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ClickSoftware Technologies Ltd. (NASDAQ:CKSW)

Q1 2013 Earnings Conference Call

April 24, 2013 9:00 am ET

Executives

Moshe BenBassat - Chairman and Chief Executive Officer

Shmuel Arvatz - Chief Financial Officer

Analysts

Gunter Hansen - Sidoti

Hugh Cunningham - Oppenheimer

Nathan Schneiderman - Roth Capital

Nick Farwell - Harbor Group

Noah Steinberg – G2 Investments

Michael Martin - Small-Cap Report

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the ClickSoftware Technologies Limited First Quarter 2013 Financial Results Conference Call. All participants are present in a listen-only mode. Following management’s formal presentation, instructions will be given for the question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded April 24, 2013. With us on line today are Dr. Moshe BenBassat, CEO and Chairman of the Board; and Mr. Shmuel Arvatz, CFO.

Before I turn the call over to Dr. BenBassat, I would like to remind you that during the course of this conference call, the Company will be making express or implied forward-looking statements within the meaning of the Private Securities Litigation Act of 1995, and other U.S. federal securities laws.

These forward-looking statements include, but are not limited to, those statements regarding future results of operations, including our outlook for full year 2013 revenues, and GAAP and non-GAAP earnings per share, visibility into future periods and pipeline, recovery in Europe, plans for investments and future rates of growth and expectations of future cash flows and dividends, growth opportunities in the workforce, management's and enterprise's mobility market and results of growth, profitability and investments, market demand, and the results of our increased investment to address such market demand, license revenues as a percentage of total revenues, cash flows, expected effective tax rates, and expectations regarding operating profit and margins, future closings of contracts, future product offerings, receipt of orders, and recognition of revenues and deferred revenues.

Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or performance to differ materially from those projected. Achievements of these results by ClickSoftware may be affected by many factors including, but not limited to, risks and uncertainties regarding the general economic outlook, more attractive investments than dividends that may become available, and length of or changes in ClickSoftware’s sales cycle, ClickSoftware’s ability to close sales to potential customers in a timely manner and maintain or strengthen relationships with strategic partners, the timing of revenue recognition, foreign currency exchange rate fluctuations, and ClickSoftware’s ability to maintain or increase its sales pipeline.

The forward-looking statements discussed in this call are subject to other risks and uncertainties, including those discussed in the 'Risk Factors' section and elsewhere in ClickSoftware’s annual report on Form 20-F for the year ended December 31st, 2012 and in subsequent filings with the Securities and Exchange Commission. Except as otherwise required by law, ClickSoftware is under no obligation to and expressly disclaims any such obligation to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

I'd also like to remind you that ClickSoftware reported net income and net earnings per share on both a GAAP basis and on in adjusted non-GAAP basis. Today’s press release includes a reconciliation of non-GAAP information to the most directly comparable GAAP information, and is posted in the 'Investors' section of the Company’s website at www.clicksoftware.com.

Dr. BenBassat, would you like to begin?

Moshe BenBassat

Thank you and good morning everybody. As usual, I will start with the high-level strategic overview of the business and a brief coverage of operational results for the first quarter. Shmuel, our Chief Financial Officer, will proceed with details regarding the first-quarter financial results. We shall conclude this call with an outlook for the remainder of 2013 and open the call up for questions.

As I noted in today's earnings release, we continue to execute and invest in our territory expansion and in product development as part of our strategy to accelerate the annual growth in 2013 and the forthcoming year beyond 20%. This investment impacted our profitability in the first quarter of 2013. However, we anticipated some level of quarterly fluctuation in our earnings projection and remain confident in our strategy to improve profit margins in the second half of the year as we deliver higher growth rate in revenues.

Revenues in the first quarter were $24.5 million, representing a 12% year-over-year growth, still moderate growth, however quite typical for first quarters. As for cash, after paying the dividend in Q1, total cash and investments grew to $60.3 million. Shmuel will provide more details on the financial results.

Regularly, I get questions as to the competitive landscape in enterprise mobility, and what I'd like to do in the first part of today's call is to update you on what we see in enterprise mobility, our unique positioning, and the growth opportunities. The market size for enterprise mobility solutions is enormous and fast-growing. For example, according to ABI Research, revenues generated by the enterprise mobility market are expected to grow twice as fast as the consumer market over the next five years. This market has been quite active in recent years and I would like to make three points that explain our unique role in this space and the opportunities it creates for us.

Point number one; enterprise mobility solutions require three main layers. The top layer is the user interface layer where we find today's smartphones, tablets based on Apple's iOS, Android, Windows 8, or the new BlackBerry. The bottom layer is the mobility infrastructure layer which takes care of security, synchronization, authentication, device management, and other services. There are many vendors offering point solution products for this layer, such as security or device management product, and a smaller number of vendors that aim at the more comprehensive platform for mobility infrastructure such as SAP's SMP and IBM's MobileFirst which has been recently announced.

Let me now elaborate on the layer in between the device layer and the infrastructure layer which is where ClickSoftware focuses. In between these two layers, we have the business functionality layer for mobile workers that cover functions such as job dispatch to the mobile device of the worker, asset and customer information, job completion reporting, time sheets, safety compliance tools, up-selling or pulse management and many other functions.

For higher-level management, this layer covers critical real time analytical decision support on the mobile tablet or smartphones of executives in the field for routine times as well as for crisis times. ClickSoftware focuses on the business functionality layer. We do not compete in the infrastructure layer and certainly we do not make devices. We have been doing this for over a decade.

Now, if you look at the competitive landscape of vendors which offer out-of-the-box, ready to use functionality business apps, you will find quite a small number of vendors. ClickSoftware I believe has the largest collection and variety for mobile workers and the most extensive proven accord with real-life implementations for some of the most demanding organizations in the world.

Major players in the business functionality layer are the big system integrators and a number of them use our mobility product in their deployment projects, such as Accenture and Portugal Telecom and Oi in Brazil as well as Halliburton and Solar Turbine, or IBM and Thames Waters, China Light & Power, Bharti in India, (indiscernible) and RWM Power. So let me emphasise again that in the ClickAppStore, we are talking about the ready-to-use software products, not tailor-made, one-of-a-kind products that you develop by coding or otherwise.

Point number two; the apps in the ClickAppStore have two unique characteristics. On the one hand, they are decoupled autonomous apps. On the other hand, they can be easily combined together to form composite apps which we do by drag-and-drop process that requires no coding, like mega modules. Naturally, as the number of our regular units grow, broader business scenarios can be built from them and that's why we are investing in this area. This is very unique to ClickSoftware. Other app stores in the market consist of a sporadic collection of apps from different vendors that were assembled quite randomly. In the business world, the user expects apps to share data and logic and operate with streamlined workflows. The ClickAppStore approach achieves this goal remarkably well.

Point number three; another unique feature of our approach is the way we work with the two other layers of the business mobility world. From the mobility infrastructure layer, our apps were designed to run on any mobility infrastructure platform, such as those of IBM or SAP. Using an analogy from the music world, you may say that the vendors of mobility infrastructure offer the record player while ClickSoftware offers the music records to play on the record player, and we can run on all of them.

For the user interface layer, our apps are device agnostic and can run on Apple's iPhones and tablets, Android devices, the new BlackBerry, and soon on Windows 8. This is very much in line with the bring-your-own-device trend since employees can bring a wide variety of devices and it is certainly advantageous to have apps that can run on any device. According to a recent report published by Market to Market, the total bring-your-own-device in enterprise mobility market is expected to reach $181 billion in 2017 with an average compounded growth rate of 15.1%.

With this, let me proceed to reviewing our operational results for the quarter where I will mention even more wins in this space. The first quarter of 2013 was quite productive in terms of new names and specifically that just about every new customer also ordered our business mobility apps.

Let me start with the first one, Enbridge gas distribution, a customer that was looking for a pure mobility solution. Following a thorough, formal, comprehensive and highly competitive selection process to identify mobility partner for their current system infrastructure, they selected ClickMobile. Enbridge, as many of you know, is Canada's largest gas distribution company. Another client in America which selected ClickMobile is Pennichuck Corporation, a holding company with five fully owned operating subsidiaries.

A major win in EMEA is Bell.com that offers residential and professional customers a comprehensive range of telephone, television and Internet services over fixed lines in Belgium. Bell.com purchased Click's mobility solution for its 4,000 field technician operations. They also bought of course ClickSchedule.

In the Netherlands, Ziggo, a cable and communications company, selected our mobile workforce management solution. In South Africa, (indiscernible) Municipality selected ClickMobile for field data collection and reporting. Siemens Healthcare got into a substantial engagement with Click and SAP to implement our Service Optimization Suite in order to improve planning and scheduling of their field force and improve customer services.

In Australia, Click added another large client to its rapidly growing client community. These services both our scheduling and mobility products. Other wins and repeat orders from existing satisfied customers include China Light & Power, Enercon, Halliburton, Bell Canada, and the National Grid.

Regarding cloud offerings, as we mentioned in an earlier call, all of our products today are offered in the cloud. The pipeline for the next 12 months shows the substantial growth in large enterprises considering cloud offerings which seems to be a market trend. In the past, it used to be more for smaller companies. With our investments in cloud technology, we are now ahead of the competition in terms of options for public cloud, private cloud, and integration to back-office systems and to mobile apps.

Our professional services team was very productive this quarter with implementations and upgrade of our product. For example, new customers that went live in the first quarter include (indiscernible), also directly completed successfully international rollout and with 16,000 resources. We also continue to see upgrades by existing customers to our latest version including National Grid, (indiscernible), Siemens and SA Power and (indiscernible) Australia.

On the marketing side, we started 2013 with lot of activities which generated considerable growth in the number of fleets. Noteworthy is our half day seminar on enterprise mobility which took place in the Mobile World Congress in Barcelona and attracted hundreds of participants. In fact it was oversubscribed. It was a pleasure to see such extensive interest during this busy show which is another indication of our unique proposition in enterprise mobility. A joint workshop with IBM for utilities is another example.

Our online marketing presence continues to grow at higher rates from social activities such as LinkedIn blogs (indiscernible) infographics and from search marketing and their activities. The online growth is global but especially in Brazil, the traffic more than doubled which is another indication for the market interest and demand in this territory.

As for RFPs, the number of new RFPs that came in this quarter, meaning new requests for proposals which typically come from large companies, increased by 15% relative to last quarter. This is a good start for the year and signified a positive sign for market demand for our products.

In terms of the product and R&D division, during the first quarter, we achieved two major milestones. The first milestone was the new release of our product suite that includes usability features as well as dramatic improvement in performance and scalability. Customers today are looking for mobile workforces with tens of thousands of employees. Additionally, we completed the ClickButler engine for creating context-aware intelligent personal assistance to increase the productivity of mobile workers.

The second milestone was the new release of our ClickExpress package, our cloud-based service management solution for midsized companies. We also enriched our ClickAppStore with additional mobile business apps crossing the 100 business apps.

With that, I would transfer the call to Shmuel.

Shmuel Arvatz

Thank you, Moshe. During the first quarter of 2013, we experienced moderate year-over-year growth and mix of normal quarterly fluctuations and high level of internal investments impacted our quarterly financial results. However, we continue to execute according to our strategic plan and are reaffirming our top line and EPS guidance for 2013. As previously disclosed, our investment now will lead to greater profitability in the back half of this year which is why we feel comfortable reaffirming our guidance and remain confident in our strategy going forward.

Before I begin reviewing the first quarter results, I would like to inform everyone that in this call, unless otherwise noted, when discussing results of operations, I will refer entirely to the non-GAAP figures. Non-GAAP figures differ in certain respects from Generally Accepted Accounting Principles and exclude share-based compensation, amortization of intangible assets, changes in deferred tax, and certain special tax charges. The difference between the GAAP and the non-GAAP results are detailed in today's press release.

Now, for the quarterly results. Revenues for the first quarter were $24.5 million, up 12% year-over-year but down 14% sequentially from the fourth quarter of 2012. During the first quarter, we booked one license deal worth more than $1 million. The split of revenues is $7 million from software licenses, which is up 10% year-over-year and represents 29% of total revenue, and $17.5 million from services which is up 13% year-over-year and represents 71% of total revenues.

The geographical breakdown was as follows; $13.1 million from the Americas or 53% of revenues, $9 million from EMEA or 37% of revenues, and $2.4 million from Asia-Pacific or 10% of revenues. While the Americas territory was our largest territory again this quarter, it is notable that revenues in EMEA were about the same as in the fourth quarter last year and we see positive sign going forward in this region.

Moving on, gross profit was $14.4 million representing a gross margin of 59%, which is 1% better than in the first quarter of 2012. Operating expenses for the quarter were $13.7 million, up 20% year-over-year and down 4% compared to the fourth quarter of 2012. During the quarter, we continue to scale up our expenses both in research and development and sales and marketing, which went up 39% and 15% respectively year-over-year. In the quarter, we started to build our local presence in Brazil and Russia according to our strategic plan. We expect to increase the level of investments further, mostly for our sales and marketing activities, in line with our plan to accelerate top line growth.

As of the end of the quarter, we had 558 employees, up by 49 employees or about 10% from the fourth quarter of 2012. Majority of employee growth throughout the quarter was dedicated to our professional services activity.

Operating income for the quarter was $700,000 compared with $1.3 million in the same quarter last year, a decrease of 46%. This represents an operating margin of 3% for the quarter. Currency impact on our operating results was immaterial this quarter. This calculation is made in constant currencies as prevailed in the first quarter of 2013.

Non-GAAP tax expenses for the quarter totaled $163,000. Tax expenses for the quarter on GAAP basis include an amount of $744,000 paid for previous years. This tax payment was made pursuant to a law that was acted in 2012 in Israel in order to incentivize companies to pay taxes on improved enterprise earnings as is distributed and respectively release the earnings from any further tax liability. During the first quarter of 2013, we elected to use this incentive available under the law releasing 2011 tax exempt earnings of $12.2 million for future dividend distribution.

Net income for the quarter was $800,000 or $0.02 per diluted share compared to $1.3 million or $0.04 per diluted share in the same quarter last year.

Turning to the balance sheet, our cash reserves comprise of cash, cash equivalents and investments, at the end of the first quarter totaled $60.3 million. This is up 2% compared to $59.4 million at the end of 2012. During the first quarter, we generated $3.8 million from operating activities and paid $2.5 million as cash dividends.

Bookings revenues ratio for the quarter was slightly below 1 giving us the $33.1 million backlog in deferred revenues as of the end of the quarter for the next 12 months. This is about the same level as at the end of 2012. DSO was 71 days, two days more than in the last quarter, which is in line with our target model.

Earlier this week, our Board of Directors approved a cash dividend of $0.08 per share. The payment will be made on May 22 to shareholders of record as of May 8.

In terms of guidance, we reiterate our annual guidance and expect top line growth of 20% to 25% with revenue in the range of $120 million to $125 million. We also expect non-GAAP fully diluted earnings per share to be between $0.24 to $0.30. As we've said earlier, while the high level of operational expenses will impact our profitability in the first half of 2013, we expect to see our investment pay off with gradual improvement in profitability starting in the second half of 2013.

In summary, taking as a whole, we are pleased with the progress and remain confident in our growth prospects and financial position. With that, I'll turn the call back to Moshe.

Moshe BenBassat

Thank you, Shmuel. A quick summary note before we go to questions and answers. Between all of our customers worldwide, we support today close to 500,000 mobile workers in a variety of industry verticals, which together serve hundreds of millions of consumers around the world. In fact, if you aggregate the number of consumers served by all of our clients, you get approximately 700 million consumers. This explains our unique domain expertise and the entry barriers for competitors. To develop business functionality solution, extensive domain expertise is required in the industry verticals you are addressing. This is a major differentiator for ClickSoftware and an asset when partnering with the infrastructure vendors.

To summarize, let me state again. If you look at the competitive landscape of vendors which offer functionality apps for business users, again I mean product not customized development, if you look into this competitive landscape, you will find quite a small number of vendors and ClickSoftware I believe is the largest collection and variety for mobile workers.

With that, let us proceed to questions-and-answers.

Question-and-Answer Session

Operator

Ladies and gentlemen, at this time, we will begin the question-and-answer session. (Operator Instructions) The first question is from Gunter Hansen of Sidoti. Please go ahead.

Gunter Hansen – Sidoti

You guys mentioned most of your new customers have been subscribing some of the mobility solutions. I guess just generally speaking, percentagewise, what percentage of your customer base is using the mobility solutions at this point?

Moshe BenBassat

That's difficult to say, let me see, probably 40%, give or take.

Gunter Hansen - Sidoti

Okay, and I guess from this point last year, where did that kind of stand?

Moshe BenBassat

So, I don't have this piece of data, but the beauty, as I said, the data you were referring to in the beginning of your question was for the new customers. Many of the new customers, if in the past they used to buy only the scheduling solution, are now also placing orders for the mobility solution. Maybe they recognize that it's better to go with the product of the same vendor.

Gunter Hansen - Sidoti

Right, okay. I'm just trying to get a sense of the adoption rate of some of the mobility solutions just from your existing customer base and kind of the trend there. I guess just generally speaking, is there any particular end market that you guys are seeing the most success in terms of adopting the mobility solutions?

Moshe BenBassat

It's about the same proportion as the industry vertical that we said, probably like 40% would be from utilities and another 40% from telecommunications, cable and the like, office equipment, insurance, it's about the same mix. Again, I'd like to clarify to the audience that the fact that utility is 40% is not necessarily concentration. The major of the service sector is that utility companies, gas, water, electricity really are very, very substantial portion of this sector to begin with.

Gunter Hansen - Sidoti

Great, and I think I might've missed a little bit earlier but just in terms of substantial contract that you guys referenced throughout the call and the press release, to which end market and to which customer was that deal?

Shmuel Arvatz

Which one you're talking about?

Gunter Hansen - Sidoti

The contract, the substantial contract that you guys won for the standalone mobility solutions.

Moshe BenBassat

Yes, that's Enbridge. Yes, that's the first one I imagined. That's Enbridge which is the largest distributor of gas in Canada.

Gunter Hansen - Sidoti

Great, okay, and also just in terms of employee growth, it seems like you guys referenced I think could be (indiscernible) down in terms of some of the international territories. How many more employees are you guys kind of looking to add throughout the year here?

Moshe BenBassat

First, I'm glad you asked this because it also explains the profitability for the first quarter. In the first quarter alone, we grew the workforce by 10%, and we have certainly an annual plan by which we will execute on this strategy plan. Shmuel, do you have the concrete numbers roughly?

Shmuel Arvatz

We will exceed 600 at the end of this year.

Gunter Hansen - Sidoti

Okay, great.

Moshe BenBassat

Most of the hiring was in Q1 because we were trying to make sure that we have, if you wish, the power to really capture the new territories and the new verticals and so forth.

Operator

The next question is from Hugh Cunningham of Oppenheimer and Company. Please go ahead.

Hugh Cunningham - Oppenheimer

You mentioned an improvement in EMEA. Can you talk a bit about what you're seeing in Europe?

Moshe BenBassat

Interesting, yes, certainly. First, our own results in this quarter were kind of good. In fact, they were almost at the same level as Q4 last year from Europe. But more interesting is that in the pipeline, we are seeing quite a nice distribution between the Americas and the Europe, I believe it's like 37% or so coming from Europe, I may be off by give or take, and it may be 45% coming from Americas, but there's no major gap and that's very encouraging.

Hugh Cunningham - Oppenheimer

Okay. Are you seeing larger enterprises becoming more comfortable with cloud solutions? What are you seeing there in terms of their approach to cloud solutions?

Moshe BenBassat

Definitely yes and pipeline shows that the large customers are showing interest in cloud solutions. Some of them still ask us to present a proposal for both options, but definitely it's not like it used to be in the past that larger organizations shy away from cloud solutions. Now everybody feel comfortable with it, not everybody but many of them.

Hugh Cunningham - Oppenheimer

Okay. And then sort of housekeeping here, what are you expecting Shmuel for your tax rates this year?

Shmuel Arvatz

I expect 18% to 20% on a non-GAAP basis.

Hugh Cunningham - Oppenheimer

18% to 20%. Right, thanks very much. That's all I've got.

Moshe BenBassat

Maybe just one more addition to the question you asked before. We did invest and continue to invest a little more in the cloud technologies, and I believe again that today in our space, mobile workers, service sector, we have very nice variations which companies are looking for, specifically the large ones. It goes across the spectrum from all sorts of private cloud solutions all the way to the Amazon based pure cloud solutions, and the beauty that we cover them all and cover them in a very nice way, and when you need to connect this with back office systems, when you need to connect this with mobility solutions, that's very impressive.

Operator

The next question is from Nathan Schneiderman of Roth Capital. Please go ahead.

Nathan Schneiderman - Roth Capital

Thanks in advance for taking my questions. I wanted to start off with just a question about the guidance. It looks like you maybe came in a little bit light of expectations in Q1, and I guess to deliver on your goal for the year, for the balancing three quarters, you have to average about $7 million of revenue higher than you achieved in Q1. I'm not sure that I've seen that kind of pattern historically, so I'm just curious why do you still feel confident you can hit that, and is it really pipeline in what you're seeing there or have you booked any substantial business that gives you comfort in those growth prospects?

Moshe BenBassat

When we give forecast, we work bottom-up. We are in the enterprise software business, so deals do not appear from nowhere. We normally know about them, most of them, and we have some statistics as to those, we'll show later in the year. We did our analysis, we know where it's coming from, and that's how we came up with the numbers. Specifically regarding the comparison to the past, keep in mind that we are now almost fully staffed both in Brazil and in Russia, two territories which did not exist in the past. We also have increased significantly the addressable market. While in the past, people knew us only about schedule optimization, now they know us also about mobility, and I believe it will be fair to say that for every 10 prospects who recognize the value of optimization, there are probably 100 prospects who have mobility devices in the hands of their technicians or mobile workers and are looking for software to put on these devices. So, we expanded the addressable market and we expanded the territories with concrete sales force. So this is what is giving us the basis for our forecast.

Nathan Schneiderman - Roth Capital

Got it. Shmuel, a question for you. There was a pretty big sequential increase in deferred revenue, particularly in the current portion, and I was hoping you could explain what were the drivers of that and are there any unusually large deals embedded in that, or it's not typical to see that kind of increase?

Moshe BenBassat

Shmuel is looking for in his numbers, he will get back to you in a second. In the meantime, can we proceed to the next question, and Shmuel will get back to you with the answer.

Shmuel Arvatz

No, I'm okay. This is related to a timing of customer that paid maintenance contract and other long-term contract. It's a typical payment that's done in the first quarter and this is why it went up significantly.

Nathan Schneiderman - Roth Capital

And if I could sneak in one final question, I was just curious if you're done with the Oi contract (indiscernible) or if there's much more to come in 2013, and if so, if you could kind of share about the dollar amount you're expecting? Thanks so much.

Shmuel Arvatz

We are done with the majority of it and of course they will consume more services, more support services in the foreseeable future.

Operator

The next question is from Nick Farwell of Harbor Group. Please go ahead sir.

Nick Farwell - Harbor Group

Just a quick follow-up. Could you comment about the sequential decline in gross profit margins in the software side of the business? I'm curious if that is all SaaS related or are there other factors that have caused that modest decline from the high 80s to 85 going from fourth quarter to first quarter.

Shmuel Arvatz

So the overall decline is because of the revenue mix. The license decline is because of the investment in the cloud operations that's related to the cloud, like the Amazon and the infrastructure of the cloud which is up considerably and does not still generate significant amount of revenues.

Nick Farwell - Harbor Group

And given more workdays and higher headcount in PS, or at least maintenance and service, in the first quarter versus the fourth given the holidays in the fourth quarter, I'm curious why revenues were essentially flat sequentially. You have more man-days and less holidays.

Moshe BenBassat

I don't follow you but we need to look into it. In many cases when we hire today, because of a project that will start tomorrow, I guess we do not hire ahead of time, but within a week's time that we put them to work. So I'm not sure exactly what's the source of what you're saying.

Shmuel Arvatz

And the flat growth in services in the first quarter, this is something normal in our business, and as Moshe indicated, the hiring is in anticipation for the future.

Nick Farwell - Harbor Group

Right, I appreciate that. I've seen years in the past where it's actually been up, and I would imagine that as a lot to do given this big growth, to be modest, in the past of revenue, but if you have a major implementation or something of that nature, that kind of have a big impact on normal seasonality going from fourth to first, and I was curious if there's something else going on in that number that might have accounted for flatness as opposed to modest growth, given you had more work-hours available and clearly you had the higher headcount. Okay, we can discuss that off-line I guess. And you commented on size of improvement in Europe, and I think you said Moshe that most of that is manifested in RFPs or at least an improvement in the pipeline. I'm sorry, could you clarify that?

Moshe BenBassat

Yes, I mentioned that first of all Q1 results from Europe were good relative to what they were last year. Also, it looks like, I'm not looking at the numbers here, it looks like in our own pipeline, about 35% to 40% comes from Europe, America is about 45% to 50%, and the rest of the world is 15%. So, it's a good sign, so Europe seems to be coming back.

Nick Farwell - Harbor Group

And then one last thought. There's been a fair amount of press with respect to the Telefonica and TOA, or Telefonica awarding TOA their SaaS contract. Could you comment, to the degree you are able to, to the implications of that and I mean that mostly from a pricing standpoint or were there other factors that led to that particular selection that you grieving from the marketplace you could share with us?

Moshe BenBassat

I prefer not to go into the details of this, and in the competition, you win some, you lose some. We still have about 40% of market share and win rate. I could mention by the same token, what about Bell.com and what about other large contracts that we win. So I'm not sure exactly what you mean there was lots of press discussions about this. Generally speaking, when you go ahead in a competitive situation, sometimes it's pricing, but certainly as far as product features, maturity, domain expertise, even in the cloud options, I believe that what we have today is even better than what the competition has in terms of the variety between private clouds options to Amazon-based options and so forth.

Operator

(Operator Instructions) The next question is from Noah Steinberg of G2 Investments. Please go ahead. I repeat, the next question is from Noah Steinberg of G2 Investments. Please go ahead.

Noah Steinberg – G2 Investments

Just a question on the operating expenses and costs, 50 people that you added incrementally, are they fully reflected in the model right now?

Shmuel Arvatz

They are fully reflected in the future model, however not the full impact in Q1 because half of them joined in January, February, and March. So, it's not fully impacted the first quarter but it's in the model, yes.

Operator

The next question is from Michael Martin of Small-Cap Report. Please go ahead.

Michael Martin - Small-Cap Report

Just one basic question. Operating margins of course are down for reasons we all understand. Do you expect going out over the longer-term, to get back to the kind of operating margins you had back in 2010, 2011?

Moshe BenBassat

As Shmuel said and we also said it last quarter, we believe that by the second half of 2013, we will start seeing improvements in the margins, with the objective of course is sometime in 2014 to get to the margin that we used to have in the past, possibly even better.

Michael Martin - Small-Cap Report

And do you feel, just connected with that, that the competitive environment and competitive pricing hasn't really intensified that much that it's not likely to affect the margins going forward?

Moshe BenBassat

This is very difficult to say going forward but if you look into our strategy, and I repeat it again, the reason we are investing so intensely this very days is because quite frankly I don't see that many companies who can develop the mobility business apps with the speed and variety and quantity that we do, and I mentioned last time that notion of apps factory, namely a group of people that sit down and that's all they do all day long, they develop business mobility app for us, and the reason they can do it in a fast rate is because we gave them the tools and the business platform to do this.

So, this is something, as I said that nobody else has. Even if you look in the app stores of the larger companies, and I'm not talking of course about iTunes or the like, I'm talking about business app stores, you will see that what they have is a sporadic collection of apps, relatively small number of them came from different sources, and this is not what the business world is looking for. A user in the business world is looking for a solution that is streamlined, where you do not have to copy and paste data from one app to another, where you do not have to constantly swipe back and forth on the apps on your screen, this all consumes time, and when it comes to producing business mobility apps, not only we are the largest in terms of the collection what we have, we are also the largest in terms of the track record of the proven real-life record.

I'll take just now a few seconds to give you some examples. In oil and gas, we have today a customer with 30,000 iPhones in the hands of its mobile workers, transforming the company totally from paper-based company to an electronic company. Sempra Gas and Electric has several thousands of mobile workers, Portugal Telecom the same, and I can give you on and on customers. There are very few players in the market who could claim that they have such large collection of apps and such a proven record, and we do not take this lightly and I hope you know that the investment community would appreciate how unique we are also involving connectivity with the back office and everything that comes with the notion of business mobility.

Michael Martin - Small-Cap Report

Terrific, thank you very much.

Operator

There are no further questions at this time. Before I ask Dr. BenBassat to go ahead with his closing statements, I would like to remind participants that a replay of this call will be available two hours after the conference ends. In the U.S., please dial 1-888-326-9310; in Israel, please dial 03-925-5900; and internationally, please dial 972-3-925-5900. Dr. BenBassat, would you like to make your concluding statement?

Moshe BenBassat

Thank you all for joining our earnings call for the first quarter of 2013. We certainly appreciate this. Have a good day. Thank you all.

Operator

Thank you. This concludes the ClickSoftware Technologies first quarter 2013 financial results conference call. Thank you for your participation. You may go ahead and disconnect.

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