Executives
Deb Murphy – Vice President & Corporate Controller
James P. Baum – Chief Executive Officer
Patrick J. Scannell, Jr. – Chief Financial Officer & Senior Vice President
Analysts
Kathryn Huberty – Morgan Stanley
Doug Reig – Thomas Weisel Partners
Nabil Elsheshai – Pacific Crest Securities
Glenn Hanus – Needham & Company
Paul Mansky – Canaccord Adams
Jayson Noland – Robert W. Baird & Co.
Nathan Schneiderman – Roth Capital
Rajesh Ghai – ThinkEquity
Bhavan Suri – William Blair and Company
Mark Kelleher – Brigantine Advisors
Netezza Corporation (NZ) F2Q10 Earnings Call August 27, 2009 4:30 PM ET
Operator
Welcome to the second quarter fiscal 2010 Netezza Corporation earnings conference call. My name is Glen, and I will be your coordinator for today. At this time all participants are in listen only mode. We will break periodically throughout the presentation to answer any questions you may have. (Operator Instructions) I would now like to turn the call over to Deb Murphy, Netezza’s Vice President and Corporate Controller.
Deb Murphy
Thank you for joining us on our earnings release conference call for our second quarter of fiscal 2010 which ended July 31, 2009. Speaking today will be Jim Baum, President and Chief Executive Officer, and Pat Scannell, Senior Vice President and Chief Financial Officer.
Before we begin, I’d like to remind you that some of the statements made on this call may be forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to differ materially. These risk factors are described in our most recent annual report on Form 10-K and the most recent quarterly report on Form 10-Q which are on file with the SEC.
In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change.
On this conference call, we will be referencing both GAAP and non-GAAP financial measures. We provided GAAP and non-GAAP reconciliation information in the press release we issued earlier today announcing our Q2 results. The press release is available on the homepage of the investor relations’ section of our website. The webcast of this call will be archived in the same section.
I would now like to turn the call over to Jim.
James P. Baum
Thank you for joining us on our fiscal year 2010 Q2 earnings call. Q2 was a hugely significant quarter for Netezza. In spite of continued economic challenges, we were not only able to deliver reasonable results for the quarter, but we release what we believe will be the most significant product this company has produced in its 9-year history. Our new TwinFin product is the result of 2 years of research, development, and close interaction with our customers and partners, and this product is the embodiment of all that we have learned about what customers really want to do with data warehousing and analytics.
TwinFin can deliver 3 to 15 times more performance than our previous generation of technology and substantially faster than Oracle Exadata and Teradata 2550 appliance while still requiring no tuning in the form of an appliance. Just like in 2003 when we launched the first data warehouse appliance, we believe that this order of magnitude performance superiority especially when combined with pricing that is a fraction of the list price of Oracle and Teradata is a game changer in this market and positions us well for the future.
This new generation of appliance technology not only extends all of our differentiating characteristics that have defined the concepts of appliances, things like no tuning and extremely low cost of administration, it adds new dimensions of differentiation. For example, buyers of TwinFin will have integrated auditing and compliance capabilities based on our Tizor acquisition allowing them to meet their data security and regulatory requirements and adding a dimension of trust to our core value proposition.
TwinFin has been architected as an open analytics platform allowing our customers and partners to run their analytics software within our architecture, getting the benefits of running the analysis on a platform fundamentally designed for data intensive computing operations. We believe that this will result in substantial gains for the business analytics applications to take advantage of our platform.
Architecturally, TwinFin is a departure from our previous strategy of building on a proprietary hardware platform. As commodity blades and storage interfaces have evolved, we have determined that now is the time to align ourselves with the significant investments made by Intel and the large systems vendors. There are still significant architectural advantages that Netezza brings to this commodity environment through both our parallel optimization software as well as our database accelerator technology. This acceleration is seamlessly integrated with the blade servers and contains new and more powerful FPGA infrastructure for processing queries right next to the data—the crux of our original innovation and still a unique differentiating point for Netezza.
TwinFin product is already in the hands of some customers and partners, and the feedback has been very positive. The industry feedback has also been outstanding. We’re continuing our launch activities throughout September across all of our geographies and verticals and expect the excitement in the industry to grow.
We continue to be excited by the types of business value our customers and partners experience from our products. As we roll our new product into the market, we will see even more value especially as our partners take further advantage of TwinFin’s open architecture. For example, Netezza’s unique ability to analyze spatial plus non-spatial data in real time enables a reinsurance intermediary, one of our customers, to offer insurance companies real-time risk assessments of their portfolios so they can optimize pricing. With Netezza, this company can combine its database of static information like coastlines and flood planes with live information on storms and earthquakes and hurricanes every five minutes, and that data is immediately available for clients to analyze for better management of their portfolios. This was impossible before, but due to Netezza’s unique architecture and spatial analysis capability, this customer is experiencing significant competitive advantage because it can keep clients apprised of the new risks they face as they materialize.
In the retail industry, the pinnacle of business analytics is being able to accurately forecast sales demand well into the future. With one of our Netezza Developer Network partners, our clients can now precisely anticipate retail trends more than 18 months in the future with better than 95% accuracy. This partner runs their sophisticated predicting analytics software inside our appliance, allowing them to process data from over 500,000 stores, something that was previously impossible, and one of our digital media customers installed a real-time media trading platform powered by Netezza which facilitates transactions between publishers, buyers, and exchanges based on the latest information about what ad content, placement, and timing generates the highest response in revenue. This company can update all of its data within 15 minutes to optimize their strategy based on new real-time information. In other words, this company can now determine on the fly whether or not a particular ad placed on a particular web site is generating revenue allowing them to stop running ads that are not contributing to revenues and thus saving them significant money.
While competing solutions with limited data volumes may be able to temporarily keep up with them, their implementations can’t scale to support the data volumes that this customer accommodates today. When they initially deployed Netezza, the company was processing 1.5 million requests each day. By its third month, requests grew to 400 million a day, and managing the Netezza appliance requires only a fraction of a single person’s time compared to their previous experience building a similar solution which would require over 30 engineers to manage.
Moving on to our operations, we have continued to make investments in R&D and distribution especially focusing on our industry vertical strategy. Beyond the TwinFin release, we have additional new products in the R&D pipeline that would expand our data warehouse platform offerings to address a broader range of opportunities in the market.
The selling environment during the quarter continued to headline economic pressure. While we did not see the overall environment improve, we also did not see signs of weakening. From a selling perspective, we did see fewer surprises than we experienced in Q1, and Q1 sales cycles could end abruptly as budget cuts were defined and implemented, and in Q2, it appears that the budgetary environment had stabilized.
Competitively, we saw our traditional competitors. Oracle remains our most frequently encountered competitor, followed by Teradata and IBM. Our win rates against these competitors were very good, and we won against Oracle in the strong majority of the cases where we encountered them. In general, when we lost, the customer did not conduct a proof of concept. Our win rate against Teradata was similarly strong, and we found them to be very aggressive on their pricing once they discovered Netezza within a deal. We experienced no losses to IBM.
We had significant wins against Oracle in financial services, government, and retail. In all cases, we won by proving the value of our platform as faster, more scalable, requiring no tuning, and producing a far lower total cost of ownership, and we had no difficulty proving this when Exadata was in the mix. We also experienced significant wins against Teradata in financial services, life sciences, and digital media. In one example where we competed against their 2550 appliance for an EDW opportunity, we met the customer’s need with half the equipment Teradata required, and we were still faster. This customer bought Netezza on performance, data center footprint, and lower total cost of ownership.
In closing, we’re very excited about our TwinFin product release. It is highly differentiated in the market on a price performance, absolute performance, functionality, and total cost of ownership. We’re marketing and selling it aggressively, and the initial response has been encouraging. As we bring additional new products into the market later this year and early next, we anticipate a substantial enhancement in our ability to address even broader needs in data warehousing and business analytics.
Now, I’ll turn the call over to Pat Scannell, our Chief Financial Officer.
Patrick J. Scannell, Jr.
From a macro perspective, our performance in Q2 was reasonable, given the economic uncertainties that still persist and given the fact that we started a major product transition for the company towards the end of the quarter. We’re pleased to report that our win rates during this past quarter are up against all of our major competitors.
Total revenues declined to $43.9 million from $47 million or a decrease of 7% from Q2 of last year. Product revenues declined to $30 million from $35.1 million or a decrease of 15%, while service revenues increased to $14 million from $11.9 million or an increase of 17%. 56% of total revenue came from the installed base versus 65% a year ago. This mid to high 50% range from the installed base has been the norm for our business for the past two years.
Product revenue was made up of 32 deals, where the average deal size was $942,000. Going forward, we expect to maintain our average selling price at or around $1 million. We also secured 20 new customers this quarter. The domestic-international split of our business was 85% domestic and 15% international versus 78:22 a year ago. Our direct business was 85% and was driven by the 49 quota carrying reps that we have on board.
Our quota carrying rep count should increase to the mid 50s by year end. The top 4 vertical markets this quarter represented 76% of our business and were federal, financial services, digital media, and telecommunications. We’re starting to see some positive momentum in the federal market place and believe that longer term this will deliver 25% of our business. We had two 10% customers in the quarter, one in federal and one in financial services, and our revenue distribution over the three months of the quarter was 20:20:60.
I will be referring to non-GAAP figures on the call, unless I specifically state I’m referring to GAAP figures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in our earnings press release issued earlier today which is also posted on the investor relations section of our website.
Gross margins for the quarter were 68% versus 64% a year ago. Product gross margins were 63% and service margins were 77%, versus a year ago where product margins were 60% and service margins were at the same level of 77%. Although we only have limited experience with the new product, we expect that we will maintain the same level of gross margin performance going forward as we have reported over the past few quarters.
We had total operating expenses of $26.6 million, up from $25.1 million a year ago or an increase of 6%. The company is operating with 392 people versus 361 a year ago. The increase in operating expenses is largely due to expenses associated with the development and launch of the TwinFin product as well as our continued investments in distribution, as we believe that continued investments even during difficult economic times is critical to our future growth.
Operating income for the quarter was $3.1 million or 7% of revenue, which was down from $5.3 million or 11% of revenue a year ago. Interest income declined to $197,000 in Q2 from $1 million a year ago, as the average yield on our investments declined significantly although our investable cash increased by close to $11 million from last year. We recorded a provision for income taxes of $883,000, representing a non-GAAP effective tax rate of 28% and a GAAP effective tax rate of 10%. We expect that the tax rate for the full fiscal year should be in the 27% range for both non-GAAP and GAAP.
Net income for the quarter was $2.3 million or 5% of revenues, down from $5.2 million or 11% of revenue a year ago. Fully diluted earnings per share were $0.04 versus $0.08 a year ago.
Turning to the balance sheet, we exited the quarter with $159 million of cash, which was up from $156 million last quarter and $152 million a year ago. We generated $2.4 million and had $800,000 in capital expenditures or free cash flow of $1.6 million. Total cash and investments include $49 million of auction rate securities net of impairments of $3.5 million.
Accounts receivable DSO was at 65 days, up slightly but still well below our target range of 75 days. Inventories stayed relatively constant sequentially at $17.5 million and were down from $28.2 million a year ago. Deferred revenue decreased slightly quarter to quarter to $49.3 million. Product deferred revenue increased $1.4 million, and service deferred decreased by $1.6 million. As we’ve described in previous quarters, this deferred service revenue decreased is a direct result of our service contacts being 1 year transactions versus 3-year transactions previously. We still maintain 100% attach rates on our service contracts with close to 100% renewal rates on these contracts annually.
Turning now to our outlook and guidance, based on our recent experience and our look at the second half of the year, we believe that the macroeconomic environment is getting better although we continue to feel the effects of some budget delays in Q2. There are certain sectors that are still under pressure, such as international, but overall we feel that things are beginning to improve. We are solidly positioned to take advantage of this recovery. Our financial condition is solid. We’ve continued to invest in both R&D and go-to-market initiatives on many fronts and feel that our new generation of technology dramatically changes the competitive landscape. The first of several platforms was made generally available at the end of Q2, but there is more to come as Jim pointed out.
Lastly, although our visibility is getting better, we’re not in a position to give guidance at this point. I’d like to turn it now back over to Jim for some closing comments.
James P. Baum
I’d just like to reiterate a couple of points. First of all, our customers are achieving significant value in their businesses, and the case studies that I shared with you today are clearly representative of what our customer base experiences at large. We had strong new customer adds during Q2, and given the percentage of business that we see from our customer base, obviously this helps us set the stage for continued repeat buys from our customer base. We believe our new product set will be disruptive in the industry. It is leading the industry on price performance, on performance, functionality and capability. We’re aggressively selling and marketing it today, and the response so far has been very encouraging. We feel strong competitively and well positioned as the economy improves to take advantage of the opportunity that’s ahead of us.
With that said, we’d like to turn if over to questions.
Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Kathryn Huberty – Morgan Stanley.
Kathryn Huberty – Morgan Stanley
Given your comments that the environment didn’t weaken in the July quarter, is it fair to assume that the majority of the 15% sequential decline in product revenue was really just due to the purchase delays ahead of the new product launch, and if we combine better visibility going forward and the significant improvement in the new products, why wouldn’t we see sequential growth as we go into the next couple of quarters?
James P. Baum
I think as we look at the quarter, clearly we didn’t see the quarter worsening, but we also didn’t really see the environment getting a lot better. I think the comment about not worsening really was manifested in the fact that we didn’t see as many situations where we were surprised by people implementing budget cuts during the sales cycle. There may not have been as many sales cycles running, but generally when they were running, they were sales cycles that came to or will come to some kind of conclusion. As we rolled out the new product, we worked hard to make sure that we timed it appropriately in the market and we worked hard to have it not impact Q2 business to the extent that we could, although in general we did go to our customer base during the quarter and shared with them before the announcement of the product that we had new technology coming, so that we didn’t blindside our customers. As you know, we have very strong extensive relationship with our customers, and we wanted to make sure that they had lots of visibility. So I think that as we look at the decline in the quarter, I would not necessarily attribute a lot of it to deferment due to the product, although there are certainly a few cases where people wanted to test and experience the new product before they made a commitment. There were 2 or 3 instances of delays that were in the hands of the customer that were late-breaking issues in the quarter that were disappointments for us.
Kathryn Huberty – Morgan Stanley
How long will it take for either existing or new customers to get in and test the TwinFin products and really start to see meaningful number of new purchases? When should that inflection point occur?
James P. Baum
Well, we’re out there now, so today any customer engagement we have that is new, many of which that may have been started during Q2, are on TwinFin. So the POCs that we’re running now, we’re running them on TwinFin. The product is deployed in several accounts right now, deployed with several partners right now, so we’ve started, and it is the primary platform that we’re selling today.
Kathryn Huberty – Morgan Stanley
Now that the TwinFin is out and launched, should we expect the incremental operating expense investments to shift a little bit away from R&D and back towards and sales and marketing so that you can maximize the return of the new architecture?
Patrick J. Scannell, Jr.
You’ll see broad-based investments across both sectors continuing, so you’ll still continue to see R&D and sales and marketing increase.
Operator
Your next question comes from the line of Doug Reig – Thomas Weisel Partners.
Doug Reig – Thomas Weisel Partners
I just want to make sure I understand at what point during Q2 you made TwinFin available. I think you mentioned general availability by the end of the quarter, but can you quantify how many customers were looking at it during the quarter?
James P. Baum
We launched the product after the end of the quarter publicly. The public press release went out after July 31; however, there were several places where we were engaged with customers prior to that launch, and those started during the month of July, so it’s been introduced to many of our large customers, and that began really in the first or second week of July.
Doug Reig – Thomas Weisel Partners
Could you help me understand to what extent Teradata’s price aggressiveness is or has impacted you in this quarter and your response to that?
James P. Baum
As we’ve seen Teradata competitively in the market, as we talked about on previous calls, Teradata has used the breadth of their product lines to offer different solutions to the customer many times in an effort to drive pricing down, create an opportunity for them later to drive pricing up. That strategy from Teradata does not appear to have changed at all, and we do see that when we’re in an account with them, they will be aggressive on pricing, and that’s not really new. That’s pretty much standard competitive practice on their behalf.
Doug Reig – Thomas Weisel Partners
On IBM, you mentioned that you did not lose any cases to IBM, but were there in fact direct competition this quarter?
Patrick J. Scannell, Jr.
There were several, yes.
Operator
Your next question comes from the line of Nabil Elsheshai – Pacific Crest Securities.
Nabil Elsheshai – Pacific Crest Securities
On the rollout, it sounds like everybody is fully trained in the field, and no question on the continued rollout in that sense. Is that correct?
Patrick J. Scannell, Jr.
That is absolutely correct.
Nabil Elsheshai – Pacific Crest Securities
Do you have referencible customers at this point on TwinFin or is it too early?
James P. Baum
Yes, we do. In fact, next week is our launch event here in Boston at our conference, and we’ll have several customers on stage with me talking about their experiences with TwinFin.
Nabil Elsheshai – Pacific Crest Securities
You had mentioned, Pat, that your win rate versus your matrix measures had gone up. Did TwinFin have any impact on that, or was it too late in the quarter, and that was really still competing with the old product?
Patrick J. Scannell, Jr.
I would say, Nabil, at large it was competing with the old product, but there are a couple of notable places where TwinFin absolutely is what won the business.
Nabil Elsheshai – Pacific Crest Securities
I’m assuming you’ll run the old 10,000 series for existing customers and then TwinFin will be for all new customers. Do you anticipate at some point 10,000 series people transitioning? Is that a thing that we’d do quickly or is that a gradual process?
James P. Baum
As with our other generations and shift in technology, it’s been a gradual process, so we still expect to be selling the 10000 series to some of the installed customers that want that and have it in production, but eventually it will shift over to TwinFin and other future generations.
Nabil Elsheshai – Pacific Crest Securities
Is there any preview in terms of availability of the new products that you can give us, or this thing is going to be shipping immediately starting next week or the announcements are going to be previews of what’s coming?
James P. Baum
The announcements will be largely previews of what’s coming. Obviously, TwinFin is shipping today. TwinFin is the first product line in a series of product lines that we will be releasing over the next two to three quarters.
Operator
Your next question comes from the line of Glenn Hanus – Needham & Company.
Glenn Hanus – Needham & Company
Could you talk about gross margins a little bit more? You had very good performance in product and service in this quarter. Some of the puts and takes there as we think about models going forward and then bring into account the new products, you had some lower pricing on it, the puts and takes to give you confidence to maintain the gross margins?
James P. Baum
What we saw was the high water mark growth for gross margin at the 68% level and buoyed by what we saw in product margins, and product margins we started to see move up last quarter where we saw the pricing stabilize in terms of the actual cost of the product, and we expect that that will continue to be stable and we’ll be able to realize these levels. As I indicated in my prepared comments, our experience with the new product is limited, but our forecast in terms of what we expect from the product cost and the bill of materials is predictable, and the beauty of commodity-based blade strategy that we have is that that’s predictable, it is a commodity, and we’re riding those development curves without us exercising all that innovation inside the company as it relates to that. So I think you’ll continue to realize product margins in the 63% level. The service margins continue to perform at the mid to high 70s, and again as always that’s a function of the labor that we’ve put toward that task. So to the extent that we continue to expand our field footprint, that’ll move around into the mid 70s, so there may be some movement there, but I think for the most part, the 68% gross margin level is excellent, and we can see that continuing.
Glenn Hanus – Needham & Company
Earlier this year, you had a reorganization for sales around some vertical markets and you were looking forward to some productivity improvements from that. Can you give us an update there, and how do you feel that’s working?
James P. Baum
We have migrated the sales organization to focus by vertical. As you suggested, those verticals that we primarily target are financial services, healthcare, life sciences, digital media, telecommunications, and retail, and federal is another built-in vertical that we had for some time. We have invested in building some infrastructure in the company by hiring people who have expertise in each of those areas, and so far the results have been good. Part of the strategy around verticalizing has been not just to verticalize the message to give us an opportunity to have dialogue with the business side of our customers and prospects, but also to develop partnerships that get us closer to the actual end-user application and its value, and those partnerships are also progressing well.
Operator
The next question comes from the line of Paul Mansky with Canaccord Adams.
Paul Mansky – Canaccord Adams
First from an R&D perspective, obviously you mentioned some elevated expenditures here for the next couple of quarters. Is that something we should view as structural or do you anticipate more NREs rolling through given the iterative product introductions you alluded to? How should we be thinking about on a go-forward basis?
Patrick J. Scannell, Jr.
You should be thinking about that as normalized increases in spend as programs roll out, not in lump sum NRE-type activity.
Paul Mansky – Canaccord Adams
By way bit of a history lesson here, can you compare that 20-20-60 linearity to last year’s linearity in the July quarter?
James P. Baum
In the July quarter a year ago, it was 20-30-50.
Paul Mansky – Canaccord Adams
If we could revisit the commentary, last quarter you mentioned specifically some deals that slipped out. There were some that you thought you might close this quarter, some that might have slipped out further, some that might have just gone away altogether. Can you help us contextualize that relative to what we saw actually come through in the quarter?
James P. Baum
The deals that I alluded to, the 2 to 3 deals, were deals that were lined up and were situations, one particular was budget, one was a customer logistic situation, and we had them lined up and ready to fire. That didn’t come through. They didn’t go away. Those deals will play during this current quarter, and to the extent they do, it helps.
Paul Mansky – Canaccord Adams
I was specifically referring to the deals that you referenced in the April quarter call that slipped out of that April quarter, how do we see those come through in July?
James P. Baum
Some of those came through, and some of those continue to get deferred because there were a number of deals as we indicated in the call and in the post call commentary, in terms of deals that were getting cancelled and deferred at a pretty rapid rate back in April timeframe to the point where it was concerning, and I think that we saw some of those come through, and we saw some of those just continue to get cancelled.
Operator
The next question comes from the line of Jayson Noland with Robert Baird.
Jayson Noland – Robert Baird
I have just a couple of questions, maybe the first on scalability. It seems that the TwinFin and the forthcoming products would be more scalable than the 10000 series and maybe you’re better able to fit the solution with the application?
James P. Baum
They are absolutely more scalable. They are more scalable on performance and more scalable on numbers of users. They’re certainly more scalable on data size. We now have a high-performance appliance that will scale up to petabyte of data when it’s compressed, so yes, they do scale further than the 10000 series did.
Jayson Noland – Robert Baird
With entry level solution, are you better able to dip down into lower intensity applications?
James P. Baum
I’m not sure what you mean by lower intensity, but in terms of smaller scale, smaller footprints, we do have versions of this product line that’s scaled down very small, and we have a number of conversions and active sales cycles around this where people are looking to do things like embedding analytics in various parts of their own operation, so it’s less of a traditional data warehousing solution in many cases and more of an embedded analytics appliance solution, and so those are things that are ongoing right now.
Jayson Noland – Robert Baird
Jim, this solution with industry standard hardware mostly, does it increase the potential for partnerships?
James P. Baum
Yes. We think it does.
Operator
The next question comes from the line of Nathan Schneiderman with Roth Capital.
Nathan Schneiderman – Roth Capital
Just to clarify on your reported revenue for the quarter, was there any revenue that was from the TwinFin product, perhaps proof of concept customers or something else?
Patrick J. Scannell, Jr.
There was actually GA revenue in the quarter from TwinFin, yes.
Nathan Schneiderman – Roth Capital
How much of the revenue was actually TwinFin?
Patrick J. Scannell, Jr.
Less than 20%
Nathan Schneiderman – Roth Capital
In terms of the deferred product revenue, the product revenue and deferred license, how much of that was TwinFin?
James P. Baum
I don’t believe there is any in deferred. In fact, there is none in deferred product revenue for TwinFin.
Nathan Schneiderman – Roth Capital
If you compare this product introduction with your last major product introduction, do you typically have an issue where customers are a little bit reluctant to move to a dot 0 version of your new product and they are waiting for a dot one or does that issue not really apply in your market?
James P. Baum
I think it does apply to a certain extent. I think one of the advantages we have with TwinFin is although it is a new hardware architecture, it is largely a redeployment of our software assets, so instability that can come from major software changes and reengineering, while we have done a lot of software work here, the core of the product does remain intact, so the stability that we have seen of this product from our early customer deployment has been very good, so that feedback has been positive. Although I think your point is a valid one, we will see situations where customers do not want to be the first ones on the new platform.
Nathan Schneiderman – Roth Capital
Do you have an expected release date for dot one version of your product?
James P. Baum
We do. We have a roadmap of software releases that are coming out over the rest of this year in fact, so there are various enhancements that will be coming to the product that will both improve its performance as well as even adding some additional functionality. We have a software release that comes out within the next couple of weeks that adds additional functionality, so we really accelerated our software agenda to make sure we address any customer issues we experienced as well as to add performance and functionality to it.
Nathan Schneiderman – Roth Capital
From the customer’s point of view, would they interpret your dot one release as a November quarter event or is that more of a January quarter event?
James P. Baum
I think from a customer’s point of view, they will see incremental and market software progress on probably 6- to 8-week intervals over the rest of this year as we add additional functionality and make sure we respond to any issues they raise with us.
Nathan Schneiderman – Roth Capital
I know you don’t want to give explicit guidance here, but do you believe that the July quarter was the revenue trough for your business and going forward you should be at higher levels sequentially?
James P. Baum
Nate, I’m afraid I can’t answer that question just from a no guidance standpoint.
Operator
The next question comes from the line of Rajesh Ghai with Thinkequity.
Rajesh Ghai – ThinkEquity
I have a question on your win rates. You mentioned that your win rates were up against all three of your competitors. How many of those wins were within the installed base, and how many were new customers. You got 20 new customers. How do the win rates contrast between the installed base versus your new customers?
James P. Baum
I don’t have the data specifically in my head to answer your question, so let me just answer it anecdotally. The win rate against Oracle and Teradata and IBM, in all cases, it was very high during the quarter. It was a 100% against IBM as I mentioned. There were far fewer engagements against IBM, however. The win rate against Oracle was towards a very strong majority of the places where we competed with them, and in the case of Teradata, it was slightly less than Oracle, but very close, so still very strong majority. In our installed base, we tend to have situations in our installed base that are less competitive. When we sell into the installed base, it’s often an expansion of an existing deployment, and so they’re not always as competitive as a new customer. In all 20 new customers that we talked about, we competed against one or more of those three vendors.
Patrick J. Scannell, Jr.
Quantitatively, 32 deals in the quarter as I mentioned, 20 new deals. Twelve of those were in the installed base, and the installed base, as Jim said, that’s repeat buys where we’re in the data center, we’re in the know with the CIO and what have you, so of those 20, those are the ones that are competitive. In the batting order of the competition, first and foremost, it’s Oracle, then Teradata, then IBM, to the extent that helps, but we don’t have the explicit analysis.
Rajesh Ghai – ThinkEquity
When you look at your roadshow or your launch next month, you’re going across multiple cities, do you have a sense of the profile of customers who have signed up for the events and how many of them are new customers, people you haven’t looked at in the past, and what’s the level of excitement that you see out there outside of your installed base?
James P. Baum
As we look at the North American road show, which starts next week, what I’ve seen is about half to two thirds of the participants are existing customers and partners and the rest are prospects.
Rajesh Ghai – ThinkEquity
North American revenues have actually ticked up over the last two quarters, and the weakness essentially has been in the international side. Do you have a sense as to whether international revenues have bottomed out at this point of time based on what you’ve seen this month, and do you get any sense that Europe or overseas is stabilizing a little bit more?
James P. Baum
We think that overall things are beginning to stabilize, and the view is based on how we look at the pipeline. This is always a tough quarter for Europe given the month of August, but we do think that this has probably troughed and hope that that’s the case as we move forward.
Rajesh Ghai – ThinkEquity
There is a lot of Oracle-inspired blood out there, and one of the bigger concerns that I’m hearing from investors is how does Netezza counter that? Most of it is pretty nasty and most of it may be untrue, but how exactly do you counter it given the fact that they have about half the database market?
James P. Baum
Obviously, we won’t outmarket Oracle; however, we also find that the truth helps a lot too, so we have been able to engage in supportive industry analysts, of industry bloggers. If you look at our website, you’ll see links to various blogs, and I’m sure you have seen some of this stuff especially if you have looked at some of the Oracle reaction to the TwinFin release which was obviously pre-prepared and very aggressive, and in fact, filled with misinformation, so we’ve leveraged the network around us. We leverage our customers, we leverage our partners, we work with the industry analysts, and we find that again there’s enough reason for people to be suspicious of comments made by competing vendors that they’re willing to engage with us and understand really where the capabilities of this product lie.
Patrick J. Scannell, Jr.
And you’ll continue to see the marketing activity accelerate from us, number one, and number two, the proof is in the pudding. When we do a proof of concept in terms of the performance of the product and when we get the at bat, that’s where the decisions actually get made.
Rajesh Ghai – ThinkEquity
As you support both TwinFin and the older generation of hardware, do you anticipate services and support gross margins to trend down for a while and then probably trend up after a few quarters?
Patrick J. Scannell, Jr.
No. I think that with the transition and the co-existence of both lines that we’re adequately staffed, and we are currently staffed to manage both of those, and the cost structures are similar for both product lines, so that should stay stable.
Operator
The next question comes from the line of Bhavan Suri – William Blair and Company.
Bhavan Suri – William Blair and Company
First on the competitive environment, when you faced Oracle, was Exadata what you were competing with in all those deals or where some of those deals against the traditional Oracle legacy data warehouse?
James P. Baum
A vast majority of it was Exadata.
Bhavan Suri – William Blair and Company
As you look at the environment, you talk to customers out there, do you feel that discretionary spend needs to come back before we see these projects reaccelerate? Where does the rationale for data warehousing solutions fit in the stack of an IT organization’s priority list today as you talk to your clients?
James P. Baum
As we talk to our clients, in general, we’re finding data warehousing as part of an analytics strategy. It’s sitting high on the agenda of CIOs. They all understand the types of business value and the need for that business value that are generated, so it’s certainly a top five initiative with the CIOs that we have spoken with.
Bhavan Suri – William Blair and Company
Turning to the pipeline and more importantly the sales cycles, it’s been 9 to 12 months for new customers and then existing could be anywhere from 90 days. Has that changed at all in this quarter? Have you seen that improve at all or change?
Patrick J. Scannell, Jr.
No. I think that its more or less stayed the same, and we keep our eye on that, and I think that with the introduction of the new product, we’re starting to start those sales cycles up with them evaluating that, and we don’t see that elongating or shortening.
Bhavan Suri – William Blair and Company
I guess when I think of that, I think existing customers are going to start to either maybe transition or buy a little TwinFin, but majority might stay on the 10000 series, so the TwinFin still has, and it’s still early, but a 9- to 12-month sales cycle. Does that feel correct?
Patrick J. Scannell, Jr.
I don’t see that we will experience any difference in the sales cycle with TwinFin versus the 10000 series product. I think the conclusion, however, you should take is not the TwinFin sales cycles are starting now. TwinFin sales cycles have started, and in fact they have been in many cases, we have introduced TwinFin later in some existing sales cycles as the new product, so there are places where TwinFin sales cycles are very well developed.
Bhavan Suri – William Blair and Company
The average deal size has come down a little bit, from $1.3 million a year ago to about $900,000. Pat or Jim, could you split that between average new business deal size versus the recurring revenue buy, and then are you seeing any pressure on ASPs at all?
Patrick J. Scannell, Jr.
There is no pressure on ASPs. This past quarter, we discounted some of the existing products in looking to the installed base, so we saw some pressure, but that was more or less crafted by us. You’ll see the average deal price rebound to the $1 million to $1.5 million range as we move forward.
Bhavan Suri – William Blair and Company
The new business deal size, was that roughly the same as the recurring revenue buy?
James P. Baum
Yes, it was.
Operator
The next question comes from the line of Mark Kelleher with Brigantine Advisors.
Mark Kelleher – Brigantine Advisors
First of all, a couple of questions back you mentioned that TwinFin was 20% of something, and I didn’t catch that, can you just tell me what that was?
Patrick J. Scannell, Jr.
Less than 20% of total revenue.
Mark Kelleher – Brigantine Advisors
My question is on sales teams. It looks like if I recorded the numbers right, you’re down one sales team in the July quarter. I think that’s the first time I have seen that decline. Can you talk about your ramp? I think you said the high mid something 50s for the next couple of quarters. How is that ramp going to play out?
Patrick J. Scannell, Jr.
Towards the end of this year, you should see a rep count in the mid 50s as I said, so we’re going to continue to add resources in the field.
Mark Kelleher – Brigantine Advisors
What’s the ramp time on those guys?
Patrick J. Scannell, Jr.
As soon as possible to get these guys and get qualified people on board, and the hiring cycle and the interviewing cycle and what not, so you’ll see them ratably come in to the business.
Mark Kelleher – Brigantine Advisors
Not your hiring cycle, but once you get them on board, how long does it take them?
James P. Baum
It depends on the geography. In North America, the ramp time is obviously quicker than if we put them into a new territory, so as Pat’s describing the growth in sales head count, these guys will be distributed across various geographies, most of which will be existing, so we’d expect the ramp time to be 6 months to 9-month timeframe.
Patrick J. Scannell, Jr.
Six to nine months is what you can expect, and if they’re coming in with the Rolodex that’s firing in the telecom space, that could be accelerated, and if they’re coming into healthcare with the Rolodex and they’re walking in with their contacts that accelerates all that.
Mark Kelleher – Brigantine Advisors
So we might expect a little pressure on the sales and marketing line for the next couple of quarters?
James P. Baum
I think it’ll be normal growth.
Operator
There are no further questions at this time. I’d now like to turn the call over to Jim Baum for closing remarks.
James P. Baum
I just want to thank you for all joining us this afternoon. Again, we’re very excited about the product and the opportunities that it creates for us in the market. We do feel strong competitively and very well positioned as we look forward, and we’ll see you next quarter.
Operator
Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect.
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