Executives: Stephen Sadler - Chairman & CEO Todd May – VP & Legal Counsel Doug Bryson - VP, Finance &

Administration
Analysts: Paul Steep - Scotia Capital Deepak Kaushal - GMP Securities L.P. Paul Treiber - RBC Capital Markets Ralph Garcia - Echelon Wealth

Partners
Operator: Good day, ladies and gentlemen, and welcome to the Enghouse Systems Limited 2017 Q3 Earnings Call. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Steve Sadler, Chairman and CEO. Please go ahead, Mr.

Sadler.

Stephen Sadler: Good morning, everybody. I'm here today with Doug Bryson, VP, Finance; Sam Anidjar, VP, Corporate Development; and Todd May, VP, Legal Counsel. Before we begin, I will have Todd read our forward disclaimer.

Todd May: Certain statements made in this conference call may contain forward-looking statements, which are not historical facts but are based on certain assumptions and reflect Enghouse's current expectations.

These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These risk factors are identified in Enghouse's AIF and other periodic reports filed with applicable regulatory authorities from time-to-time. Enghouse disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.

Stephen Sadler: Thank you, Todd. Doug will now give an overview of the financial results.

Doug Bryson: Thanks, Steve. Yesterday, Enghouse announced its third quarter financial results for the period ended July 31, 2017. Third quarter revenue was $82.8 million, an increase of 8.4% over revenue of $76.4 million in the third quarter last year. On a year-to-date basis, revenue was $241.1 million compared to $229.3 million last year. The revenue increase primarily reflects incremental revenue contributions from acquisitions.

On a year-to-date basis, foreign exchange negatively impacted revenue by $8.2 million compared to last year. Hosted services and maintenance services revenue was $43.4 million in the quarter, an increase of 14.6% over the same period last year. Operating expenses before special charges related to restructuring of acquired operations were $35.7 million compared to $31.4 million in the prior year's third quarter and included operating costs related to acquired operations, net of the unfavorable impact of foreign exchange. Non-cash amortization charges in the quarter were $7.4 million compared to $7 million in the prior year's third quarter and include amortization charges for acquired software and customer relationships from acquired operations. On a year-to-date basis, operating expenses before special charges were $101.7 million compared to $98.9 million and include incremental operating cost related to acquired operations, net of -- the favorable impact of foreign exchange on operating costs compared to last year-to-date.

Net income for the quarter was $11.2 million, or $0.41 per diluted share, compared to the prior year's third quarter net income of $10.4 million, or $0.38 per diluted share. Results from operating activities for the quarter were $21.9 million compared to $20.6 million in the prior year's third quarter. Enghouse generated strong cash flows from operations of $25.1 million in the quarter compared to $16.4 million last year, an increase of 53.6% and $54.1 million year-to-date compared to $43.9 million last year, an increase of 23.2%. Company closed the quarter at $103.8 million in cash, cash equivalents and structural investments compared to $85.9 million at October 31, 2016. The cash balance was achieved after a year-to-date payments comprised of $16.2 million, net of cash acquired holdbacks for Tollgrade Communications Inc.

acquired on April 12, 2017; $1.7 million to partially settle loans inherited from the Presence acquisition completed in October of 2016, $1 million to prior period acquisitions, and $11.9 million in dividends paid. Adjusted EBITDA for the quarter was $22.6 million, or $0.83 per diluted share, compared to $21.6 million, or $0.79 per diluted share in last year's third quarter. Adjusted EBITDA for the year-to-date was $66.3 million, or $2.43 per diluted share compared to $60 million, or $2.20 per diluted share last year. This includes the net negative impact of $3.8 million related to foreign exchange on a year-to-date basis compared to last year, which would have resulted in a 16.9% increase compared to the prior year excluding the impact of foreign exchange. The Board of Directors has approved an eligible quarterly dividend of $0.16 per common share, payable on November 30, 2017 to shareholders of record at the close of business on November 16, 2017.

I'll now turn the call back to Mr. Sadler.

Stephen Sadler: Thank you, Doug. As Doug noted, our revenue improved in the quarter, especially our recurring, hosted and maintenance services which improved by 14.6% over the prior year's Q3 and 7.5% on a year-to-date basis. Professional service declined slightly in the quarter, both in the quarter and year-to-date as recurring revenue and software is given greater emphasis.

But it was also impacted by seasonality, especially in Europe where vacations are taken most of July. Cash flow from operating activities increased to $25.1 million from $16.4 million in the prior year's Q3 and $54.1 million year-to-date from $43.9 million last year year-to-date or 23.2%. We completed the quarter with cash and short-term investments, as Doug noted of $103.8 million versus $85.9 million at October 31. Our dividend increased by 15% as previously announced, it is noted that income increased by 7.7% or over the quarter of the prior year and 16.7% on a year-to-date basis. However, all the above results noted were achieved inspite of a substantial negative impact on revenue of $8.4 million on a year-to-date basis and $4.4 million on the cost of operations due to forward exchange.

Revenue and cost declined with a stronger Canadian to U.S. dollar that we have seen recently while EBITDA should remain at historic norms between 25% and 30% unadjusted. Inspite of our strong cash position we intend to establish revolving credit facility of $35 million in Q4 to assist in minimizing foreign exchange fluctuations within our company accounts and payment of our dividend in Canadian dollars without substantial withholding, tax implications of repatriation of funds to Canada. This credit facility was indicated at our AGM and continues to be our intention inspite of our increased cash position overall. Our operating environment remains similar to that of the last five years in both the IMG and AMG business areas.

In terms of acquisitions, we completed no acquisitions in the quarter but announced Survox acquisition earlier this week. We continue to see acquisition opportunities consistent with historic trends and we are committed to our acquisition discipline. I would now like to open the call for questions.

Operator: [Operator Instructions] And we will take our first question from Paul Steep from Scotia Capital.

Paul Steep: Great, thanks.

Steve, could you maybe talk a little bit more - you give some color around interactive but in terms of -- on an underlying basis what you've seen in terms of projects, how the flow of the business has been and some of the lumpiness that -- I don't know whether the PS is related to the interactive business or the asset or the networks business, what you've seen sort of going on in the last couple of quarters because it looks like we've had some pressure organically there?

Stephen Sadler: You've asked a lot of questions Paul. I hope I remember them all. From the interactive point of view, first of all, they do a lot through resellers, so a lot of the professional services is in the asset management group but both of them have business units of course in Europe, and again, most of July Europe goes on holiday and for those on the phone who don't understand, they get lots of holidays compared to what we get in North America. So that's a little bit on the financial services side. Remind me of your other question that you wanted?

Paul Steep: Just -- what had been going on, what you've seen in terms of sales trends on the interactive side because it looks like that may have been some of the -- it's been a little softer than we might have thought over the last couple of quarters?

Stephen Sadler: Yes, the interactive side is -- it's down in less couple of quarters, I guess it's because there wasn't an acquisition in that group; it's been going on for about five years.

In that the SaaS -- what I call the SaaS competitors continue to sell below cost and try and gather volume for various reasons hoping one day to be profitable; that has not changed but it does put pressure on our group there on the IMG side for sure, that's continued although several of them have been bought thereby taking down that competition a little bit because the people who bought them run the businesses a little differently, i.e. prices are a little bit higher after they get taken out for scale by a bigger party. But that really hasn't changed that much, it's always been there. You also have the fact that a lot of the interactive is in the UK in the past, so we saw [indiscernible] got impacted more by exchange than others where -- for example, the asset management is more in Europe with the euro which has done a little bit better. So again, there is a lot of factors in there.

I still consider it -- you know, it's a challenging market but probably from a revenue side it's flat, give or take 1% up or 1% down. And I don't see it change that much, it's been there for a while but it continues, there has been no improvement in that situation.

Paul Steep: And then the sales and marketing you've been investing for a while, the thought was you've gone through a couple of iterations there, maybe walk us through what your thoughts are this morning in terms of pushing more on the gas pedal there or sort of pulling back?

Stephen Sadler: So to be fair, I think about a year ago -- about 18 months ago I was going to put in more in sales and marketing to try and improve that. I think about nine months ago coming into this year I indicated that I pulled it all back. So I've not invested more in sales and marketing at this point.

The economy etcetera from -- in the areas that we are in has remained unchanged, it's still a challenging environment, so we have not actually increased. We've put it in and we took it back out, so our sales and marketing we haven't invested more and right now I always look at it because I want to be ready for it but there is a lot of challenges, there is a lot of noise in the market, Europe, U.S., conflicts around the worlds, we have not increased that area right now but we always look at it, one day we're going to have to because our day will come when we believe the market will take more of our products where right now it's pretty challenging.

Paul Steep: Okay, all right. I think I know the answer of this one but I'll ask it just to see where we're at. If we're balancing out capital, you gave us a comment already on M&A; if we think about -- if you can't find opportunities in the near-term to deploy capital to -- where would you go next Steve? Is it pushing the dividend higher or would you actually consider buying back shares? Thanks.

Stephen Sadler: So the answer is, I -- it's really not something I think about a lot because I do think where we have lots of opportunities to deploy capital. We have put the dividend higher every year at a steady pace, we're going to hopefully continue that pace, I don't see increasing it or having it reduced, I think we're at a reasonable pace for the business, paying about 20% of our cash flow, you're keeping 80% for acquisitions. Buyback of shares I've always had the same position; if I can buy our sales at a cheaper price than I can do acquisitions, I will look at it. I have done that in the past believe it or not when we've brought back lot of shares in 2008, 2009[ph], but right now our cash is better deployed doing acquisitions than buying back our shares in the current public market.

Paul Steep: Thank you.

Operator: We'll take our next question from Deepak Kaushal from GMP Securities.

Deepak Kaushal: Good morning guys, thanks for taking my questions. Steve, first question on Tollgrade, just wondering how the acquisition is going in terms of the revenue side? Are we seeing a full contribution here, how is customer retention? Any color you can give on the integration, even on the cost side, is there anymore cost take out to this business that can help on EBITDA?

Stephen Sadler: No, it was a pretty clear acquisition. I don't think we need to take out more. The thing that happens with acquisitions that -- again, in the past we've explained it but it's a little -- I guess we haven't done it recently.

When you take over a company, a lot of customers from the product side hold off doing what they might have been ready to do right away for a quarter or two, especially if it's in an area where you have another product in the portfolio; like you have one already, you buy a company. So that can reduce product revenue a little bit for a quarter or two. The other side that happens in all acquisitions is you have to do a purchase price adjustment on your deferred revenue and your recurring revenue, so long don't lose it from an accounting point of view you have to reduce the revenue because of this is purchase price adjustment. In a sentence it's interesting accounting how you do that because of course the following year when you renew them you get all the revenue back. So it doesn't affect cash, it's just an accounting entry.

So with any acquisition, initially you do have some reduction in what I'll call revenue that you report. In Tollgrade, certainly that happened but it's nothing to do with cash flow, it's nothing to do with the business, it just has to do how the accounting rules work for the most part. And again, there is some holding back a little bit as you get to customers you talk to them, they want to know what you're doing going forward before they buy more product and invest more in it. It's just a matter of getting out there and talking to them which you generally get done in the first 90 days and then it gets back to more normal.

Deepak Kaushal: Got it, that's helpful.

Just a follow-up on that, then what -- can you tell us what the mix is of recurring revenue versus pro-services on Tollgrade?

Stephen Sadler: Tollgrade had a lot of recurring revenue, I don't have the figure exactly but it's pretty good because it has different elements in it but a lot was recurring so we'll push this price adjustment of course on that side and as you know this from our restructuring, we did restructure very much which we do generally pretty quickly. So there isn't really much more cost to take out, it's operating pretty good right away.

Deepak Kaushal: Okay, great. And then on presence, it looks like we're almost a year into presence, interactive seems to be flat; is this really replacing legacy products? Are we seeing the full potential with presence here? What are the thoughts on that one; and then I've got one more follow-up please.

Stephen Sadler: I don't think it's replacing anything, it's really in a new geographical area being Spain, Colombia, Mexico and a little bit in Brazil.

It's operating as we thought when we did the acquisition. So I really don't see anymore, I do see again when you're -- it's replacing or looking at revenue, there is a such a -- you know, exchange is very interesting in these days up and down, it has an impact in all this. So in their case I don't think much because it goes into the mix and it's in euros which wasn't so bad. So I think the presence is working fine.

Deepak Kaushal: Right.

But there is a promise for new markets given the Latin American presence and I guess the Spanish language and Portuguese language market presence, no pun intended. Is it delivering on that promise? Is there still opportunity ahead, how do you look at that?

Stephen Sadler: Yes, they were already going in, there were certain opportunities there, integrating anything in and you want to make it little more profitable, there is always -- it takes some time. I wouldn't say there was tremendous growth, no. All those markets where everyone thinks there is great potential, Brazil and some of those places have trouble, it's not as rosy if you read all the news and take away some of the hype of the markets. They are challenging markets right now, so they are not expanding greatly, especially the Brazil side.

Fortunately we're not in Argentina and some of those other places but it's steady, we don't have a problem, it's working as we thought, but there was no big increase in revenue in those markets for us but there is no big decline either, it was steady.

Deepak Kaushal: Okay, great. That's helpful, thank you. If you allow me to ask kind of a longer term mod question, you mentioned the '07, '08 period when you're buying back shares, I think the first time I meet you was around 2010 when you came in and said, now I see a lot of opportunities to start buying and you certainly bought. When you think of the long-term, you know, decade long cycles, where are we here? I mean one interpretation could be that interactive is kind of mature in its slot, you kind of extended this cycle by finding more acquisitions in the asset management side in Telco space.

Transportation software kind of seems non-existent these days; how do you think about the cycle -- what does your pipeline look like in terms of what's going to pull the wagon on M&A in the next three or five years?

Stephen Sadler: That's a hard one because you could ask 10 people and get 10 different answers.

Deepak Kaushal: I just want yours.

Stephen Sadler: Yes, I know. But I'm more internally focused on what we do but let me give you some thoughts and these are you can take -- I think the public markets have gotten a bit ahead of itself because of interest rates. I've seen the private sides been good in the sense that the valuations haven't changed that much.

I think there is a lot of nervousness out there, I think tool [ph] could happen again. And usually if we go back in history, it does happen about every 10 years; so maybe we're going to be due soon. So what we've tried to do is position the company that if things get bad, we're good. We've got over $100 million in cash, there will be more motivated sellers from an acquisition side, it's not like we're booming in our revenue growth, so there won't be much of it anything there and we've got a good recurring revenue base and some of our revenue we are changing over from the perpetual, not huge but perpetual to subscription which spreads it out a little bit more. So I think our job here is to try and mitigate all the risk that potentially could happen because we can't predict them; if anyone could I guess they probably be doing that and making money for themselves rather than doing this.

So I feel pretty comfortable, we're well positioned for whatever comes about. And we -- but that's being said…

Deepak Kaushal: But if things get better or continue to what we've seen in the last couple of years, evaluations are getting out of your range and acquisitions are drying up or are there certain sectors that you can still find runways?

Stephen Sadler: No, it's certainly possible, that's certainly possible. I think it's very unlikely. And by the way if things get better, it goes back to the previous person who asked the question. Now I go to add more sales and marketing and to take advantage of it.

Deepak Kaushal: Okay.

Stephen Sadler: There is a difference between a stock market getting better because of low interest rates and what's really happening from an environment for capital expenditures for companies. Companies have gone a lot to SaaS, some have gone because of the economics but some have gone because they don't want to put up the capital money, and that still seems to be the trend today. So yes, I really can't give any more than that. You should probably telling me what you think is going to happen.

You guys -- you are closer to it, you're in the market each day, I'm here just dragging it along.

Deepak Kaushal: Thank you, Steve. I appreciate you taking all my long questions and thanks again for taking them.

Stephen Sadler: No problem. They are good questions too, never felt that you were asking a bad question.

I never really heard a bad question. There is always somebody else who wants to have the same question but maybe afraid to ask.

Operator: Thank you. [Operator Instructions] We'll take our next question from Paul Treiber from RBC Capital Markets.

Paul Treiber: Thanks so much and good morning.

I just wanted to say the last answer was quite helpful. Just thinking about the core businesses itself, over the last couple of years or quarters have you seen any real change in the license win rates or maintenance renewal rates?

Stephen Sadler: Not really in the renewal rates, it's pretty good the customers you have on win rates because of the SaaS model and their pricing and the capital expenditure part where people rather due pace their goal [ph]. The new win rate has been more difficult and that's why our growth is where it is, especially on the IMG side, the interactive side; we don't see this much on the asset management side, big telcos -- they really aren't picking -- doing SaaS type purchases. But on the other side certainly that SaaS business has hurt the new revenue growth but it has for five years, so there is no change but that's still into market and it's still tough.

Paul Treiber: And [indiscernible] interactive like on the channel side via continues to work its way through restructuring, how has their struggles in there, their recent restructuring, has that had any material impact on the business and are there other channels that you're looking to add that may be able to help them mitigate that?

Stephen Sadler: You know, Avaya is a complex question.

When they first to trouble, you think, hey great opportunities for us, their resellers can take on our product because we do Skype for business and we can sell on other platforms. So that was sort of the initial thinking. What really happened was all the people who I guess had Avaya just said, well let's hold up and see what happens. So again, even those resellers didn't immediately switch, they all sort of had to wait and see. So what would I thought was going to be a bit of an improvement turned out to be a bit of a decline because of the Avaya situation.

Of course now they did the receivership, they went in, they went out; I think it's still the future -- still question mark is that going to be helpful to us or not. Again, we don't rely on Avaya but we do sell our products on Avaya; so when they turned down some of our products turned down with it. But we also do Skype for business, we also sell on other platforms as well. So it turned out to be a bit of a complex situation and it still is today.

Paul Treiber: Okay, thank you.

Just turning a second to Tollgrade. You mentioned that there is a number of factors in the near-term that may weigh on that revenue; how do we think -- is there a need -- these sort of rule of thumb to think off in terms of when you make an acquisition, how much revenue may dip in the short-term, is it 10% to 20% that we should be thinking about?

Stephen Sadler: You know, there is many factors so we can look at it and do a bit of an estimate. It's very difficult for you because it depends on do we have an overlapping product or not in that region, it depends on how much is recurring. In Tollgrade it also depends on do they pay annually in advance, quarterly in advance or monthly; because it all impacts your purchase price adjustment, it all impacts -- are they going to hold back purchases. In some cases, some people worry; hey, it might stop something so they buy more, that's pretty rare.

So I think it's the same principles and factors you must look at but I don't think there is a rule of thumb you could do without looking at all of the particular factors but if you do look at all the factors, you can pretty much say, yes, here is probably what's going to happen but it is different by each acquisition because they have different circumstances they have to take into consideration. For example, we did something in Germany in the past, it was a completely overlapping product; so yes, what it did was they wanted to see if we were going to -- what we're going to do going forward with the product that we bought or our product. But also our customers said, maybe we should hold back because maybe you're going to go to another product. So it impacts in some cases not only the acquisition targets revenue, it can impact your own revenue. If it go into a new area, it can because they think you're going to bring another product in; so there is a lot of factors to look at.

If you buy something in a brand new product, it probably doesn't impact that as much because they say, well, they don't have a product; so like we've bought Servox [ph], we don't have a survey product so it should impact that as much because again, we don't have a competing product so there is no reason other than we probably need the same 90 days or even hopefully less to get out and talk to the customers just to give them assurances that we're stable, here is what we are and here is what we're doing and that gets some to feel comfortable that you could continue investing in our products.

Paul Treiber: It sounds quite complicated to get to rule of thumb. Maybe an easier way to look at it is, for Q3 how much did acquisitions -- how much revenue did acquisitions contribute in the quarter? I think you provided -- I think it was $5 million last quarter.

Stephen Sadler: Yes, I think it's $5 million. I don't think -- I think it's added about $5 million in the quarter.

Paul Treiber: Okay. Just one last one for me; in terms of M&A as we think about the size of the company getting larger -- and if we look out over a couple of years, would you foresee that hurdle rates would need to go down conceptually or do you think you can continue the deployed capital at the rates you've been doing in the past?

Stephen Sadler: I've discussed it several times, and again, my theory is as you get larger, you either have to do more deals or you have to do bigger deals. More deals; there is some risk in every deal you do, especially if you're integrating it in. Bigger deals generally cost more and therefore your comment would be, yes, as you get bigger the hurdle rate generally would have to come down if you want to continue your growth pace you have when you're smaller. I see around $800 million to $1 billion is where that transition takes place, upto then I don't see a huge impact; a bigger deal does, again -- I might look and say, well, at least you have to pay more but maybe you can also do better and still get the same payback period we're used to.

So yes, if we're an acquisition strategy it gets harder as you get bigger. So unlike to what you normally see in the tech market where we pay a premium for size; if it's an acquisition strategy, you generally would pay that premium for smaller, for those who have cash who can do it, not diluted shareholders because diluting shareholders that takes away a little bit from the benefit of doing the deals because again you're spreading the benefit over a larger base. So you are right, in time it gets tougher as you get bigger but then you can also do bigger deals potentially and it depends how you're organized; are you organized that you can buy for example, products and put it through a channel; a sales channel worldwide and therefore increase your revenue a little bit because you're also bigger and are structured to do that.

Paul Treiber: Okay. Thank you for taking my questions.

Stephen Sadler: Was that all? You know, I added to that, was that okay for you?

Paul Treiber: Yes, that was great. Thank you.

Operator: [Operator Instructions] We will take a question from Ralph Garcia from Echelon Wealth Partners.

Ralph Garcia: Good morning, Steve. Just a few quick questions here.

What was the foreign exchange impact in the quarter? You gave it for year-to-date but…

Stephen Sadler: The foreign exchange; we'll get two aspects to foreign exchange. One, you can sort to predict as an analyst which is really top line and bottom line. And when I say it was the impact of the quarter compared to what -- last year, compared to last quarter, there is a lot of factors in there; especially we've got acquisitions in the mix. So I would say it was -- let's say it was not material enough to talk about if you wanted to compare it to the prior year quarter. The problem you also had because of the balance sheet adjustment that goes through our SG&A.

Our last -- that's huge, this year it was a negative -- I think the numbers were about a negative $800,000 in the quarter; i.e. it made our cost look $800,000 higher, it's non-cash because it's just really the impact on intercompany accounts. I think last year it was $2 million positive, so when you look and say and you're doing your comparison, actually if you want to do it on a cash neutral basis from the balance sheet point of view, last year we would have made $2 million more in this quarter, Brexit and all those things are in the quarter and this year with $800,000 less which is like a swing of nearly $3 million, $2.8 million. So there is two parts, just the normal part on the P&L and then there is what happens with your intercompany accounts and the balance sheet. We're trying to minimize that impact because it does confuse people, it does go into the numbers on your P&L but it's from the balance sheet.

That's why again looking at possibly and looking at getting a bank line because our intercompany comes from bringing money to Canada from our subs which are forum [ph] that make money because our dividend is paid of course in Canadian dollars out of Canada and yet our Canadian business is not large enough to sustain that dividend; i.e. we have to bring money in and usually you do it couple of ways, you can do it in by dividends, you can pay dividends if a company has negative retained earnings, unless you do some restructuring first, that takes some time or you can move it and it's in the intercompany account, therefore it comes down to the foreign exchange problem. Now the foreign exchange is non-cash, it goes up and down, it's not real cash gain or loss but it does show up in our P&L; so that's part of the reason why we're looking -- any -- Apple has done this in U.S., you don't want to bring the money back and pay huge taxes in some cases or withholding taxes. So that's why we're looking at having that facility in Canada so that we can solve that problem, payoff intercompany accounts and minimize the impact on the P&L. As you know, I'm more on a cash basis, so I look at it and say, it doesn't matter that much but it does impact the results, it does impact how others look at the company.

So I have to get that that I don't have gains or losses, at least to a minimum level.

Ralph Garcia: Okay, that's very helpful. Then on the professional services, it's taken out some seasonality in this quarter with the obvious month; so do you sort of stay flat or a $13 million run rate or the September and October sort of help you tick that up $500,000 to $1 million exiting Q4?

Stephen Sadler: It's fairly interesting watching companies run and do things. For whatever reasons before people go on vacation, they've gone. When they come back, there usually is -- and by the way, it's not us in vacation, it's like everybody on vacation.

When they come back there is usually a little bit of higher demand, so I'm not sure what impact Q3 -- Q4 as much as Q3 but it could because you could come back and they just say look, based on the economy what's happening, we're just going to slow some projects down. So it's pretty hard to predict that, of course we try to because you don't want to carry extra people and resources; so we use outside contractors on occasion for the overflow. So the picks up [ph], we -- you have more contracting expense, it doesn't -- it isn't like we've got employees sitting there doing nothing. So it is one of hardest things to manage; support, not as hard; sales guys sell the product side not too bad because the revenue and cost are meet -- the P.S. [ph] -- you cancel to takeout staff right away, it picks up and how do you hire in the expertise to do the work.

So it is the tougher area to manage but we see it pretty stable; look, it's down a bit, it's not down like in half or 20%, it's like hundreds of thousands of dollars difference.

Ralph Garcia: So if you make that back sort of coming out September and October that -- and then more interesting…

Stephen Sadler: Wait -- but to answer it fairly, if I was going to do and of course Todd read the forward disclaimer; I would think we should do a little better in Q4 with professional services based on -- history says we'll make them back from holidays, it picks up a little bit. Before they go, there is not a rush to do things; so it's more of your inter-project, it's going to still be the air-no-sense to rush it, when they come back they want to catch up and finish it. So it should pick up a little bit, I were thinking Q4 but we'll see, there is no promises.

Ralph Garcia: Okay.

And then on the hosted line, I mean a nice subtick frequently, that's $3.5 million. Was that all through acquisitions or were there some price increases, there is some organic growth there on getting guys to sign for some of the hosted business.

Stephen Sadler: Yes, I think it would come from both but not price increases. There would be some certainly for acquisition and there would certainly -- and there is some of course from internal growth. There probably is -- pricing still tops in that market, hosted.

And so I wouldn't say expected, there was any firm price increases but I think the other two, both helped.

Ralph Garcia: Okay, thank you.

Operator: [Operator Instructions] And it appears we have no further questions in the queue. I would like to turn the conference over to our speakers for any concluding remarks.

Stephen Sadler: Okay, thank you for continued support in this continuing uncertain environment with significant fluctuations and foreign exchange rates.

We continue our disciplined acquisition strategy on operationally hedged basis. Looking forward to talk to you at our fiscal year which as you know, ends October 31.

Operator: Once again, ladies and gentlemen, that does concludes today's conference. We appreciate your participation today.