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Executives

Greg Kleiner - Investor Relations

Mark Woodward - President, Chief Executive Officer

Peter Maloney - Chief Financial Officer

Analysts

Kash Rangan - BofA Merrill Lynch

Brendan Barnicle - Pacific Crest Securities

Richard Davis - Canaccord

Michael Huang - Needham & Company

Mark Schappel - Benchmark

Scott Berg - Northland Capital Markets

E2open, Inc. (EOPN) F2Q 2014 Earnings Call October 10, 2013 5:00 PM ET

Operator

Greetings. And welcome to the E2open second quarter of fiscal year 2014 financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Greg Kleiner, Investor Relations for E2open. Thank you, Mr. Kleiner. You may begin.

Greg Kleiner

Thank you. Good afternoon and welcome E2open's second quarter fiscal year end 2014 earnings conference call. Joining me today to discuss our second quarter results are Mark Woodward, E2open's President and CEO and Peter Maloney, E2open's Chief Financial Officer.

Our commentary today will include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings press release. Non-GAAP financial measures exclude the impact of stock-based compensation, non-cash income taxes, and certain accelerated revenue recognized in connection with the contract amendment, amortization of intangibles, acquisition expenses and the impact of purchase accounting adjustment to deferred revenue.

At time in our prepared comments or in responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or quarterly results. Please be advised that this additional detail maybe one-time in nature and we may or may not provide an update in the future on these metrics.

The primary purpose of today's call is to provide you with information regarding our second quarter fiscal year end 2014 performance in addition to our financial outlook for our third quarter and full fiscal year 2014. Some of our discussion or responses to your questions may contain forward-looking statements.

These statements are subject to risks and uncertainties and assumptions. Discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission. Should any of these risks or uncertainties materialize or should our assumptions as outlined in our earnings release and the documents referred to in that release prove to be incorrect, actual company results could differ materially from these forward-looking statements.

I encourage you to visit our Investor Relations website at investor.e2open.com to access our second quarter press release, periodic SEC reports, a webcast replay of today's call or to learn more about E2open.

Finally before I turn the call over to Mark, please be advised that during today's discussion, we may reference certain unreleased services or features not currently available. We cannot guarantee the future timing or availability of these services or features and thus recommend that clients who purchase our services make their decisions based on services and features that are currently available.

With that, let me turn the call over to Mark.

Mark Woodward

Thanks, Greg. Welcome everyone and thank you for joining us today. I am pleased to share that E2open delivered solid second quarter results with revenue coming in at the high end of guidance along with earnings that are above our guidance range.

Most importantly, our 30% year-over-year growth in subscriptions and support revenue which was strong including greater than 27% year-over-year growth on an organic basis, both of which are a testament to the strength of our business. We have also made some great strides on the partner front with the integration of our recent acquisition of ICON-SCM.

Peter will walk through the financial details in a moment but let me first provide an overview of our performance against our initiatives, starting with some very good progress we are making in building out and enabling our partner network. I am happy to announce that we have completed an agreement with KPMG. As you know KPMG was our audit partner until the beginning of the year but we disengaged on that front in order to put in place a more comprehensive relationship with the systems integration portion of their business. We now have KPMG people live and working on implementations in the field.

In addition, we are at the later stages of completing another agreement with a top four global systems integrator. Unfortunately I can't mention the name just yet but we expect to start training their consultants shortly.

Finally on our call last quarter we mentioned a new services partners that we had engaged with to provide staff augmentation to assist with our customer deployments. We are quite happy with the progress we have made there and now have a number of their consultants actively deployed on numerous customer projects.

We have now completed a number of partner training sessions and have additional classes scheduled right now. We expect to have more than 100 outside consultants through our initial training and available to be engaged in deployment projects by the end of Q3. We are also beginning the process of introducing our partners into active sales engagements as well as active projects as we continue to transition more of our deployment work to our partners through direct relationships with our customers.

As it stands now, we are ahead of schedule with transition in our go-to-market model on professional services. When we embarked on this process we mentioned that the amount of professional services revenue and the resulting gross profit hitting our income statements this year would be impacted as a result of bringing new partners onboard. Since we have experienced faster than expected success with attracting and ramping integration partners we now expect to have more resources available to us during the second half of the year than we had originally anticipated.

We also now believe that some of our deployments along with the professional services revenue associated with them will transfer over to the direct relations with our services partners faster as well. This is all very good news for E2open as we position our company for continued growth and market share gains though there is an incremental short-term impact to our services revenue profitability that Peter will walk through in a few moments.

Moving on to the ICON acquisition. We are very pleased with our progress so far. Internally the cultural fit has been great and the combined teams are hard at work on the product integration front. Externally the validation we received from the industry has been extremely gratifying. From Gartner to IDC to our customers and prospects, they all see the same factors that drove us to make this acquisition, namely that the supply chain market is evolving.

Market pressures demand that planning systems are able to adapt to changes in supply chain in real time. Planning and execution must change from a group of disconnected processes to a fully integrated set of functionality thereby enabling corporations and their partners to solve problems in a collaborative manner. We have a lot of hard work ahead of us but we are proud to lead the charge in such an important market evolution.

So let me highlight a few of the deals we signed in the quarter. We signed three new logos in Q2 as the mix of business was skewed towards existing customers similar to what we saw in Q1.

The first deal I would like to highlight is in the CPG vertical with the addition of Beiersdorf, one of Germany's largest CPG companies whose leading brands include Nivea and Eucerin. Beiersdorf came to us because of the issues they were having on the customer or sell side.

In particular they were having several problems with visibility in the inventory in the channel. By not having the correct systems in place to enable real-time collaboration with their channel partners, Beiersdorf was dealing with inaccuracies in the supply planning which cause excess and obsolete inventory, a lack of inventory aging control which creates significant brand reputation risk and minimal last mile logistics control which created a sub optimal order to cash cycle.

Beiersdorf wanted a of platform that will provide them with the ability to collaborate with up to 100 distributors around the world as well as have visibility into their entire inventory till it reaches the actual store level. We are implementing a solution that will provide Beiersdorf with this visibility including features such as in-transit shipment tracking to facilitate the collection and communication of shipment status and the ability to flag any exceptions based on actual arrival times versus promised delivery dates. With L'Oreal, Unilever, Guthy-Renker and now Beiersdorf as customers, E2open is quickly becoming the standard supply chain execution platform in the beauty and skincare industries.

Then next deal I would like to highlight is within the CPG vertical as well but with the Coca-Cola joint-venture of Coke Mexico. This is our first deal for with one of the Coke bottling JVs and in particular with a Mexican business unit which has focus on the juice business. Like many companies we talk to, the business units in Coke are struggling with how to improve supply chain visibility and collaboration. This lack of communication and access to real-time data is resulting in a lengthy and manual planning process, excess inventory, from raw materials all the way through to finished goods, and delayed reactions to demand fluctuations in the channel.

The solution we are putting in place will allow all of the value chain participants to collaborate on a single source of information, improving accuracy and efficiency throughout their partner network. This will result in lower inventory levels, improved planning productivity and accuracy, proactive risk identification and increased supply chain velocity.

In terms of upsells in the quarter, we finalize the terms of another expansion of Seagate Technology, one of our oldest customers and a world leader in hard disk drive and storage solutions. Today Seagate has focused on leveraging E2open as an end-to-end supply chain platform to manage direct procurement and vendor managed inventory across 250 plus commodity suppliers.

The existing implementation has continued to deliver hard benefits through inventory reduction while providing an efficient means of collaborating with suppliers. Seagate has since taken E2open solution beyond inventory management by broadening this parts shortage management scope to cover all seven tiers of Seagate's supply chain to include complete visibility to supply and constraints both internally and externally. This year Seagate has been focused on extending the E2open platform to also enable better visibility collaboration trust all the way through to its end-customers.

Seagate's expanded programs include the customer collaboration planning and order collaboration programs that leverages several E2open sell side products. We have worked together to onboard Seagate largest customers to these programs. Seagate has already recognized benefits in these programs delivering significant process efficiencies and better customer satisfaction through their use of E2open. The new ability to commit with confidence to customers will further expand the mission-critical nature of our relationship with Seagate due to its usage from in-tier suppliers, internal operations, factories through to end-customers.

We also added to our management team in the quarter with the addition of Michael Lindner as VP and General Manager of EMEA. Michael is a technology veteran with over 25 years of leadership experience at companies such as Hewlett-Packard, Stratus Technologies, Serena Software and most recently, ServiceNow. I have had the great fortune of working with Michael in the past at Serena where he ran the international business for me and I am confident that he will help us scale our presence in EMEA as we move ahead.

In summary we reported another strong quarter and put in place several important pieces to ensure our future success. We are ahead of our plan with our partner efforts and the early signs of our ICON acquisition are very positive. The power of our collaborative planning and execution solutions remains unique and we believe it positions us well to continue gaining market share and driving the direction of our industry.

With that, let me turn the call over to Peter for the details on our financials.

Peter Maloney

Thanks, Mark. Before I go into the breakdown of the quarter, I wanted to discuss ICON for a moment. We have filed an 8-K with the SEC that outlines the historical results for ICON along with the pro forma contributions to our results. However we do not consider their historical performance to be meaningful to E2open as we are purely focused on what we can drive with their technology and people as part of a combined platform. As you can see from our second quarter results we have included the support revenue from ICON solutions in our subscriptions and support revenue line, given the recurring nature of the revenue and similar gross margin profile.

On a non-GAAP basis in Q2, ICON solutions added approximately $300,000 to our subscriptions and support line, approximately $800,000 to our professional services line and they had a minimal positive impact to our operating income. I will discuss the impact to guidance from ICON in a moment. Going forward we will not be breaking out the impact separately but wanted to provide you with some additional detail at this time to aid in your comparison to our prior guidance for E2open as a stand-alone entity.

Moving on, as I review Q2 please note that the description of our results excludes the effects of the RIM contract amendment that took place during the second quarter of fiscal 2013 and the impact of a purchase accounting adjustment to deferred revenue acquired in the second quarter of fiscal 2014. This is similar to our presentation in recent quarters and is due to the fact that these items are nonrecurring and not reflective of our ongoing operating performance.

For the second quarter, non-GAAP total revenue was $18.6 million or $17.5 million excluding the contribution from ICON. This was at the high-end of our guidance and compares to $18.4 million for Q2 of last year. These results were driven by strong subscriptions and support performance offset by the impact of our professional services transition.

Subscription and support revenue was $13.6 million for the quarter, up 30% year-over-year and 10% sequentially. Excluding the contribution from ICON, subscriptions and support revenue was $13.3 million, up 27% year-over-year and 7% sequentially and at the high-end of our guidance.

Professional services revenue was $5 million or $4.2 million excluding the contribution from ICON. This was at the high-end of our guidance and consistent with our expectation that services revenue would be down meaningfully on a year-over-year basis. Our results here continue to be impacted by the accelerated shift in our goto-market model around the professional services business and partner enablement. As Mark mentioned earlier, this is moving even faster than we had initially anticipated and I will describe the impact to the second half numbers in a moment.

Non-GAAP gross margin for the quarter was 64% compared to 70% for Q2 of last year and 61% for Q1 of this year. The decline on a year-over-year basis was driven largely by the transition underway in our professional services business and the resulting impact to our professional services gross margins. ICON added slightly to gross profit for Q2.

Our non-GAAP operating loss was $2.8 million for the quarter compared to an operating loss of $4.1 million for Q1 and an operating profit of $700,000 for Q2 of last year. This is better than our guidance of a loss of $4.5 million to $3.9 million even when factoring in the small positive contribution from ICON mentioned earlier.

Non-GAAP EPS was negative $0.10 compared to our guidance of negative $0.18 to $0.15. This compares to a loss of $0.15 for Q1 and positive $0.02 for the year ago period.

Adjusted EBITDA for the quarter was a loss of $2.3 million compared to our guidance of a loss of $4 million to $3.4 million. This compares to a loss of $3.6 million for Q1 and positive $1.1 million for Q2 of last year.

Cash flow from operations was negative $4.1 million for the quarter. After taking into account capital expenditures and the cash paid for acquisition expenses in the quarter, free cash flow was negative $3.9 million. We ended the quarter with $21.6 million of cash and investments, down from $44 million at the end of last quarter, largely reflecting the cash used for the ICON acquisition.

Total deferred revenue balance at the end of the quarter was $31.8 million. ICON added $1.2 million to the balance sheet, net of a purchase accounting write-down of approximately $500,000.

Overall I would remind everyone that the change in deferred revenue was not a good predictor of our future revenue growth or our bookings in any given period. The amount that is visible on our balance sheet is determined by the timing and mix of bookings and billings that can be impacted by customer contractual terms, services delivery timing and the size and length of contracts. We do provide additional transparency in to our business by providing new and upsell bookings guidance on an annual basis.

Now let me turn to guidance. For the remainder of fiscal 2014 we will continue to guide to both subscriptions and support and professional services revenue as we complete the transition of our goto-market model. As we previously shared, we do not plan on continuing to breakout our revenue guidance by line item beyond this fiscal year. Please keep in mind that guidance is all non-GAAP.

For the third quarter of fiscal 2014, we expect revenue of $18.1 million to $18.6 million. We expect subscriptions and support revenue to be between $14.3 million and $14.5 million or a growth of 27% to 29%. Professional services revenue is expected to range from $3.8 million to $4.1 million, operating loss is expected to be $5.5 million to $5 million leading to a non-GAAP EPS loss of $0.21 to $0.18 based on a diluted share count of 27.9 million. Adjusted EBITDA is expected to be a loss of $4.9 million to $4.4 million.

For the full fiscal year of 2014, we are maintaining our new and upsell bookings growth guidance at 30% which would translate into roughly $91.5 million. We expect revenue of $73.2 million to $74.2 million. We expect subscriptions and support revenue to be between $56.7 million and $57.1 million or growth of 31% to 32%. Professional services revenue is expected to be in the range from $16.5 million to $17.1 million. Operating loss is expected to be $15.2 million to $14.2 million leading to a non-GAAP EPS loss of $0.57 to $0.53 based on a diluted share count of 27.7 million. We also expect adjusted EBITDA to be a loss of $13.1 million to $12.1 million. Finally our free cash flow is expected to be negative $12.6 million to $11.6 million.

Let me provide some additional insight on a few items to put our guidance into further perspective. First of all, I wanted to walk you through our ICON assumptions for the balance of the year. Given the stage of our R&D efforts focused on both integration and the migration of their products to our SaaS platform, we are assuming no new revenue from the sale of ICON products for the second half of the year.

While there are obviously some deals in flight and a substantial amount of early conversations going on, we are not modeling any contribution to the third and fourth quarter. In addition there are few deals in the SAP sales channel but we cannot predict or control when those might be completed. We are assuming that ICON support revenue will add approximately $1.1 million in total to our subscriptions and support revenue over the second half of the year.

As a reminder, a significant portion of the ICON customer base was signed through the SAP sales channel and on their paper. ICON receives royalty reports from SAP once a quarter. As expected, we successfully negotiated the termination of the resell agreement that SAP had with ICON. As a result of these factors currently we lack both visibility and control over a portion of this revenue stream and have model some possible turnover in the customer base as a result.

The existing backlog of professional services revenue from ICON should add approximately $700,000 in the second half of the year. However in some cases we are re-tasking their people on to implementations of our analytics related products, so this revenue contribution will blend over time as the companies are integrated. We continue to expect the acquired business to have an immaterial impact on our operating profitability this year.

Finally the further acceleration of our partner plans that Mark described is expected to reduce our professional services revenue by approximately $7.5 million, when compared to our earlier expectations for fiscal 2014. This also accounts for a majority of the change in operating profit and adjusted EBITDA guidance for the balance of the year offset by the outperformance in Q2 and some continued benefits from a lower level of spending for the second half of the year.

In summary, we are reiterating the two most important components of our annual guidance compared to our prior expectations, 30% growth for new and upsell bookings and 28% to 29% growth on an organic basis for our subscriptions and support revenue. We continue to expect to exit the year was an organic year-over-year subscriptions and support growth rate in the mid-30s. We take down our core professional services revenue forecast due to the success of training our consulting partners and migrating works faster than expected, a process which would be largely completed by the end of the year. We also called out the impact of ICON on each of our guidance line items, along with a summary view that it will have an insignificant impact on profitability this year.

Overall our business continues to perform well and we are optimistic about E2open's future. Our goto-market plans are ahead of schedule we have made great progress already with our ICON acquisition. We remain uniquely positioned to capitalize on our leadership position and the collaborative execution of planning market and now we would be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Thank you. Our first question comes from line of Kash Rangan with Merrill Lynch. Please proceed with your question.

Kash Rangan - BofA Merrill Lynch

Hi. Thank you, Mark, Peter and Greg. The first question with respect to your pipeline of new customers. How does that look? Three customers, certainly not bad at all but certainly tomorrow there’ll eight or so you signed up in Q4 of last year. So if you could comment on that if would be great.

Also secondly, with respect to the EBITDA guidance, I can see strategically what you guys are doing here. I am also trying to reconcile the math here. So you took down professional services revenue guidance by about $3 million but your EBITDA guidance goes down by $7 million. It seems like a large enough variability there. So how might I think about the delta in your EBITDA forecast. At one level, I can ballpark assume, maybe $100,000 or so for training resources in the second half of the year. That would translate to about 50, 60 bodies that you maybe hiring in. I am just hypothesizing but I want you to expand upon that variance on your EBITDA line. Where exactly is that going and also if you could wrap it up on whether you think this is the last shoe to drop or you are completely done with the scale of your investments or could we expect more of these trade off decisions, which may be the right thing for you strategically but at a short-term cost to the financial model. Thank you.

Mark Woodward

Sure, so I guess I would start with pipeline. I would say the pipeline is the strongest it has ever been. We are working on a number of a mix of good large deals as well as pilots. We have a number of active pilots. We have talked about the success we have had at converting those pilots. So I think we have no shortage in terms of deals to work on. I would go as far as to say, it is the strongest the pipelines has ever been.

In terms of number of new customers, we typically add more in the second half than the first half and we are at six or seven year-to-date and I have been saying if we can add somewhere in the range of 15 to 20 a year that is all we need to drive the growth that we expect. So I am completely fine with where we are with number of new logos that we have signed up. I know that we have more new logo opportunities. I said our pipeline. So our pipeline just to qualify further I think we have more new logo opportunities in our pipeline than we have ever seen before. So I am happy with the business we have in front of us.

Peter Maloney

So Kash, this is Peter. So I think if you look gross at the guidance that we had previously out there for the year, and you assume that there is about $7.5 million of professional services revenue organically that will come down offset by about $1.5 million for the year of the backlog that we acquired through ICON that gets you to about $6 million and then from an EBITDA standpoint, there was about $1.1 million outperformance of earnings in Q2 and some continued reduced spending compared to the previous guidance.

Mark Woodward

Kash, does that answer that question?

Kash Rangan - BofA Merrill Lynch

I will take it offline. I think it does but we can take it offline after the call. Thank you.

Operator

Thank you. Our next question comes from the line of Matt Shaw [ph] with William Blair. Please proceed with your question.

Unidentified Analyst

Hi, guys. Matt [ph] in for Yvonne. Thanks for taking my questions. So first on the implementation times. What have you guys been seeing since you have been transitioning these services off to your partners? Have they been increasing or have you generally seen them decreasing?

Mark Woodward

So before I have Peter answer that, Kash, I just wanted to answer the last question. Didn't really quite answer about, is this the last shoe to drop. We think Peter's comments about having these [inaudible] transitioned by the end of the year, but that's really what we meant. So we do feel like that we have a plan for how we deploy more and more of the resource we have. We have a plan for how many of those resources we think we will deploy. It's less than half of those we already have trained but because of that we think we have got good visibility in the business that we are going to be performing directly as well as the business we think we are going to giving directly to partners and that's what we’ve based the guidance.

I am sorry. Would you go ahead and repeat that question real quick?

Unidentified Analyst

Yes, sure. So it was about implementation times and how they have been trending since you guys have been offloading the implementations to the third parties?

Mark Woodward

Okay. No, so I would say that probably about the same. That's why you see that in the subscription revenue. So I would say no real change. It's a mixture of them. Some of these are pilots which sometimes go faster. Some of them are large implementations. We call them business releases, the different pieces of the work that we do and they range from weeks to months but that really hasn't changed.

Unidentified Analyst

Got it. Then when you exit the year, what percentage of your professional services do you expect to be being done by your partners?

Peter Maloney

So we really don't look at that from a percentage of the total. We look at the capacity that we are bringing online and we look at that compared to the $7.5 million of revenue that we just took down our guidance and we really believe that by the end of this quarter we will have trained up partners that can handle probably 200% of that. So the capacity that we are building will exceed the amount of revenue that we have taken down our guidance but we were not looking at an overall percentage mix and it’s really on an account-by-account basis.

Mark Woodward

It also depends on the integrator and whether or not it's a business that they brought us into or a business that we’ve brought them into.

Unidentified Analyst

Got it. And following up on that, I think you guys have said previously you didn't expect to get any referrals from some of these SIs until next year. Could that be pulled forward, now that you think you are ahead of schedule with getting these guys onboard?

Mark Woodward

I do think that's possible. Yes.

Unidentified Analyst

Great, and then on the quarter, you guys mentioned a lot of upsell and wins in the CPG verticals. Was is fair to say that's where the strength was in this quarter?

Mark Woodward

I would say, in terms of new business, yes. We had some upsell activity as well in that. I think we continue to see a lot of strength in upsell in the markets where we just have a larger customer base. So it’s probably more focused on technology in the upsell side and new business from the CPG side. I will just take it a little further. If I look at pipelines in the business going forward, it's a good mix but I think we expect to continue to do really well in the CPG vertical.

Unidentified Analyst

Got it. Thanks, guys.

Mark Woodward

Yes, thank you.

Operator

Thank you. Our next question comes from the line of Brendan Barnicle with Pacific Crest Securities. Please proceed with your question.

Brendan Barnicle - Pacific Crest Securities

Thanks so much. Peter, just wanted to clarify on gross margins on pro services. I think you had previously guided it to be about 10% to 20%. My guess is that's going lower with these changes. Do you have a new range that we should think about in terms of those as margins?

Peter Maloney

Yes, I think you can think about it as probably slightly negative for the year. Close to break even but slightly negative.

Brendan Barnicle - Pacific Crest Securities

And more negative for Q3 and then for Q4?

Peter Maloney

Not really guiding on Q4. So can't really comment on that. Sorry.

Brendan Barnicle - Pacific Crest Securities

And then, Mark, just following up n the verticals question, obviously CPG. Anything was strong? Any new verticals that you are starting to see? Any surprise that you have in that area that we should keep an eye on?

Mark Woodward

So I would say, we are not really - when we entered the CPG vertical, we had a very specific plan for that. We went in and hired sales guys and we hired people that really understood it and we built some solutions and presentations and such around that. So I would say, we don't have - we are not actively searching new verticals. I will say though that we have found some interesting opportunities in oil and gas that we are looking at that have kind of come to us. More on this, there is some discreet supply chain issues in oil and gas that have nothing to do with the actual process of pulling oil out of the ground. So there are some interesting opportunities there. You know those companies are big and they have a lot of money. So we are looking for situations just like in CPG, where our platform applies well without hiving to do something special for that particular vertical market. So that's something you maybe hearing us talk about more in the future.

Brendan Barnicle - Pacific Crest Securities

Great and then just lastly, maybe a little more color on two products, in particular, the demand side product and anything on the analytics side?

Mark Woodward

So you heard me talk about both Beiersdorf and Seagate are situations where the majority of that business we did this past quarter was on the demand side. We are definitely seeing that. It ties in really well with the stuff that we are doing with ICON. So there is some interesting integration that data and things we can do in terms of some of the planning the ICON platform. As well as on the planning and analytics side, we are seeing tremendous interest. We just had our executive leadership conference which is, we bring in executives from our customers and a small amount of prospects. We had almost twice as many attendees this year as last year and the interest in the existing customers wanting to now talk about how they put our new ICON technology into their upgrade plans was a hot topic.

Brendan Barnicle - Pacific Crest Securities

Terrific. Thanks, guys.

Mark Woodward

Yes.

Operator

Thank you. Our next question comes from the line of Richard Davis with Canaccord. Please proceed with your question.

Richard Davis - Canaccord

Hi, thanks, Mark (inaudible). I have two quick questions. One, I know you did a reset with Blackberry or RIM last year. Their company, obviously, hasn't done quite as well as people had hoped. Are there any changes at all that we should know about that. I know it's a small percentage of the business but we have gotten questions on that.

Then the second question is, on renewals, you are seeing, like-for-like functionality, what is the pricing trend there? Is it flat? Is it up? Is it down? Or how does that feel?

Those are the two questions that I have. Thanks.

Mark Woodward

Sure, I will start with renewals. So, we are very happy with the way our renewals have gone so far. We have renewed every customer that we expected to. Every renewal opportunity, I would say, we had this year, now just a reminder that those renewals, the number for one year to the next can change dramatically just based on the timing of the contract. So we do have less renewals this year than last year but I am happy to say that we renewed everyone that's come up so far this year.

What we typically see and this has not changed at all is that the pricing is, pretty much, always like-for-like. It's usually renewed at same price unless we have added something in there but, as we have explained before, that we typically don't do upgrades on renewals. We usually do upgrades or sell a new products when the need is there or when we are able to create a need and then we will often do our renewal at the same time. So often an upgrade will drive an extended renewal or an early renewal typically not the other way around. But the pricing we have seen, as we typically expect with renewals, is pretty much like-for-like. Sometimes a small increase but so far this year it's been pretty much as expected.

Oh, I am sorry. On the RIM. Obviously, we continue to watch the situation at RIM like everybody else. Their business obviously is not doing well. At this point, as you pointed out, for next year, they are less than 3% of our revenues. So it's something we are paying close attention to but nothing has changed with that relationship to RIM today.

Richard Davis - Canaccord

Great. Thanks a lot, then.

Mark Woodward

Yes.

Operator

Thank you. Our next question comes from the line of Michael Huang with Needham & Company. Please proceed with your question.

Michael Huang - Needham & Company

Thanks very much. Just a few question for you guys. First of all, just in terms of winning new logos, I just wanted to make sure, I have this right. Are you seeing any changes at all with respect to close rates or for length of sale cycle or conversion rates on pilots?

Then, on conversion rates on pilots, are you seeing, I know that historically you have had close to 100% conversion rates on pilots. Have you had any pilots that have slipped?

Mark Woodward

I will just start with the pilots. No, we continue to experience very good success, excellent success with conversion of pilots into deals. So really nothing has changed there. Sale cycle length really hasn't changed but something that we are seeing, which we are hopeful of, is with the integration of this ICON functionality into our platform, is that this planning function, so with ICON there is, what we talked about is analytics, there is also a very interesting planning functionality that we are turning into, from a batch on premise product like most of the industry is, to a real time SaaS product where we are taking real-time data from our network and then allowing out customers to do these re-plans in real time which is a significant advantage over other solutions in the market.

Now what's nice about this planning market, it's very well defined, it's much more mature and we believe we maybe able to actually get some deals done faster by entering through the planning front door, if you will, as opposed to the E2open classic story and is bolstered by the integration of our platform to really differentiate ourselves in that planning market. So far really no change in the cycles times but we are optimistic that with this new planning functionality we maybe able to get some deals done faster.

Michael Huang - Needham & Company

Got you, okay. And so just based on your timeline for bringing ICON on to the core E2open platform, when would you expect that sales get ramped on selling real time planning and analytics and when could it start impacting the business from a bookings basis?

Mark Woodward

Sure. So just actually this week and next week, well I should say, by next week, we will have completed the training of the sales force worldwide. So we have done two sessions here in North America. We are doing a session in Europe next week. So that training will be completed next week. We have a timeline to do that, first of all, integration which is to really put it on our platform with our first level of integration by the end of the fiscal year and we are completely on track for that, which is why we said we are not setting the expectation we are going anything sell between now and the end of the year because we are really spending that time doing that integration and we don't want to sell anymore on premise products. So we have told the market, we are not selling the on premise product. It is going to be our SaaS enabled on the E2open platform and that's going to be ready, the first level of personal integration is going to be ready at the end of this year.

Michael Huang - Needham & Company

Okay, and so that 30% bookings growth that you reiterated here, that does not include any ICON and if you are able to sell some of that, that would just be incremental to that?

Mark Woodward

That's correct.

Michael Huang - Needham & Company

Okay, got you, and last question. Just again, around the 30% bookings growth that laid out as a target. When you think about the split between new and existing customer contribution, does that change from past quarter and is there any change with respect to where that's coming from?

Mark Woodward

So we believe that more than 50% will come from the upsell to install base and that's consistent with what we have seen over the past two years and you can remember we had possibly 30 customers 3.5 years ago and now we have over 100. So there is a really good fresh amount of relatively new customers to sell upsells into ourselves into and so that's why we expect to see the mix continue to be more than 50% upsell.

Michael Huang - Needham & Company

Okay, great. Thanks so much.

Mark Woodward

Yes.

Operator

Thank you. Our next question comes from the line of Mark Schappel with Benchmark. Please proceed with your question.

Mark Schappel - Benchmark

Hi, good evening. Mark, just one question, building on earlier question. For the most part your sales organization has been focused on selling the connectivity side of your product line. Now that ICON gives you a deeper portfolio of applications, does the sales cycle or more specifically the type of sale change as the sales force shifts to selling the planning apps?

Mark Woodward

Well, that's a really good question. So the first thing we did as we looked, we said, okay, what percentage of our sales force has got really deep expertise in this planning space. It's about half. So the guys know the supple chain really well but they don't have a planning background which is why we have done a lot of the training that we have done. Of course, we have retained all the relevant people in the ICON sales and support organization to help support our sales force as well. So we think, as I was just saying to Michael, it does actually give us more opportunities because we go into a customer now, we can not only qualify for the legacy E2open solution but we also can qualify ourselves for the planning and analytics solutions. You will understand this as well as anybody on this call about the difference in those two and the opportunity that we have to now, once we qualify ourselves into potentially a planning opportunity to really differentiate ourselves with then the ability to bring the E2open platform underneath that. I mean, we talked to you a couple of quarters ago the win we had at Intel and that's exactly how we did that, as there was a planning need there and we sold them on the real-time aspect of the E2open platform underneath the planning engine. That was extremely successful. So it gives us multiple opportunities to go qualify different types of business and then differentiate ourselves by either selling the planning and analytics with the real-time platform underneath it or the other way around. If it's a E2open legacy platform opportunity, we then differentiate ourselves further by the analytics on top, kind of whatever the situation is.

Mark Schappel - Benchmark

Thank you. That's helpful.

Operator

Thank you. Our next question comes from the line of Scott Berg with Northland Capital Markets. Please proceed with your question.

Scott Berg - Northland Capital Markets

Hi, Mark and Peter. Thanks for taking a couple quick ones here. First of all, can you comment on the size of the professional services staff? Is that changing at the back of the year with the further push of the implementations to your partners? Or do those resources stay the same and they are just going to be in production, I assume?

Mark Woodward

I think the way to think about is, for the back half of the year, there won't be a significant change. We definitely have plans to make changes as we go into 2015 and if you can imagine right, some of these people are the most important resources of the company. They understand the technology. They understand customers and they have roles outside of professional services purely deploying that some people will be taking on, as well as it's very important that we continue to execute on this transition. So we wouldn't want to do anything prematurely. So for the balance of the year, I think, approximately the same, but when we go into 2015, there will be some changes.

Scott Berg - Northland Capital Markets

Okay, and then on the historical revenues for the acquired planning products. They were down in the first half of '13 relatives to the first half of '12. Do you know what dynamics was creating that decline in revenue from year-over-year perspective? It's a small nascent market. So I assume the overall demand was there but just didn't know if there was anything else to read into that?

Mark Woodward

Yes, basically it was because of the resell agreement that ICON had with SAP. So ICON had turned the entire, basically, their wholesale channels over to SAP. The resell agreement they had was, I would just call it terrible, which is why we negotiated the termination of it. As a result of that, SAP could sell that product for whatever they wanted to and ICON would receive 40% of whatever they sold it for. There were situations where SAP was selling it for, literally, 1% of list price and ICON was given 40% of 1%. That really escalated, kind of became their standard practice in the first half of this year which is one of the reasons why ICON was anxious to partner with us.

Scott Berg - Northland Capital Markets

Alright, fair enough, and then the last question I have is around your booking seasonality. It has certainly been stronger in the second half of the year and you commented, at least historically, that you are expecting the second half to be stronger here. Is there any noticeable, I guess, discernible change in terms of how or what the customers are buying in the second half or does that trend also remained pretty static from a historical perspective?

Mark Woodward

There is no real discernible change. I think a part of it is just - it almost doesn't matter when your fiscal year is, right. We have got this funny fiscal year but the sales guys' comp plans seem to drive behavior of customers. As hard as you try to change that. So I think more of anything, it is just a bit seasonality. Customers are also used to spending more in the second half of the year than the first half of the year and we have that dynamic. So we haven't really seen the change in that regard.

Scott Berg - Northland Capital Markets

Thanks, that's all I have. Thanks for taking my questions.

Mark Woodward

Yes.

Operator

Thank you. Mr. Woodward, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

Mark Woodward

Thanks very much. I just want to thank everyone for attending our call today and we remain available obviously for calls for any of you who would like to follow-up further and as soon as we schedule any marketing trips, we will let you all know. Thanks very much.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

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