really good deal came up."

Contributing: Kitty Bean Yancey

Travelers, are you cutting back on luxury trips? If so, is it for financial reasons or not wanting to appear extravagant during tough econcomic times?
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To report corrections and clarifications, contact Reader Editor Brent Jones. For publication consideration in the newspaper, send comments to letters@usatoday.com. Include name, phone number, city and state for verification. To view our corrections, go to corrections.usatoday.com.
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Comments: (5)
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JustAGuyInNC (0 friends, send message) wrote: 5h 22m ago
luxury shame - that's just funny! *lol*

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TheLady (1 friends, send message) wrote: 5h 24m ago
Bill T. - No Loss??? You haven't thought it through. Who do you think works all of the tourist sites in Hawaii...the rich and famous? No, they are everyday people just like you and me. When the travel drops off, so will their jobs. And then there are the tourist dollars that Hawaii depends on to help pay the states bills. When those dollars stop coming in, taxes will go up, and the jobless will be hit with a double whammy. Our countries financial system is a delicately balanced eco system. Take one animal out of the chain and another starves, leaving yet others with nothing to eat. This is why it is so important to keep the money moving. We are all cutting back. We don't have a choice, but we also can't stop living. We have to pay the milk man so he can pay the feed man, so he can buy more seed...get it?

I see a time where wall street will be much smaller than it has been for the past few years. Our country is migrating back to the small business man and american made goods. This is a good thing. We need to become more self sustaining as a country. We need to rely less on the almighty wall street gods and take better care of ourselves. Never again will I allow those arrogant greedy cheating cronies to have ANY say in where I invest my money. I will invest in small private businesses. It's better for my community, and it is safer for my money. Wall Street can go to h%ll.

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American People (33 friends, send message) wrote: 5h 53m ago
The "Quick Question" poll disagrees with the premise of this article. This is an opinion article disguised as news.

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Bill T. (3 friends, send message) wrote: 6h 39m ago
Not a surprise, the days of expense account traveling is about over. The days of credit card or home equity loan vacations is over. Reality says that people will still travel, but it will be the wealthy or the business NEED, and not the casual middle class de-stressing weekend at some resort. Places like Hawaii that require expensive flights and a lot of travel time will be among the first to hurt. No loss.

Recommend 1 | Report Abuse
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JimMcDosh (0 friends, send message) wrote: 6h 46m ago
Wow, where was that picture taken? What a beautiful place. OMGosh I must go there.

RT
www.Privacy-Center.net

Recommend 1 | Report Abuse
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RECESSION STOCK: BIG LOTS

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Recession stock: Big Lots

Posted Mar 5th 2009 3:50PM by Jamie Dlugosch
Filed under: Earnings reports, Good news, Stocks to Buy, Recession

Discount retailer Big Lots Inc. (NYSE: BIG) saw its shares surge higher in Wednesday trading after it posted a fourth-quarter profit from continuing operations that came in ahead of analysts expectations and offered a better-than-expected outlook.

Clearly, investors view BIG as a recession stock to own.

Earnings from continuing operations totaled a dollar per share, ahead of the 93 cents per share analysts were expecting, and 3 cents higher than the year-ago quarter. Revenue fell to $1.37 billion from $1.41 billion last year, but beat expectations of $1.36 billion. Same-store sales fell a mild 3.2%, as sales of discretionary items, such as furniture and toys, were challenging.

Big Lots, which specializes in sales of excess inventory, forecast income from continuing operations to range from $1.75 to $1.90 per share this year, compared with analyst expectations for earnings of $1.74 per share.

CEO Steve Fishman attributed the results and outlook to Big Lots offering its customers "better quality merchandise, new brands, and tremendous value at a time when they needed it the most."

He also mentioned that the company controlled costs very diligently and recorded the lowest expense rate in its history, investing for the future in new IT systems, and said that it opened 21 stores during the year.

Fishman said the global economic crisis over the last several months kept the company from performing as well as it could have in 2008, as it did for most businesses.

He also said the company has always believed that if it improved its merchandise offerings, made good real estate decisions and relentlessly attacked the cost structure, good things could happen for the business.

NOTE: any one who believed that merchandise are improved its offerings,

He noted that while sales comps were down in the 3% range for the fourth quarter, it was a continuation of the trends seen in the latter part of September and October. He said the consumer is focused on need-based product right now and is holding off until the last possible moment for bigger discretionary purchases.

Big Lots is not planning any big shifts, according to Fishman. He said that because of the deep, longstanding relationships the company has with its vendor partners, and the continuing struggles of other retailers, Big Lots anticipates more deals will be made available at savings that can then be passed on to customers to create excitement in stores.

NOTE: the big lots is not planning of any shifts, the continuing is struggles of other retailers,

The company will focus on value and savings from a marketing perspective. In-store signage has been overhauled, and its new television commercials will focus on savings and value.

Big Lots expects to open 45 stores this year, with the largest concentration in the coastal areas of the Northeast, the Carolinas and Florida, and in the west. Those were areas where it was the most difficult to find store leases in the company's price range during the past few years.

With retailers like Circuit City and Linens 'n Things closing shop, the company will have leverage in negotiating favorable terms on new stores.

It just goes to show that recessions can be positive for some companies.

Louis Navellier's PortfolioGrader Pro, which offers free ratings for nearly 5,000 Wall Street stocks, BIG an A or Strong Buy.

Jamie Dlugosch is a contributor to InvestorPlace.com.

Tags: big, big lots, BigLots, dlugosch, louis navellier, louis navelliers portfoliograder pro, LouisNavellier, LouisNavelliersPortfoliograderPro, portfolio grader, portfolio grader pro, PortfolioGrader, PortfolioGraderPro, recession stock, recession stocks, RecessionStock, RecessionStocks, retail, retail stocks, retailers, RetailStocks

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