Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from David Koning – Robert W. Baird & Co.
David Koning – Robert W. Baird & Co.
I guess my question is around the gross margin install, with retention being good but it seems like new sales are being impacted maybe mostly by the economy but maybe can you talk just a little bit about if there’s some impact from the breach just on new sales or if you really think it is just all the economy?
Robert H. B. Baldwin, Jr.
I think it’s mostly the economy frankly and there’s some hesitation and some slowdown on account of the breach by some merchants. I think we’re through that, that happened a lot in the first quarter. What we’re finding and this is really sort of not expected is that our veteran reps who have the highest average of install margin month-over-month are suffering the most. We think that’s because new locations are not being added by our customers and we count that as new business in the way we do our metrics.
Also, there’s no business formation hardly at all so we’re not benefitting from that natural growth in the economy and there’s just much more focus on the merchants part to do their knitting and not as much interest in making changes although we’re doing our best to get there. Also, our sales people have rightly been focused on retaining their customers and dealing with questions and explanations, a lot of discussion on end-to-end encryption out there. It’s a combination I think mainly of the economy but also playing defense to a degree that we’ve never had to play it before.
David Koning – Robert W. Baird & Co.
I guess the second question a little bit around that too, I know gross margin install on a quarter-to-quarter basis really doesn’t have a huge impact on revenue and if we isolate a couple of quarters here where gross margin install has been pretty weak it might not have much of an impact longer term but maybe talk through a little bit how you see the rest of the year playing out on gross margin install and then what the impact on the next couple of years from that pattern could be if there really is much of a pattern?
Robert H. B. Baldwin, Jr.
The longer that we remain at this depressed level the more the cumulative effect. So, frankly in terms of the guidance the biggest change from where we were previously to now is that we had assumed a recovery, not dramatic growth in new large install but a recovery to comparable levels to last year and then somewhat above comparable levels in the back half of the year. We don’t have a crystal ball very clearly at this point so the guidance given assumes no recovery.
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