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Executives

Paul Jarman - Chief Executive Officer, President and Director

Gregory S. Ayers - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Mark R. Murphy - Piper Jaffray Companies, Research Division

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Shawn Yuan - Roth Capital Partners, LLC, Research Division

Mark W. Schappel - The Benchmark Company, LLC, Research Division

Michael Latimore - Northland Capital Markets, Research Division

inContact (SAAS) Q4 2012 Earnings Call February 14, 2013 4:30 PM ET

Operator

Good day, everyone, and welcome to today's program. [Operator Instructions] Please note, today's call is being recorded. It is now my pleasure to turn the program over to Paul Jarman, CEO of inContact. Please go ahead.

Paul Jarman

Good afternoon, and Happy Valentine's Day. This is Paul Jarman, CEO of inContact. Welcome to our fourth quarter and year-end 2012 conference call. Greg Ayers, our CFO, will begin by presenting the Safe Harbor statement, followed by our financial results for the quarter and for the year. I will then provide some additional color with respect to our fourth quarter 2012 accomplishments and important company developments. We will then open it up for Q&A. Greg?

Gregory S. Ayers

Thank you, Paul, and good afternoon, everyone.

Let me begin this call with the Safe Harbor statement. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements made on the company's behalf. All statements, other than statements of historical facts, which address the company's expectations of sources of capital or which express the company's expectation for the future with respect to financial performance or operating strategies can be identified as forward-looking statements. Such statements made by the company are based on the knowledge of the environment in which it operates. But because of the factors previously stated, as well as other factors beyond the control of the company, actual results may differ materially from the expectations expressed in the forward-looking statements.

During today's call, I will first recap the definitions for our 2 operating segments, Software and Telecom. I will then cover our Q4 and select year-end operating segment and consolidated results, as well as other financial highlights. Full-year unaudited financials and comparisons can be found in our news release that went out this afternoon. For access to the news release and other information on inContact, please visit our website at www.incontact.com.

Our first segment is the Software segment, which includes all monthly recurring revenue related to the delivery of our software applications, associated professional services and setup fees, as well as minimum purchase commitment revenue. The Software segment does not include any Telecom revenue.

For Q4 2012, I'm pleased to report that our Software segment revenue increased to $15.6 million, which represents a 42% increase over Q4 2011. For the full year, we achieved Software segment revenue growth of 37%. This increase was achieved despite a $500,000 deferral in the Q4 Siemens minimum purchase commitment, which is part of a larger change in our go-to-market agreement with Siemens, that Paul will discuss in greater detail later in the call.

This strong Software growth result was generated by the following 3 key drivers. The first driver of quarterly Software revenue growth is existing customer retention. Our Software revenue retention for the trailing 12 months remained consistent with previous quarters at a rate in excess of 92%.

The second driver of quarterly Software revenue growth is the incremental revenue generated from the sale of additional services and the variable utilization of Software services by existing customers, who had been billing 9 months or more. The measurement of this revenue growth is similar in concept to the retail industry's use of the same-store sales metric. In other words, it excludes attrition and new customer contract revenue. With these existing customers, we experienced a 6.2% increase in Q4 2012 versus the 5.5% increase that we experienced in Q4 2011. This increase in usage by existing customers marks the sixth consecutive quarterly increase in same-store sales, represents the largest quarterly increase in the company's history and demonstrates that our land-and-expand approach is definitely working.

In addition, the average quarterly increase in same-store sales for the year represented 35% of our Software revenue growth and illustrates the importance of this growth driver beyond our reported bookings.

The third and final driver of our Q4 Software revenue growth is revenue from new contracts that are not yet included in the same-store sales metric. We closed 62 new contracts in the fourth quarter, 51 of which came from new customers and 11 of which were upsells to existing accounts. The estimated annual contract value of contracts closed in Q4 is 28% higher than the annual contract value of our Q4 2011 bookings.

In Q4 2012, Software segment gross margin was 60% on a GAAP basis and 73% with noncash charges added back compared to Q4 2011's 56% and 68%, respectively. This 500 basis point improvement in non-GAAP gross margin is principally attributable to leveraging fixed and semi-fixed infrastructure costs against higher levels of quarterly revenue.

Our second segment is the Telecom segment, which includes all voice and long distance services provided to both our Telecom-only legacy customers, as well as to our Software segment customers.

Telecom segment revenue for Q4 2012 was $15.1 million, a $2.4 million or 19% increase over Q4 2011. The Q4 Telecom segment gross margin increased 400 basis points over Q4 of 2011 or 34% and was consistent with Q3 of 2012. Telecom revenue generated by Software customers continues to grow and for the quarter, represented approximately 76% of total Telecom revenue, up from 64% in Q4 of 2011.

Our consolidated results for Q4 are as follows.

Consolidated revenue increased to a record $30.7 million, a $7 million increase or 29% from Q4 2011. This revenue increase was driven by the growth in our Software segment and Software-related Telecom, and is the eighth sequential quarter of consolidated revenue growth.

Consolidated gross margin percentage was 47% in the fourth quarter compared to 42% for the same period in 2011. This significant increase in gross margin is principally attributable to the improvement in the Software segment through leveraging fixed costs, but the Telecom segment also showed improvement in gross margin. Adding back noncash charges, consolidated gross margin percentage was 54% for the fourth quarter compared to 48% for the same period in 2011.

Operating expenses were $15.2 million, up $2.3 million from Q4 2011. Approximately 68% of the increase came from higher levels of investment in Software segment sales and marketing and research and development. The investment in sales and marketing has paid off over the past 8 quarters as we continue to achieve strong year-over-year bookings.

GAAP net loss for the quarter was $793,000 or $0.01 per share as compared to a net loss of $3.1 million or $0.07 per share for Q4 2011.

Adjusted EBITDA, which is a non-GAAP measure, is an important metric of our operating results due to the significant amount of depreciation and amortization resulting primarily from previous acquisitions of software products, customer bases, network technology, amortization of capitalized software development costs and stock-based compensation.

Q4 2012 adjusted EBITDA was a positive $2.4 million versus a negative $761,000 during the same period in 2011.

As of December 31, we had $48.8 million in cash and had access to an additional $11.5 million under our line of credit and term note facility.

In summary, we're very pleased with the company's execution during the fourth quarter, which led to a strong finish with record bookings, consolidated Software revenue, consolidated gross profit and adjusted EBITDA for the full year.

Now I'll turn the call over to Paul.

Paul Jarman

Thank you, Greg. It was another record quarter for inContact and marked a very strong close to 2012, where we achieved the high end of revenue guidance we projected. As Greg mentioned, 2012 was a banner year for inContact based on our 3 key growth drivers, which combined to create a powerful result, giving us Software growth rate for the year of 37%.

During 2012, the increase in same-store sales was a key contributor to our growth, indicating that our land-and-expand strategy of continually increasing our footprint and existing accounts is working. During the fourth quarter, we closed 51 new customers and 11 expansion contracts for a total of 62 contracts. On average, that was 60% higher than it was a year ago for the average contract value.

It also included 2 new Fortune 500 customers, and we currently have 12 customers that bill $500,000 or more per year in Software revenues. With the record growth in bookings and same-store sales for the quarter, this was our best growth quarter ever.

In addition, just after the close of the quarter, we booked a large contract with another Fortune 500 customer for 400 seats, which we expect to grow to over 1,250 seats. This deal gave us a great start in our Q1 bookings, and the company will go live with its first appointment later this month. This is another great example of how our land-and-expand strategy is working.

To give you a feel for its magnitude, had the strategic deal closed in Q4, the initial contract value would have added another 10% to our year-over-year quarterly bookings growth.

inContact continues to drive additional growth across a variety of industries, and are looking to cloud solutions to solve customer-service challenges not effectively addressed by legacy premise technology. One example of 1 vertical where we experienced success during Q4 was Healthcare, adding 5 new Healthcare customers ranging from regional hospital networks, pharmacy facilities and patient service providers. With widespread changes to the American healthcare landscape driven by Obamacare, regulatory requirements and a far more competitive marketplace for providers, many organizations are looking to the cloud to ensure the future readiness of their service approach.

Another key win during Q4 was a large multi-site business process outsourcer or BPO. This customer had been a long-standing member of a competitor's customer counsel, but ultimately selected inContact's cloud ACD and IVR services after a rigorous selection process. This customer will scale their deployment in the next year in more than 1,200 seats across 5 contact centers. inContact is a great fit for BPOs as it enables them to rapidly scale up for new campaigns and customers, while only paying for the capacity they utilize every month.

And finally, in another significant opportunity, inContact was selected by a global supply chain management company that was looking to replace their legacy premise-based system to reduce their overall cost of ownership and unify their service process across multiple contact centers. The company chose inContact because of the compelling ROI of our cloud solution and our ability to connect together their 3 contact centers, 2 of which are outside of the United States.

We continue to make ongoing innovation, a hallmark of the inContact brand. During the quarter, inContact received TMC Customer Magazine's 2012 Product of the Year Award for its Intelligent Call Suppression application. This solution provides realtime dialing list adjustments based on customer actions, such as Do-Not-Call requests or payment actions taken, avoiding unnecessary and unwelcome calls. Our Intelligent Call Suppression application ensures a better, less intrusive outbound experience while maximizing handling time for outbound agents.

During Q4, our reseller partners were responsible for driving 21% of the new deals we booked. And our reseller pipeline continues to grow quarter-over-quarter. We anticipate that Q1 of 2013 will be our strongest quarter for reseller-driven revenue to date.

Our partnership with Verizon continues to grow in its momentum. And this reseller had a compelling finish to Q4, closing their largest contract to date on the inContact platform. We continue to work closely with the Verizon team on their rapidly growing pipeline of opportunities and look forward to a great 2013, as they gain momentum from their strong start and early successes.

As we conclude the first year of our partnership with Siemens, we have learned a great deal about how to leverage this relationship going forward. In order to achieve this leverage, in 2013, we have made changes to our agreement with Siemens and our associated go-to-market plan. These changes are as follows. Siemens is in the process of hiring up to 8 specialists, who are focused and compensated exclusively on selling the inContact solution. This team will leverage their 2,000-plus sales and service employees, similar to the successful model that Verizon has established. We are already in the process of helping to hire and then train this team. Second, in order to provide Siemens with additional time to ramp this team to full productivity, we have shifted their minimum guarantee revenue commitment in 2012 to $4.5 million, to $7 million in 2013 and up to $5 million in the first 7 months of 2014.

And finally, as per our agreement finalized this week, inContact now has the right to independently recruit additional partners in EMEA. We are confident that the above changes will ensure Siemens' and inContact's long-term success in the cloud market and deliver strong results for our shareholders.

I'd like to now take a look back over the past year of other accomplishments, innovations and milestones for inContact.

We continue to have increased success with larger enterprise companies that grew our base of Fortune 500 accounts by 29% during the course of the year. As the market matures, enterprises are increasingly turning to the cloud to unify service processes across multiple locations and to provide business agility that is just not available with legacy premise solutions. We continue to work closely with our customer advisory board, key strategic partners and industry analysts to drive inContact's market-leading and differentiated product roadmap.

In response to market opportunities, we delivered 2 major software releases in 2012 that dramatically enhance our cloud platform in the following areas: new dashboards and reporting for contact center visibility, improved outbound capabilities to enable proactive customer communications, branded chat and web connect features to address emerging channels and agent scripting to improve the overall customer experience.

The rapid pace of innovation in the cloud continues to be a major selling point over premise as customers require a technology platform that is dynamic as their own business.

Throughout 2012, we experienced continued recognition of our market leadership and signs of strong momentum in the cloud marketplace. Gartner validated the growing importance of our market in a recent report that predicts at least 75% of customer service centers will use some SaaS application in their contact center solution by the end of this year. Frost & Sullivan also validated the power of the cloud in its report that named inContact the 2012 North American Cloud Contact Center Solutions Company of the Year. According to Frost, the cloud continues to provide greater flexibility to address today's modern and rapid changing contact center requirements, and delivers up to a 58% lower total cost of ownership for a large contact center over a comparable premise-installed center in a 3-year period.

And finally, in 2012, we continue to reap the benefits of a customer-centric culture, which we have fostered. Through the course of the year, we implemented a record of 264 new customer contracts and drove our retention rates to in excess of 92% by delivering great products and great service. One of our key differentiators is the powerful advocacy community that we have built. And in 2012, we had 40 customer speakers out in the market talking about how the cloud has delivered true and meaningful change in their business. These advocates help us to sell new business everyday through their testimonials, references, site visits and presence at our annual users conference, ICUC.

The contact center industry is at an inflection point that will result in a major replacement cycle opportunity for inContact. In fact, according to Gartner, more than 75% of contact centers in North America will need to upgrade their contact center infrastructure in the next 5 years in order to keep pace with the customer demand for emerging channels such as social, mobile and self-service. In addition, these centers are combining brick-and-mortar locations with at-home agent to lower cost, enhance the quality and reach of the available labor pool. Legacy premise-based solutions are not designed to deliver on this flexibility.

We are pleased to have met or exceeded our financial guidance for the last 2 years. I'd like to now discuss how we will leverage our growth opportunities in 2013 and continue this strong financial momentum.

We have expanded our direct sales efforts under Bill Robinson's leadership, with our quota-carrying sales team currently numbering 37 representatives, which is a 37% increase in sales headcount over Q4. We will look to opportunistically add additional reps throughout the year. In addition, we will leverage the investment we have made in infrastructure and programs to support both current and perspective partners to extend our market reach and footprint in 2013.

Based on the momentum of new bookings, same-store sales increases and improving revenue retention [indiscernible] fund and $74 million for the year. We also expect consolidated revenue to increase to between $135 million and $139 million for the year.

In order to leverage the accelerating cloud market opportunity, achieve our 2013 Software revenue guidance and position us for an equally successful 2014, we will make investments in sales and marketing of 28% to 29% of consolidated revenue. As I mentioned earlier, this is an $8 billion market worldwide, and Gartner estimates that only 5% to 10% of this market is currently using a cloud solution to power the contact center. This puts inContact in a great position to grow and to take market share from the premise players.

Second, we have worked hard to establish our market, product and service leadership, and we'll continue to maintain this strong position in 2013 to outpace both premise and cloud competitors. We will expand our cloud technology partner ecosystem and associated published technology interfaces that have focused on adding new key relationships in our target market verticals.

We will continue to deliver cutting-edge innovation to our customers with at least 2 major releases in 2013. We will deliver our most significant software release to date at the end of the month. And this powerful multichannel capabilities mark the beginning of an important shift for inContact as we progress from a provider of cloud contact center infrastructure to a leader in cloud-delivered customer interaction management solutions.

As we strengthen our platform and extend our reach into new and emerging channels, we expect to make investments in research and development between 9% and 10% of consolidated revenue in 2013, excluding capitalized software development costs.

We will continue to deliver additional leverage in our financial model. By increasing revenue over our existing infrastructure investments, we expect continued leverage in gross margin and G&A in 2013. And even with our planned investments in sales, marketing and R&D, we expect to generate at least $4 million in adjusted EBITDA for the year.

We are pleased to have achieved our strategic goals in 2012 and to continue on a strong growth trajectory. We believe that the growing power of the inContact brand, our cutting-edge innovation and unmatched customer satisfaction makes us extremely well-positioned to achieve our guidance and continue this momentum throughout 2013 and beyond as the cloud market continues to accelerate. inContact stakeholders and shareholders can anticipate continued strong growth in our key financial metrics throughout 2013 as we enhance our lead in this exciting and growing market.

Greg and I will now take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Mark Murphy with Piper Jaffray.

Mark R. Murphy - Piper Jaffray Companies, Research Division

I wanted to start by asking you about the change to the Siemens relationship. It looks like they'll have slightly lower minimums, but now, you can go out and recruit additional partners. So net-net, I'm wondering how does this impact your opportunity set for 2013, but also for 2014? In other words, if the minimum is coming down by -- I think it's coming down by $3 million this year, if that's right, do you think you can recapture that $3 million via additional partners? And then also just who instigated that change? Was it Siemens or inContact?

Paul Jarman

Yes, you bet. So first of all, as you look at the guidance I just gave of $71 million to $73 million in Software revenue, that definitely shows you that we're confident in our ability to gain that type of revenue even beyond the change in the Siemens agreement. So we feel very good about our core business and the growth that it has right now. Secondly, as we met with Siemens, and we talked together about putting together this sales team, we felt it was appropriate to give that sales team time to achieve those minimums going forward. So it was a joint project together, and we worked through the best things for both companies as far as giving them some extra time to create the revenue inside those commitments, giving us additional opportunity in Europe and us helping them get these sales teams to help overlay their 2,000 sales and service people. So as you know, Hamid is on our board. We work very closely together, and we felt it was the best thing for both companies and our shareholders.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Great. And then, Paul, on the topic of Bill Robinson and your plans for the sales force, I think you said you recently reached 37 quota carriers. I think that was 27 a quarter ago. So you do have quite a bit more of capacity. How do you feel about the quality of those hires and how quickly can they ramp? And then can you maybe help us understand, were those mostly on the direct side, some of the new hires or were some of those on the -- an inside sales team as well?

Paul Jarman

I would say about 90% of them were direct in the field, most of them with significant previous enterprise experience. All of them had backgrounds in the contact center. We've got some great hires in that tin. And we already have some of them that will bring deals in as early as first quarter. So we were selective in who we hired. We're lucky to have a good story and a good brand in the market, and that's helped us to attract some very good salespeople.

Mark R. Murphy - Piper Jaffray Companies, Research Division

In general, can you give us your thoughts on the deal pipeline just for first half of the year? I guess based on the guidance, it feels like it's continuing to grow. Any thoughts on the overall trajectory? And is the texture of the pipeline evolving at all? Are there larger deals? Are there -- is it a higher quantity of smaller deals? Anything different in terms of verticals or geographies that you see in the pipeline?

Paul Jarman

Yes. So first of all, we've already had a great start for Q1. We feel very good about our pipelines for the first half of the year. We feel we'll have a very good first quarter. And I would say that we just keep seeing more larger opportunities coming into our pipeline. And in some cases, we'll sell a lot of it upfront. In some cases, we'll sell a piece of it and grow it over time. But certainly, as I mentioned before, our average deal size was 60% in fourth quarter bigger than a year ago. So I would expect that we still win a lot of midsized deals, but we're seeing bigger ones come through that are very exciting to us.

Mark R. Murphy - Piper Jaffray Companies, Research Division

So Paul, one last question on that since you touched on it, the deal sizes are up substantially. So on the pricing front, I believe that typically, you've said 3 quarters of a call center's budget is payroll. And I think that inContact ends up being maybe a few percent of that budget, and then they use it to optimize all that labor. Just given that ratio, is there an opportunity to gradually increase prices or are you seeing kind of a natural organic increase in the prices? Or is this -- is what you're referencing kind of solely based on larger seat counts and larger organizations?

Paul Jarman

So just a couple of answers to that. First of all, what we can do, as we add additional products and solutions and additional channels, that gives us opportunity to give them more pieces to upsell, cross-sell and more value for the key interaction engine. So I don't see necessarily that we believe that the pricing is going to deteriorate. And I think what will likely happen is we'll see more and more upsell, cross-sell into the accounts as we keep handing them some of the different channels and innovations that we're given. So we think we can create some additional products that we're working on and either bundle those in for more value or upsell, cross-sell them after.

Operator

We'll take our next question from Jeff Van Rhee with Craig-Hallum.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

A couple of questions for you. First, just in terms of this deal that closed early in '13 here, and maybe in that same discussion you could talk about the other 2 Fortune 500 contracts, but I'd just be interested in a little more color on competitive landscape on the deal. Was it direct or did that come from a channel? What did you replace? Can you use those 3 as somewhat of a proxy for what the big deal landscape looks like?

Paul Jarman

Yes. So on the one we did recently in the Fortune 500, they have about 1,200 seats, multiple locations. It was a direct deal. We were actually approached by them in an RFP. And we basically, there is an incumbent that they were not going to go forward with and ended up being 1 or 2 cloud players. And in that case, obviously, we came out as the winner. And they chose us for the flexibility of the solution, our ability to really help them achieve their KPIs. Really, we're very good at the multi-location part, and that was the big driver there. So I would say on the other deal are very similar. They really like our ability to handle both the connectivity and the software. They like the flexibility of the platform. We've given them a lot of reasons to have confidence in our scale. We have other companies that use more than 1,000 seats with us today. So they're comfortable with our size and our capabilities. And frankly, we're seeing more and more deals like that where we're involved in these larger deals, and we feel very comfortable in them. And we certainly have hired more and more salespeople that are used to those kind of environments. That's a start. Anything you want to add to that or questions from that?

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

No, that's helpful. And I guess along the somewhat similar lines. On the partner front, you touched on the Siemens. I think you had said a little bit back, you were hoping to be about halfway through your migration on the Verizon installed base by the end of the year. Just curious how that ended out?

Paul Jarman

I would say that we're a little less than halfway in the migration and a lot of their recent deals are new. And we've won some great deals with them recently and we're working out some great deals together now. But I would say, we're not over halfway yet. So there's still a lot of that business left to get.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

So it's maybe the migration's a little slower than expected, but how would you characterize sort of the uptake and sell-through of new customers?

Paul Jarman

Very good. There's some great opportunities there. It's catching on across their sales teams, and our initial wins have gone very well. So they have a lot of confidence in promoting the product across their customers.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Last quarter, you had given the partners as a percent of the forward pipe. How has that number progressed?

Paul Jarman

About 2% to 3%, so it's progressing. And what's also nice, too, is as these partners better understand the market, they're giving us better deals in the pipeline. So we're seeing both volume and quality improve in both cases.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division

Okay. And then last one, I'll let somebody else jump on, but just the sales heads, I mean it's great to see the significant ramp in capacity here. So you've obviously got some digesting to do. When you think about strategically, as you phrased it, strategically adding or opportunistically, I guess is how you said it, adding sales heads through the year, how should we think of the balance on that? I mean, just can you dial that in a little more?

Paul Jarman

Yes. I mean, I think our goal is, by the end of the quarter, is to be somewhere close to 40. And then I don't think you would see us greater than 50 by year-end. So we'll look at the market. We'll look at the geographies, the verticals, our opportunities overseas and just make good decisions as we go. And we'll decide between direct sales and in some cases, channel partners, in some cases, inside sales, and we'll allocate based on the demand we're seeing.

Operator

And we'll take our next question from Nathan Schneiderman with Roth Capital Partners.

Shawn Yuan - Roth Capital Partners, LLC, Research Division

This is actually Shawn Yuan sitting in for Nate. Regarding the Siemens relationship, I know you guys have the minimum guaranteed revenue. But once the minimum guaranteed revenue is appearing in '14, are we going to see a significant drop or slow growth in that area? Because I mean, I remember in the most recent 10-Q, you guys discussed that the Siemens deals, on the Siemens side, they are tracking slower than expected?

Paul Jarman

Yes, you bet. So first of all, part of the motivation for the changes that we made is so that we can help build a successful ramp. And we put the new ramp in place with the 4.5. And it's important to realize that we, as Greg said before, we achieved that 42% growth rate, deducting $500,000 out of the Siemens guarantee. And so, it's $4.5 million, it's $7 million, and then up to $5 million. And we feel comfortable that we did that ramp for a reason so that we could grow into those numbers. And it can continue to progress in third quarter of '14 onward from the guarantees that we have in place.

Shawn Yuan - Roth Capital Partners, LLC, Research Division

You guys had 11 existing expansion contracts this quarter. I think that's the lowest number in recent memory. Last quarter, it was 19. In the year ago period, you booked 20 deals. So can you help us to understand what's going on, on the existing expansion contract side?

Paul Jarman

Yes. I would say nothing special. It's sometimes you just ebb and flow in the quarters. We had a lot of very good initial new logos this quarter, and we had a lot of upsells in the last quarter. And at year-end, it just is how it was. We don't see that business changing at all. We have some nice products that we upsell into those accounts. And I think it's also important to remember that in a lot of cases, these customers grow without creating a new contract. So in a lot of cases, they add seats or other areas that doesn't create a new contract, and that really goes into same-store sales. So that, some of that progress doesn't create a new contract, so we just don't show it as a new contract.

Gregory S. Ayers

And also, Shawn, keep in mind that the average deal size was up 60% over the average deal size in Q4 of '11. So counting contracts is one metric, but not the only metric.

Shawn Yuan - Roth Capital Partners, LLC, Research Division

Got it, that's very helpful. I'm wondering what is -- how much is the pro service revenue in -- for the license revenue for Q4?

Gregory S. Ayers

So professional services was about $1.1 million in Q4.

Shawn Yuan - Roth Capital Partners, LLC, Research Division

Okay. One last question. I heard the guidance, you were talking about Software revenues, $71 million to $73 million, and then total revenue $135 million to $139 million for the year. But my phone break a little bit when you were providing guidance. I'm just making sure I didn't miss anything on that part.

Paul Jarman

No, those are both correct.

Operator

And we'll take our next question from Mark Schappel with Benchmark.

Mark W. Schappel - The Benchmark Company, LLC, Research Division

Greg, starting with you, I was wondering if you could provide the quarterly Siemens revenue distribution next year? I believe it was originally 2K or 2,000, 2,500, 2,500 and 3,000. I was wondering what the new distribution was?

Gregory S. Ayers

Yes, Mark. So it's $1.75 million every quarter.

Mark W. Schappel - The Benchmark Company, LLC, Research Division

Okay. And then I didn't get the bookings metrics that you provided on the call. I was wondering if you could repeat them, please?

Gregory S. Ayers

Yes. So we were up 28% bookings growth.

Operator

And our next question comes from Mike Latimore of Northland Capital.

Michael Latimore - Northland Capital Markets, Research Division

On the fiscal '14 $5 million number there, you said that it was up to $5 million. What kind of gets you to $5 million in that year, I guess?

Paul Jarman

You bet. So first of all, $4 million of it would be considered the same traditional minimum guarantee that we've had in the past. And there is $1 million of it that can be paid for by the 8 people that they've hired. It can -- that $1 million of it can go against the hiring costs of those 8 people or the traditional minimum that we've had in the past. So there's $1 million that also can go -- it can be basically fulfilled through the payroll costs of those people.

Michael Latimore - Northland Capital Markets, Research Division

And then is the 7 and the 5, is that considered a general goal for their bookings or revenue levels or how do you kind of come to those levels?

Paul Jarman

Yes. So we basically looked at it and said, what was the right number for us as a company as far as any of the expenses we have related to our European infrastructure? And then secondly, something that they felt that they could achieve with these new people. So it's a combination of the 2. And so certainly, we're comfortable that, as I mentioned earlier, that exiting in the third quarter of next year that will be that continued acceleration.

Michael Latimore - Northland Capital Markets, Research Division

So when you say achievable with their new people, do you mean achievable in terms of bookings amounts or kind of recognized revenue?

Paul Jarman

No. So we believe that we'll exit it with record -- with actual recognized revenue at the right amounts. And just to be clear, they're making progress today. We want to accelerate that progress by having specialists that really understanding contact that can be with their sales teams in Europe and here in the United States.

Michael Latimore - Northland Capital Markets, Research Division

Are you doing any incremental investments in Europe with this?

Paul Jarman

Certainly, we will add additional partners and will look opportunistically there, as well as far as other things that we might do, but we've not established a formal plan yet.

Michael Latimore - Northland Capital Markets, Research Division

Okay. And then can you talk a little bit about the deal size in the fourth quarter versus the third quarter? And any -- how does that -- was it any bigger? Any percent change there relative to the third quarter?

Gregory S. Ayers

Yes. Mike, it was actually up about -- average deal size was up about 29%.

Operator

And thank you for your questions. I'll turn the call back to our speakers for closing remarks.

Paul Jarman

Well, thank you, everybody, for your time on the call today. We are very excited about the opportunity and the progress we're making in really 2013. We think we have a great year ahead of us and we're excited for all the possibility and opportunities that we have. So have a great day, and thanks for your time.

Operator

This concludes today's program. You may disconnect at this time. Thank you, and have a great day.

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