Openwave Systems, Inc. F3Q09 (Qtr End 03/31/09) Earnings Call Transcript

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Openwave Systems, Inc. (OPWV) F3Q09 (Qtr End 03/31/09) Earnings Call Transcript April 29, 2009 5:00 PM ET


Mike Bishop – IR Manager

Ken Denman – CEO

Karen Willem – CFO


Matthew Hoffman – Cowen and Company

Mike Abramsky – RBC Capital Markets

Tom Roderick – Thomas Weisel

Scott Sutherland – Wedbush Morgan Securities

Jeremy Cowan [ph] – Morningstar


Good afternoon and welcome to the Openwave Third Quarter Conference Call. Today's call is being recorded and will be available for replay starting at 5 pm Pacific Time today.

For opening remarks and introduction I would like to turn the call over to Mr. Mike Bishop. Please go ahead sir.

Mike Bishop

Thank you. Good afternoon everyone and thank you for joining us today to discuss the results of Openwave Systems third quarter of fiscal year 2009.

Joining me today are Ken Denman, Chief Executive Officer and Karen Willem, Chief Financial Officer.

Before we discuss the results for the quarter, I want to remind everyone that we are operating under the rules of Regulation FD. Our third quarter financial results press release was distributed at the close of market today and if you have not yet seen a copy, you can find one at our website at For your convenience, this call is being recorded and will be available for playback from our website for one year.

Before we begin, I would like to remind you that any remarks that may be made on this call or in our earnings press release about future expectations, plans or prospects for the company, may constitute forward-looking statements for the purposes of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

The actual results may differ materially from those indicated by the forward-looking statements as a result of various important risk factors. These risk factors include the specific risk factors discussed in the company’s press release that was distributed today and in the company’s filings with the SEC, including but not limited to Openwave’s fiscal 2008 financial results on Form 10-K and any other reports subsequently filed with the SEC.

We intend to make several forward-looking statements during this call that are based on management’s current outlook as of today. We do not intend to update these business outlook statements until the release of Openwave’s next quarterly earnings announcement and disclaim any obligation to do so prior to that time. However, we reserve the right to update the outlook for any reason during the quarter.

With that, I would like to turn the call to Ken.

Ken Denman

Thanks, Mike and good afternoon everyone. With me today is Karen Willem, Openwave’s Chief Financial Officer.

Going into this quarter, my priority was to continue preparing the business to navigate the monthly bookings and challenging revenue trends that business is must expect in the current economic climate. We are making good progress on the number of fronts and the business is getting healthier by the week. But given the state of the economy and our customers truncated buying patterns we are not yet delivering the bookings performance that we believe is possible based on our view of market trends and two opportunities we see emerging in our sales pipeline.

Revenue was $44.7 million for the quarter and bookings were $37.6 million. Our goal was to have a one-to-one or better book-to-bill ratio, obviously. We were on-track until the end of the quarter, but our customers desire to be financially costs us trumped their absolute need for capacity expansion.

In some cases, additional process in financial controls simply timed us out. Since the end of the quarter we closed several deals that we have expected in Q3 so Q4 is also a good start. We continue to tightly manage operations as our reduced expenses demonstrate. Internally, we believe the company is performing well. Karen will cover the financial results for the quarter in greater detail although later in the call.

I would like to spend some time offering our view on current market conditions. We are absorbing stronger than expected consumer data demand and our customers network is struggling to support the increase in traffic. We believe the carriers absolutely have to buy capacity soon. And that we are in a great position to be their vendor of choice with scalable carrier class software infrastructure that can keep pace with the rapidly escalating demand.

Operator buying patterns were similar to what we have seen in the recent past. They are choosing of how to upgrade the newest technology, gaining capacity relief and room all the while taking competitive advantage. But they are doing so with minimum commitment. They are planning big rollouts but not willing to sign multi-year deals, instead we continue to see some purchases along the product road map and many of buying capacity patches that tied them over until they get more comfortable with the direction of the economy.

Although our few customer appeared to have made technology decisions to address the mobile internet on site, even data appear to be moving fast enough to address the reality of two June substantial wave of data headed towards them. First of these tsunami size wave is marked by the rapid uptake of mobile data traffic of an increasing number of smartphone users. The second wave is from array of laptops, netbooks and other wireless capable devices that are typically not phones by the way; they were potentially overwhelmed mobile networks.

Capacity utilization is currently averaging level, I never dream that I could be on a consistent basis across the industry and it's getting worse. And if we are correct in our assessment of the demand curve for mobile data around the world currently is been, we may see some network alter as usage continues to skyrocket, and that is not good for consumers or the industry.

We believe this flooding crisis ultimately represents significant opportunity for Openwave. Now for consumers navigate the waves that mobile data having before them. Our Integra platform and a set of mobile internet service enablers that we are introducing to the market are very specifically design to address issues of network optimization and capacity control.

To that end, even in the current economic climate we continue to win this demand for Integra infrastructure. I am pleased to report that during the quarter we closed three new Integra deals. This quarter VTELECOM, a leading mobile operator in France signed an agreement to license a customized Integra platform which will allow them to offer innovative new services where there is 9.6 million subscribers. We also signed agreement this quarter and licensed our Integra platform to a leading Malaysian operator as well as Mobile Interim Company a leading mobile operator in Lebanon that is managed by Orascom Telecom Holding.

In response to the consumer bandwidth and capacity issues this quarter we introduced Openwave accelerator the latest service enabler for Integra. Accelerator compliments existing optimization functions with in our core Integra offering and increase of data transfer rates of our wireless data networks while decreasing bandwidth consumption.

The result for the operator is an optimized network that offers faster browsing speed for the subscriber at lower total cost.

This quarter we also released our inaugural mobile business inside report that demonstrates the value of our mobile analytics solution which also allows an operator to manage and monitor all of their data traffic including, traffic from iPhones and smartphone subscribers.

With this report we processed an anonymous sample of actual customer logs from a tier 1 North American operator that flows through our gateway over a five day period in early March 2009. The report highlighted the powerful data collection and reporting capability of Openwave mobile analytics product. Mobile analytics delivers a business intelligent needed to characterize mobile internet traffic including subscriber access to URLs, have keywords used, the duration of website business and top ad networks being used for off portal advertising. This type of behavioral analysis will allow an operator to market and develop targeted promotions and it is a powerful vehicle that can be used to monetize their unique 360 degree view of the subscriber.

In the messaging line of business, this quarter Cellular Cell the nation's largest privately owned wireless provider, signed an agreement to license our directory product. A critical piece of messaging infrastructure that provides essential storage solutions for subscriber information.

As a company we are building out the feature for both our messaging infrastructure offering and messaging front-end. This quarter we announced the latest version of our email Mx platform which is our flagship messaging infrastructure email Mx 8.0 now supports higher capacity mail boxes offering nearly limitless storage and handle an increasing amount of rich content.

The offering also better innovates mobile access to service providers mobile broadband email through the usage of open mobile email standards.

Openwave's leadership in messaging infrastructure was also recently validated by industry analysts firm Radicati Group. In February we were named a market leader and top player in our annual 2008 report in their annual 2008 report on messaging platforms for hosted email providers.

On the product development side, we intend to extent our leadership position in the messaging space by thoughtfully recognizing the need for multi model messaging capability. With the growing popularity and use of social networks as a primary form of communication the power of one to many messaging must be acknowledged and supported going forward. We are working on our roadmaps with our next generation of messaging capability.

We are also working to bring more elements of our business together in opportunistic ways, for instance we are looking to extend our mobile analytic solution into messaging and location as an important overlay to monitor and report on usage across the carriers multi-model messaging platforms. As well as better understand and leverage location information.

I would now like to provide a brief update on recent corporate development and the steps taken this quarter to strengthen the Openwave board and management team.

This quarter we appointed David Nagel to our Board of Directors. David brings more than 35 years of technology leadership and management experience and building profitable businesses. He previously served as President, CEO and Director for PalmSource.

Also this quarter we announced the appointment of two executives to our team. We announced Mark McKendry as Senior Vice President of Engineering and Bruce Posey as Senior Vice President and General Counsel.

Bruce brings more than 28 years of experience in senior, legal public policy and regulatory issues. Most recently Bruce and I worked together at iPass. And I look forward to his leadership of Openwave's legal team and oversight of our regulatory and governmental relations efforts.

Mark McKendry brings an impressive amount of experience in leading global engineering organizations for top rated software firms. Most recently at Avaya and previously at Siebel.

A strong focus on new product development and innovation is critical to the long-term success of Openwave. Part of Martin's [ph] charter, it is also part of it's character, is building our engineering organization, so that as company we continue to develop and deliver high quality product that address our customer’s current and future needs. As we discuss in our last call and disclosed in an 8-K this past quarter, we begun the process of consolidating our engineering site and offshore development centers. The reason for this consolidation is to drive greater efficiency, reduce costs and have a greater oversight and collaboration in the development in R&D process.

To give you a little more color on our actions this quarter, we reduced the number of development centers from eight to four. We are building the R&D team at the continuing centers and we also restructured our product groups to break down the silos that previously existed between our service management, messaging and location business units. With a Cingular product team focused on a common set of goals, I look forward to leveraging greater synergies between the products and identifying new ways to integrate offerings such as location and analytics for example across both our service management and messaging portfolios.

All in all, we are making progress with the direction and the operation of the company. I am confident the trends we are seeing user demand should ultimately translate into greater bookings for Openwave. It is an important and obvious next step in the company’s turn around. I believe we have the right set of products and we are improving our product roadmap and that our strategy is sound. From here we need a continued focus and execution on growing and closing deals in the sales pipeline.

Now, I would like to turn the call over to Karen to provide more details on our financial results, Karen.

Karen Willem

Thank you, Ken. Good afternoon everyone. Before I begin discussing the numbers, I would like to note that I must otherwise indicated, gross margins expense and earnings related items are reported on a non-GAAP basis, which excludes stock-based compensation, impairments on investments and goodwill, amortization of intangibles, and another acquisition related costs, restructuring expenses, and certain professional expenses.

In addition, all comparisons of previous period exclude the client business which we sold in the June quarter of 2008. Please access our financial metric summary, which is available on the Investors Section of to review Openwave’s historical financial performance excluding discontinued operations.

This quarter, the economic headwinds presented us from improving revenue and booking. However, we are operationally well positioned to weather the downturn. Through the recent restructuring including the R&D reorganization, we feel the company is now much more nimble and ready to capitalize on opportunities when the recovery begins.

Overall, for the quarter ended March 31, 2009, Openwave posted a GAAP loss of $0.09 per share. On a non-GAAP basis, net profits was breakeven. A reconciliation from GAAP to non-GAAP income or loss can be found on our press release which is posted on our website at

I will now turn your attention to the detailed results for the March quarter. Revenue for the quarter was $44.7 million, a decrease of $3.4 million or 7.1% quarter-over-quarter and a decrease of $2.3 million or 5% year-over-year. The decrease was primarily attributable to lower than forecast year-to-date bookings.

License revenue was $16.7 million, up $2.8 million or 20.5% sequentially, which comprised 37.4% of total revenue. This is primarily attributable to service management license revenue recognized on a contract with a major North American carrier.

Maintenance and support revenue was $15.4 million, down $500,000 or 3.1% sequentially and comprised 34.5% of total revenue. Services revenue was $12.5 million, down $5.8 million or 31.5% sequentially, which comprised 28.1% of total revenue. The key driver for the reduction in services revenue was customer driven changes to delivery schedule.

The regional breakdown of revenue in the March quarter shows a decrease related to the EMEA and Asia region, primarily due to the reduction in services revenue noted above. Approximately, 67% of our revenue originated from customers based in the Americas, 14% from EMEA and 19% from Asia. This compares to last quarter’s breakdown of 59%, 17% and 24% for the Americas, EMEA and Asia, respectively.

Last year's March quarter breakdown was 50%, 19% and 31%. For the March quarter of 2009 AT&T represented 32% and Sprint 20% of total revenue. No other customer represented greater than 10% of our revenue for the quarter.

Turning now to the discussion of our non-GAAP numbers beginning with gross margins, we achieved 66.5% blended gross margin for the quarter, an improvement of 4.4 point over the last quarter and 6.9 points over the same period last year.

Gross margin on licensed revenue increased 1.7 points to 98.2%, compared to 96.6% for the December quarter and 5.4 points compared to 92.9% for the same period last year.

The increase in license gross margin is primarily due to the revenue increase previously mentioned.

The maintenance and support gross margins of 73% increased to 1.1 points from 71.9% last quarter and 7.1 point compared to 65.9% for last year’s March quarter. The year-over-year increase is primarily attributable to the effect of the restructuring carried out in calendar year 2008.

Services margin of 16.4% decreased 11.1 point from 27.5% last quarter, and decreased 13.4 points from 29.8% last year. Reductions are primary the result of lower revenue delivered from one of our higher margin project as year completion and also lower billable utilization. As for operating expenses for the third fiscal quarter, research and development expenses of $10.8 million decreased $700,000 or 6.4% from $11.6 million in the prior quarter and decrease $2.2 million over same period last year. These decreases are result of lower headcount, salaries and benefit.

For the third fiscal quarter, sales and marketing expenses of $9.8 million decreased to $100,000 or 29% from $9.9 million in the prior quarters and decreased by $5.4 million or 35.7% from $15.2 million in the third quarter last year. Year-over-year savings attributable to lower headcount and lower commission expense as a result of lower bookings year to date.

For the March quarter general and administrative expenses of $7.4 million increased $500,000 or 6.9% from $6.9 million in the prior quarter and decreased year-over-year by $100, 000 or 1.1% from $7.5 million. This quarter-over-quarter increase was primarily attributable to higher Q3 labor expenses.

Our headcount increased by three employees from 627 at the end of December to 630 at the end of March. On a GAAP basis, stock based compensation expense for the third fiscal quarter of 2009 was $706,000 compared to $929, 000 in the prior quarter and $1.9 million in the same period prior year. The year-over-year decrease was due to the decline in the fair value of options granted and a reduction in the number of options vesting.

On a GAAP basis in the March quarter, interest and other income was a charge of $2.3 million, which compares to a charge of $1.4 million in the December quarter and a loss of $1.1 million in the March quarter last year. The increase in a charge is primarily attributed to an increase in cost associated with our foreign exchange hedging program, reduction in interest income as a result of lower interest rate and additional write-down of our auction rate securities of $1.6 million.

As we previously disclosed, the original cost of our auction rate securities was $24.9 million, which now compares to a written down value of $12.8 million of which 77% is covered by insurance.

Also on a GAAP basis, income tax has decreased to $590,000 in the March quarter compared to $1 million last quarter and $681,000 in the March quarter last year. The decrease is primarily related to overseas withholding tax.

In the March quarter, Openwave’s bookings were $37.6 million. Our current backlog is $198 million compared to $217 million last quarter and $234 million in the third quarter of last year. Deferred revenue increased to $51 million as of March 31, 2009 as compared to $62.6 million at the end of December quarter and $57.6 million at the end of the third quarter last year. This quarter-over-quarter decrease is primarily due to revenue recognized on two significant projects. Accounts receivables decreased to $31.6 million in March from $54.6 million at the end of December and decreased from $59.3 million at the end of third quarter of last year.

Our overall DSO decreased from 102 days at the end of December and 92 days at the end of March last year to 64 days at the end of March this year. The decrease is primarily attributable to our strong collections in the quarter. We maintain our gross target of 90 days.

Now turning to our cash and investment balances. We ended the quarter with approximately $122 million in cash, cash equivalents and short and long-term investments. This balance includes $1 million of restricted cash.

Cash generated from operations was $6 million which was an improvement of $13.5 million over the last quarter. The increase is primarily attributable to strong collections in fiscal Q3 of '09 as noted previously and also a one-time legal settlement of approximately $5 million related to our security losses paid out in fiscal Q2 of '09.

Depreciation and amortization including amortization of goodwill and intangibles for the quarter totaled $2.3 million of which $1.6 million was depreciation. Overall, we feel the company is performing quite well internally. Operations are functioning as they should and expenses are tightly managed. We believe we are in the past to be cash flow neutral to positive from continuing operations and maintaining non-GAAP breakeven. Our expectations for non-GAAP quarterly operating expenses are now in the range of the mid to high $20 million similar to the level we saw this quarter. We continue to expect fluctuations quarter-to-quarter as major events occur.

As a result of the restructuring we announced this quarter the non-GAAP expenses are scaled to a lower level which should be realized early in fiscal year 2010 putting us in a position to be cash flow positive should current economic conditions continue and have an adverse impact on the bookings and revenue.

In this economic environment as Ken indicated customers are not willing to commit to long projects with a long completion horizon. They have broken deals into small parts and are buying the minimum capacity and infrastructure to keep their networks operational. As a result, our book-to-bill ratio level has been less than 1:1 in recent quarters. As we have said in the past bookings in backlog are leading indicators of revenue. It will be difficult to increase revenue in the near-term until we see significant quarterly bookings strength. The backlog provides some degree of predictability as it generally rules out over 4:6 [ph] quarter period. However, our revenues are often contingent on March deals and we have seen significant strength quarter-over-quarter in the past. We expect this to continue in the future.

Operator, we would now like to open up the call for questions.

Question-and-Answer Session


(Operator instructions) I would like to take a question from Matthew Hoffman with Cowen and Company.

Matthew Hoffman – Cowen and Company

Yes hi, hope you can hear me alright I am on one the related cell network.

Ken Denman

We can hear you fine, Matt.

Matthew Hoffman – Cowen and Company

Good. Ken we talk about the settlement and a bit down to stretch. And he didn’t close much business maybe as you would have hoped in March. Can you talk about actually what’s happened in April the small deals and continuing the capacity buys is that a commentary on April too or has that the condition of the market changed from March to April? Thanks.

Ken Denman

It wasn’t intended to be as much as a comment on April was it to indicate that I don’t think we are kidding ourselves in terms of the task that we had closed deals in the end of the quarter. I think we had minus 5 what we didn’t have great calibration on the changed environment probably didn’t give enough credit to the fact that approval it's harder the get and the processes have changed. And it wasn't a matter of so much of folks sitting on their hands as much as even internally. Even our customers didn’t sort of understand their own internal processes in the new way to get things done.

We had people that looked from behind and gave us all the right signals in terms of their expectations that we would close the deal within the certain timeframe. And much to our (inaudible) it didn’t get done, so this is one of those cases. I think in the business we only used to people talking about deals slipping quarter in and quarter out and then its 10,000 the next quarter the proof of the putting is we end up trying to close those same deals in the subsequent quarter. What we were trying to point out that we saw deals that fell over have actually closed and so that’s really the punch of line. I don’t think that April effect I wouldn’t say it's long-term up tick in the general environment. It's just deals that we had positioned but they didn’t fall in the quarter. We kept pushing. We got them done and that’s really more of a statement about what should we have in last quarter.

Matthew Hoffman – Cowen and Company

Okay. So you broke out the three Integra deals and I think that was up from one last quarter, if my notes are correct here and I need a break out new versus old or on the billing side but it sounds like maybe new product are responsible for little larger percentage billing to spend around, is that true?

Ken Denman

I wouldn’t characterize that as a percentage of billing, but I will say this, we are feeling good traction and good engagement around Integra in general and the enablers. So the capability that we have been describing around the suite is really beginning to resonate and it's not an accident, because if you look at the messages that I was hammering on and we have the business and we are talking about having the 360 degree view of the user in an environment where demand is coming at you so hard. That analytics view is really something the market is resonating with. And then we have been able to get a lot of time with customers as we talk about what we can do now from the standpoint of our accelerator offering.

So, even in base of our announcement of course, we were sharing with customers some of our preliminary data resulted talking about what we can do. Those two things are causing us to get a lot of time, a lot of phase time with customers. A lot of questions are being asked. We are packaging with this thought more of our services capability because customers want help with how they can actually get full use of the operating.

So, in general the pipeline I have said before continues to be in bias. Our pipeline is growing and it's growing because the fabric is resonating, the value is fabric is resonating with marketplace. Now we just have to getting to pull the trigger more frequently and in larger number. We remain hopeful.

Matthew Hoffman – Cowen and Company

Alright. Last question from me on cash flow here. Cash flows are positive. I heard you had a legal settlement in there but it wasn't positive without. You also pulled down your DSOs pretty sharply here, is that obviously helped cash flow. What sustainability that DSO trend that is impacted on cash flow here. Can it come down any lower or they are going to what are the trends there you see on the cash flow side. Thanks.

Karen Willem

Thanks, Matt. First of all, the DSOs weren't usually low. We had a tremendous collection quarters like the $55 million. We actually had a customer pay early which this was a further unexpected surprise. So, we actually pulled in some of our collections from Q4. So, the cash flow was better than expected and I think you have to look at the second half as a whole to really look at our cash flow, because I still expect for the second half that we will be cash flow breakeven to slightly positive but you have to look at the whole, that was unusual and are still targeting 90 days as our target. Because we have a large number of international customers who absolutely are not in a 30 to 45 days, they are in 120, the 90 is still the right target.

Matthew Hoffman – Cowen and Company

Great. Thank you, guys.

Karen Willem



Our next question comes from Mike Abramsky with RBC Capital Markets.

Mike Abramsky – RBC Capital Markets

Thanks very much. I just really trying to get a handle on I think sort of near-term and where you see the turn coming or whether you think this buying behavior, what visibility do you have to the change this PO or buying behavior that is as you pulled at the new kind of environment for getting approval that focus on patches as appose to updating infrastructure.

For example, you talked about the slip deals that are now closed. Are you suggesting that, that may lead to a quarter-on-quarter improvement or is it offset by market deterioration or continuation of the delay or deform [ph] in buying behavior you talked about. And you talked about, that they are going to run in a capacity constraints, what visibility you have. So just, just give us, I appreciate that you are facing these kind of near-term. Where do you see that the buying behavior changing or the demand behavior changing given what you say they are running in to. And what visibility do you feel you do or don't have to when that turn might come?

Ken Denman

First of all I would there are several question in that and I want to figure out which I want to attack first. The environment, I expect this environment to remain the same, and I think what we are all trying to do is learn how to operate in the new environment against the new rules. And both in terms of our operator decision maker, partner side and our side we need to recalibrate our project process so that I can actually or that we can actually have a good calibration on when should the deal actually close given their approval process. So, we are still getting calibrated on that. But we will figure that out, its just a new set of rules and on both side we will figure out what the new set of rules are and prepone our work a little bit better. So, given the rest of the quarter, and I think everybody will be recalibrated. I don’t think the rules are going to change dramatically until the full panic sets in. So what do I mean by that. May be this is the answer to your first question Mike.

We believe our (inaudible) around capacity constraints and coming title wave. Eventually something's going to break here and as I alluded I think that we are headed to a point where operators will loose the discretion, the ability to have discretion. They will have to make decisions, they will have to sign PO's because we are just, we get into the red heading towards peg. I can't and I shouldn’t try to forecast that perfectly but I think that time is coming. And at that point I think we will start to see appeals cranking out on a more regular basis. There still may be byte size or slightly bigger than byte size but they are going to be cranking out because the nature of the business, we cannot view major expansion issue, expansion projects on a real piece basis. Because the projects just start to bump in to each other. They start to come so quickly that there is one on top of the other.

I think we will live in that environment where we will get to the point here as we begin to take on some of these implementations where we will start to see multiple PO's within a quarter. That's the only way the math will work against the sort of the implementation project schedule that we see coming.

So I will stop there and ask if that speaks to the three parts of your question.

Mike Abramsky – RBC Capital Markets

Yes, sorry it was long. So, I am trying to understand what your visibility to that is, you are saying that you think its going to come because intellectually and logically it should come. And I guess if you are saying what doubly challenging is the rules are changed so normal signal you get for when things turn don’t work. So I guess how do we sort of look into the next couple of quarters as to whether, obviously with your operating leverage you have got good upside if you start getting traction top line but or see further deterioration would be your best guess before that occurs.

Ken Denman

Well if you think about our historically seasonality that we have seen in the business. Quarter four has historically been a stronger quarter for us. We certainly hope that hold. And beyond that, then we look at the back half of the year. That the Q1 typically a weaker quarter, Europe goes on vacation, well large part of the world as we kind of loose a month or two in there and then things pickup. I think in large the seasonal trend would seem to hold. And the real question here that we all want to know the answer to is this that, does the wave hitting the beach here in the back half of the year or not.

We have positioned this business to be able to operate on a lower OpEx per rate as you describe because we want to make sure that we get across the chasm here without hurting any substantial cash as we wait and then take advantage of the leverage. I would point out that operators are really trying to avoid OpEx and CapEx doesn’t seem to be as sensitive an issue is what we became, we are even seeing some requirements or ask that we kind of restructure our pattern, repackage our deals to take more advantage of CapEx. Along with an answer, I apologize for that Mike, I can't give you the perfect answer on visibility, we certainly hope that we have seen in the back half of this year, where we have set the stage for the business to operate on a longer period of time on a breakeven or better base if it doesn't but that’s kind of what we are hoping for.

Mike Abramsky – RBC Capital Markets

AT&T revenue doubled, did they sign a license agreement or what was driving that?

Karen Willem

Yes. In the quarter we recognized revenue. That’s the recognized revenue in a quarter for AT&T and a large chunk of it was licensed.

Mike Abramsky – RBC Capital Markets

So this was this was already pre-contracted revenue that was recognized through the commencement of certain milestone.

Karen Willem

Yes. With the license part it's usually based on shipment, services and maintenance in there too. Yes there was a large chunk of licenses quarter for them.

Mike Abramsky – RBC Capital Markets

Okay. And how much do you think you are the more of kind of mobile infrastructure category for carrier spend is being constrained like this versus other things that the carriers are spending on?

Ken Denman

Out there, operators are batting down the hatches everywhere. I think this is actually one of the areas where POs are still getting written, even though they are on a slightly lower basis. But we really feel some building tension. We feel building tension and again, we don’t want to get that over keys too far here, but kind of the underlying theme is we think that this is an area that operators are going to have to commit at some level and sign contracts and sign POs and so well a lot of areas will be batting in down within the operator infrastructure particularly anything around OpEx. This is one area that will be prioritized from a CapEx and otherwise, so. I think we are going to see this area eventually top.

Mike Abramsky – RBC Capital Markets

Alright. Well, thank you very much.

Ken Denman

Thank you.


Our next question comes from Tom Roderick with Thomas Weisel.

Tom Roderick – Thomas Weisel

Hi guys. Thanks and good afternoon. And so it seems like you are seeing a therapeutic demand from the environment out there from the capacity purchase environment, to what extent so when you talk about the pipeline growing here, to what extent are new products, next generation products responsible for the pipeline growing as oppose to installed products where more capacity is simply needed from the customer? And to the extent that some of these new next-gen products are responsible? Can you outline, outside of Integra, which ones are driving the pipeline growth? Thanks.

Ken Denman

First of all, certainly I want to say that Integra is driving a lot of pipeline growth and service enablers associated with Integra. So, I know you know the story well, but if you follow the promise that’s made overtime that we would have additional service enablers that would make it even more compelling for customers to move in that direction.

And sure we have some instances where people are trying to eke out more capacity other than correct MAG install base. And, yes, we are delivering some of that, but in many cases, that MAG is often times an upgrade to the equivalent or compatible MAG platform that will allow them to take an integral plug-in. So, I would say Integra is a significant driver there. We are seeing some good tractions in a couple of areas around the messaging platform, we should do more on directory. But new versions of the older products are selling well. So, it's kind of hard to define new versus old because the way we architect that this transition was such that, Integra was a backward compatible plug-in that would not only make use of the existing fabric the customers have purchased from us, but also allow them to get a better form factor for walking forward and more efficiency for walking forward so I will stop here.

Tom Roderick – Thomas Weisel

Okay. Great. And thinking about the gateway environment and the prospects for Integra going forward. Can you talk a little bit about the pricing pressure that you might or maybe not be seeing from competitors out there? I noticed historically that's been a market where pricing pressure always exist. And in a tougher economic environment to what extent is that playing the equation and maybe could you just kind reflect on the pricing pressure you see in environment as well? Thanks.

Ken Denman

Yes, so broadly with regard to pricing and pressure it is a competitive market out there. We have to do a great job of positioning our value proposition and making sure that we don’t fringe from the back we are building great and delivering great value. The place where we have seen some pressure recently and we have to make sure that we are adhering to good solid principals in any software industry is on the maintenance side and other places where people are trying to drive for discount. And quite frankly if you got a great product that it's inserted and is working well, that's not a place where you want to give discussion in the field to do things that are not very bright.

So, we working on building discipline in our processes and avoiding discussions where there shouldn’t be discussion because that's one area that I have observed that we cost ourselves the money where it really shouldn’t. There will be competitive pressure for sure going forward. Having said that we have got to hold our ground and at the same time from a Carl's [ph] perspective really look at our architecture and look at how we engineered our products for opportunities to reduce our cost which is another way you hold margin.

So, we have done enough and we will do more on both the platforms that we sit on and databases that we work on all of those things. Third parties that we integrate more structured approach to doing our fees and working all part of the value chain to keep our cost walking down, so that's the other strategy for maintaining our margins which is certainly my goal.

Tom Roderick – Thomas Weisel

Okay. Great detail. Thank you.


We will now take a question from Scott Sutherland from Wedbush Morgan Securities.

Scott Sutherland – Wedbush Morgan Securities

Hi, Wedbush Morgan. Thanks and good afternoon guys.

Ken Denman

We know who you are?

Scott Sutherland – Wedbush Morgan Securities

Spoken after all these years. Few questions here, one I know you mentioned this from time of deal, but keep talking about the shift toward license and veterans services. How much of this is a derivative of moving some part model from a custom model or just with this all timing?

Ken Denman

You articulated well a general thought looking out going forward; I can't say that we are still good that we turn that quarter as quickly as this, so most of this was timing.

Scott Sutherland – Wedbush Morgan Securities

Okay. Ken, I am also wondering two big customers this quarter, Sprint and free cable and overall that time that AT&T doubled. Is AT&T sustainable or do they buy any capacity upfront in that, is not the same going forward, can you go into that a little bit?

Ken Denman

Well, one of the things I often get some puts and push from folks saying is worried about having the level of concentration. I would tell you we are working on expanding our customer base around the world. Having said that I feel really good about having the pleasures there some great comp here operators, who are seeing by virtue of the business that we are doing whether you are going to play. They are seeing great growth and so that’s a good thing.

And I have said throughout this call, I think they are going to see even more growth. So, from that prospective I think it's sustainable that we will continue to sign contract and POs with those customers. Which makes the challenge of rolling around the world that much greater but also recognize a magnitude of the swing quarter-to-quarter. Some of this can be just be attributed to the lumpiness of when one of the large players. We quote through license from one of the large player.

This time it was more like 25% last quarter and then jumps to 50%. So, I don’t think that level is certainly I am not implying that level is going to be sustainable but I think we will continue to have a very solid amount of business from those folks from what we see today.

Scott Sutherland – Wedbush Morgan Securities

I guess what you are saying this jumps in AT&T from my mind check I heard you did get an insertion there displacement of competitor, were they buying the products in a couple of quarters of capacity or just to get in four quarters, so like this $15 million could they come back in a couple of quarters and be recurring of this magnitude?

Ken Denman

I can't talk specifically to this specific customer and that wouldn’t be appropriate at all. What I will say and I don’t think if you look at all of the industry numbers these two customers their volume is growing and if we productively if we believe anything about what I have described in terms of the mobile data, the characteristics of mobile data and it’s impact on the industry, I think carriers around the world, they are going to continue to buy some of hitting the bullet and started the process earlier than others but I do think all the operators around the world are going to have to buy more capacity to fit their mobile data multimedia fabric up and running.

Scott Sutherland – Wedbush Morgan Securities

Just couple of questions. A change in product categories like moving locations to the gateway side, and it looks like gateway has been holding up here last year the messaging and location parts have been just the trends in stocking over the last two years. Do you think there is a market or you guys are if I one of the market to grow further so do you think by integrating these silos into the gateway that you can get those products have started.

Ken Denman

From my perspective I am thinking about I think we will continue to have opportunity as locations around the world and we see some other opportunities on the horizon beyond the incumbency that we have. And overtime the EU (inaudible). So there will opportunity there in the emergency side. What we are focused on with location is on the commercial side is the thought that we have a unique advantage given that we have the IP that we have. I really believe that we can overlay on service mediation and service management platform and the messaging platform along with analytics because the game is changing.

So, I am not really focused as much on net new standalone licensees there as I am in terms of emboldening our core platforms and having a value-added advantage as a way to help us maintain our pricing at current levels or better and help us maintain our margins. So, it’s not so much about kick starting the location line as an example as much as it is about emboldening our position in the search management side and the messaging side and getting more traction in those two other lines.

Scott Sutherland – Wedbush Morgan Securities

Okay, lastly you mentioned catching up some deals at the start of this quarter on the bookings side, few quarters you were pretty good from a (inaudible). Any commitments to get inclusive with build line or is that after this point in this quarter you are going to holding up on that?

Ken Denman

Well I think I said early on that this quarter is typically a seasonally strong quarter and sure I mean if we don’t get close to that this quarter, we will be pretty disappointed based on the trends that we have seen recently. So, we are not making any commitments and we certainly are not making any forecasts but that’s a challenge. Clearly we want to be a growth business so we are driving hard and whether we get there or not we will talk to you next quarter but our goal is to be a growth business and I am certainly not even focused on quarter four when I answer this question I am focused on really the back-half of the year and going forward back-half of the calendar year.

Scott Sutherland – Wedbush Morgan Securities

Well that’s a great answer anyway. Thanks a lot.

Karen Willem

Thanks, Scott.


And we have time for one more question and that question comes from Jeremy Cowan [ph] from Morningstar.

Jeremy Cowan – Morningstar

Sorry no questions.

Ken Denman

Okay, operator does that end the queue.


That will be.

Ken Denman

Alright thanks very much. Ladies and gentlemen thanks very much for participating on today’s call. We appreciate your continued support of Openwave and I look forward to speaking with you again soon. Take care, have a great evening.


This concludes today’s presentation. Thank you for your participation.

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