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E2open, Inc. (NASDAQ:EOPN)

F3Q 2014 Earnings Conference Call

January 09, 2014 05:00 PM ET

Executives

Mark Woodward - President and CEO

Peter Maloney - CFO

Greg Kleiner - IR

Analysts

Kash Rangan - Bank of America Merrill Lynch

Matthew Pfau - William Blair & Company

Brendan Barnicle - Pacific Crest Securities

Richard Davis - Canaccord Genuity

Michael Huang - Needham & Company

Mark Schappel - The Benchmark Company

Scott Berg - Northland Capital Markets

Operator

Greetings and welcome to the E2open Third Quarter Fiscal Yearend 2014 Earnings 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, Mr. Greg Kleiner, Investor Relations for E2open. Thank you, Mr. Kleiner. You may begin.

Greg Kleiner

Thank you. Good afternoon and welcome to E2open’s third quarter fiscal yearend 2014 earnings conference call. Joining me today to discuss our third 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; certain accelerated revenue recognized in connection with the contract amendment, amortization of intangibles, acquisition expenses and the impact of a purchase accounting adjustment to deferred revenue.

At times 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 third quarter fiscal year 2014 performance in addition to our financial outlook for our fourth 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, 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 third 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 customers who purchase our services make these purchase 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 happy to share that our results in the quarter were strong coming in above our guidance on both the top and bottom line. Importantly, our non-GAAP subscriptions and support revenue showed strong growth once again, up 30% on a year-over-year basis. The growth of our subscription revenue continues to be our primary focus and the key to our long-term success.

We made great progress on the partner front during the quarter, formerly announcing a new relationship with PwC in December. We’ve already completed training with a number of their consultants on our platform and we’re excited to move forward with them in the field. Because of a prior relationship that exists between PwC and ICON, they were already trained and knowledgeable on that aspect of our business.

In addition, we’re working to complete a teaming agreement with Accenture as we speak. We’ve been working with them on a more tactical basis in Europe for sometime and hope to complete the formal arrangement shortly. We’ve already achieved some success together which I look forward to telling you more about in Q4.

Along with KPMG we now have relationships with three of the big five consulting firms, quite a feat for a Company of our size. This serves as a strong testament to the unique value proposition of our solutions, along with the hard work our teams have put in -- are putting over the course of this year driving these relationships forward. We now begin to focus more in execution with our partners as we engage with each of them to identify specific opportunities that we will target together.

All told, we’ve now trained over a 100 consultants at the end of the third quarter; this is a mix of people from the three large SIs, along with a few smaller firms that we’ve mentioned previously. We will continue to train even more consultants as we identify the specific resources that will be required on a deal-by-deal basis. These partners themselves will begin to take over some of the training as their own staff become more familiar with our platform.

We are extremely pleased with the ramp in both trained consultants and trainers in place at our partners, as this positions us well for continued success going forward. Our partners continue to take on new projects with customers and have begun to bring us in to some of these new opportunities already.

The ICON acquisition is also moving along well. Our integration plans are on pace and we’re seeing significant growth in the pipeline for these products. We’ve also had some initial success in the field with the products faster than we had expected as we’ve signed our first new deal involving the former ICON products. This project is in the beta phase and has resulted a little incremental revenue to date, but will serve as a proof point going forward when the first release of the integrated products are ready early this calendar year.

This planning deal is with Microsoft’s Azure division, a new customer during the quarter. The Microsoft Windows Azure group part of the cloud and enterprise engineering group had challenges in understanding true server requirements in the global data centers and ensuring that OEM partners could meet these requirements. They’ve been utilizing a manual process, but have been unable to optimally manage server and rack requirements resulting in high inventory costs and the need to frequently expertise certain hardware to meet implementation deadline.

Through our relationships – I’m sorry, exiting relationships at Microsoft, we became aware of an RFP to help them address these issues. As planning and functionality is relatively new to E2open, we had now originally been included in the RFP and we’re the last vendor to submit a response. Again, significant competition we were able to win the business after rapidly differentiate ourselves from all of the solutions based on the real time nature and broad scope of our offerings.

Our solutions will enable the automation of their capacity and supply planning processes, allow the incorporation of a variety of constraints like data center size, inventory buffers, lead times etcetera to ensure that they understand their ability to meet data center service -- data center server SLA requirements and at the same time reduce inventory costs, expedite and write-offs for obsolete inventory. Microsoft plan to leverage E2open solutions at each of their global data centers.

Another new customer win I like to highlight in the quarter is Johnson Controls or JCI. JCI is a global diversified technology and industry leader serving customers in more than a 150 countries. JCI came to E2open because they were lacking a clear and structured means of communicating with their suppliers in response to JCI’s orders and forecast leading to inefficiencies in the manufacturing processes.

The lack of collaboration and visibility led to inaccurate planning product -- I’m sorry, inaccurate product planning as a result of uncertain supply lead times excess of costs due to expedited shippings in case of supply disruption and limited visibility to supplier upsides. Prior to this relationship, all of JCI’s forecast and supply planning was done completely manually through the use of spreadsheets.

We were chosen based on our unique offerings and the positive experience one of the executives at JCI had with E2open at a prior company. JCI plans to rollout E2open on a worldwide basis in their building efficiency division starting first in China, then the U.S and finally in Mexico. In addition, we’ve already begun discussing expansion to other divisions including their automotive experience and power solutions divisions.

We also had an important expansion deal with McDonald’s, in EMEA. We’ve been working with their largest supply chain partner for the past few years. However, McDonald’s wanted to establish a closer direct relationship with E2open. In particular, they were looking for a single integrated cloud-based solution to replace a combination of custom systems and utilities, something that their existing ERP system simply could not accomplish. They also want to partner with a vendor that had extensive experience in working with complex enterprise system with a product design for large multi enterprise, high volume applications.

The E2open solution facilitates McDonald’s European budgeting process that feeds directly into McDonald’s worldwide financial plans. The E2open platform enables the interaction of European lead buyers, country buyers, suppliers, and key supply chain service providers in over -- in order to project future prices and volumes of key ingredients required to serve millions of customers McDonalds restaurants across 38 countries.

Upon personally meeting with the chief supply chain officer as well as their CIO for EMEA, we discussed what we all see as the beginning of a long-term relationship. We are certainly honored to be chosen to more directly assist one of the most higher than respected supply chains in the world ranked number two by Gartner and we’re excited about the future possibilities with McDonald’s.

In other highlights, the E2open business network for direct materials continues to grow now standing at nearly 38,000 training partners and a 123,000 users. This large community of participants provides us with a significant competitive advantage and network effect for everyone involved. Customers across a variety of industries are taking advantage of new capabilities in our cloud connectivity such as sales service onboarding and program management along with a growing library of reusable integration maps to connect partners faster than ever and share information across their supply chains.

We also received a number of industry awards and certifications during the quarter. Our work with Vodafone was recognized as a 2013 European Supply Chain Excellence Awards where our implementation was awarded first place in the supply chain operations category. We were also the first cloud-based supply chain SaaS vendor to achieve ISO 27001 certification indicating the strength of our security manager practices. In addition we were awarded Drummond AS2 Certification in recognition of our interoperability capabilities.

In summary, our financial results were strong once again in the third quarter. We also made solid progress with our partner enablement efforts and our newly acquired ICON products. We believe that our growth initiatives are working and our unique solutions and collaborative planning execution position us well for continued growth in the future.

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

Peter Maloney

Thanks, Mark. Before I go into the breakdown of the quarter, 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 association with the ICON acquisition during 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 non-recurring and not reflective of our ongoing operating performance.

For the third quarter, non-GAAP total revenue was $18.9 million, above the high-end of our guidance of $18.1 million to $18.6 million and compare to $19.5 million for Q3 of last year. These results were driven by strong growth in our subscriptions and support revenue offset by the impact of our professional services transition.

Subscriptions and support revenue was $14.7 million for the quarter, up 30% year-over-year and 8% sequentially. This was above our guidance range of $14.3 million to $14.5 million. Professional services and other revenue was $4.3 million compared to our guidance of $3.8 million to $4.1 million. Included in this number was the contribution of approximately $200,000 of perpetual license revenue from ICON transactions that closed during the quarter.

As we had mentioned previously there were deals and process via the SAP sales pipeline when the acquisition closed. This is not something we would expect to recur in the future. Excluding that impact, the results were at the high-end of our guidance. On a year-over-year basis, our results here continued to be impacted by the accelerated shifts in our go-to-market model related to partner enabling.

Non-GAAP gross margin for the quarter was 65%. This compares to 71% for Q3 of last year and 64% for the second quarter of this year. The decline on a year-over-year basis was driven largely by the evolution of our professional services business and the resulting impact to our professional services gross margin. Our subscriptions and support gross margin remained strong at 82% for the quarter, up both sequentially and year-over-year from 81% for each period.

Non-GAAP operating loss was $3.9 million for the quarter compared to an operating profit of $1.1 million for Q3 of last year and an operating loss of $2.8 million for Q2 of this year. This is better than our guidance of a loss of $5.5 million to $5 million. Non-GAAP EPS was negative $0.16 compared to our guidance of negative $0.21 to $0.18. This compares to positive $0.04 for Q3 of last year and negative $0.10 for Q2 of this year.

Adjusted EBITDA for the quarter was a loss of $3.3 million compared to our guidance of a loss of $4.9 million to $4.4 million. This compares to positive $1.5 million for Q3 of last year and a loss of $2.3 million for Q2 of this year.

Our total deferred revenue balance at the end of the quarter was $36.5 million. I would like to remind everyone that the change in deferred revenue is not a good predictor of our future revenue growth or 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 a size and length of contracts. We do provide additional transparency into our business by providing new and upsell bookings guidance on an annual basis.

Cash flow from operations was negative $8 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 $7.6 million. We ended the quarter with $12.8 million of cash and investments, down from $21.6 million at the end of last quarter. Similar to our prior comments and regards to our accounts receivable and deferred revenue balances, there can be some quarter-to-quarter variability in our cash flow as it is impacted by the timing of invoicing under our contracts.

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 go-to-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 the guidance is all non-GAAP.

For the fourth quarter of 2014, we expect revenue of $19.6 million to $20.4 million. We expect subscriptions and support revenue to be between $16.1 million and $16.4 million or a growth of 37% to 40%. Professional services revenue is expected to range from $3.5 million to $4 million; operating loss is expected to be $4 million to $3.5 million leading to a non-GAAP EPS loss of $0.15 to $0.13 based on a diluted share count of 28.3 million. Adjusted EBITDA is expected to be a loss of $3.5 million to $3 million.

Accordingly for the full fiscal year 2014, we’re maintaining our new and upsell bookings growth guidance at 30% which would translate into roughly $91.5 million. Please keep in mind that we’ve been handing over more professional services business to our partners this year. This has been a significant drag on overall new and upsell bookings, but the continued momentum in the subscriptions and support business has offset this.

We expect revenue of $73.2 million to $74 million. We expect subscriptions and support revenue to be between $56.7 million and $57 million or growth of 31% to 32%. Professional services revenue is expected to be in the range from $16.5 million to $17 million. Operating loss is expected to be $14.7 million to $14.2 million leading to a non-GAAP EPS loss of $0.55 to $0.53 based on a diluted share count of 27.8 million. We also expect adjusted EBITDA to be a loss of $12.7 million to $12.2 million. Finally our free cash flow is expected to be negative $12.6 million to $11.6 million.

In summary, we were pleased to report a strong quarter ahead of our prior guidance. We continue to make concrete progress with both the ramp of our partner plants and the ICON acquisition. We believe the market for collaborative planning and execution remains largely untapped and our leadership position in the industry is unmatched.

And now, we’d be happy to take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from Kash Rangan of Bank of America Merrill Lynch. Please go ahead.

Kash Rangan - Bank of America Merrill Lynch

Hi. Thanks, guys. In your reported financials, can you break out the contribution from ICON with respect to, I think you said that 200K of perpetual license and I’m wondering if you can tell us what the subscription revenue contribution and the PS contribution also was. And I have a follow-up question. Thank you.

Peter Maloney

So what I can do, we’re not going to specifically break that out going forward. Our view is; those are just products within the company at this point. But I will tell you that there will be a breakout in the 10Q if you take a look at that. And the contribution for the quarter both for subscription and professional services was pretty much right in line with what we had expected and we talked about on the Q3 earnings call. So it's right in line with what we expected.

Kash Rangan - Bank of America Merrill Lynch

And I think, Peter, you gave guidance for the second half of the year of $1.1 million. And I wasn't sure of how to spread that out between Q3 and Q4. So is it a 50-50 split of the $1.1 million from ICON in the second half of the year?

Peter Maloney

For the month it was pretty much straight line pro rata; so approximately half of it in Q3, half of it in Q4.

Kash Rangan - Bank of America Merrill Lynch

Got it. So, ballpark, it looks like the subscription and contribution is about 150K even with that excluded the organic growth rate looks like it was better than the subscription organic growth rate in Q2, right?

Peter Maloney

I am getting some feedback when you’re speaking. I think you’re asking about the organic growth rate, and so I would say that, that’s what we expected when we gave guidance for Q3.

Kash Rangan - Bank of America Merrill Lynch

Got it. Okay, great. Mark, a question for you with respect to -- congrats on signing up these partnerships. At what point do they transform from being fulfillers of professional services demand to actually driving new business, either new or new upsell business within your clientele. Could this happen in the next six to nine months or so? And if yes -- I guess the leading question is yes, does that alleviate the pressure on your expenses and could that result in some margin leverage? Thank you and that’s it for me.

Mark Woodward

Well I would say that, I’d mentioned in my remarks that we’ve already had some success with Accenture, so we’ve actually already closed some business in Q4 which we’ll talk about more detail on the Q4 call. And with the other guys we’re basically in kind of in the mode where we’re comparing like pipelines and starting to make joint calls together. So there is activity today, and I would expect in the first half of the year, so I would say within six months that I would expect to see more business starting to close. We’re going to pay our sales people the same way. We do think that over time once they start taking on more of the aspects of what happens in the sales process because we do these; when we get into a sales situation we go in and actually do supply chain designs and things like that as part of the sales process; as they begin to take over more of that then yes that will in fact reduce our cost in the sale.

Kash Rangan - Bank of America Merrill Lynch

Great to hear. Thank you.

Operator

Thank you. The next question is from Matt Pfau of William Blair. Please go ahead.

Matthew Pfau - William Blair & Company

Hi, guys. Thanks for taking my question. On the revenue guidance that you provided, you brought down the high-end slightly from what you guys had previously expected. Can you just talk about what dynamic sort of drove you to decrease the high-end there?

Peter Maloney

There’s nothing specific. We’re talking about a small amount of money and when you look at the out performance for Q3, the fact that there can be a little bit of lumpiness in the subscription and support rev-rec start dates based on the number of pilots. We’re still very comfortable with the 37% to 40% growth and it's very consistent with what (indiscernible) for the full-year, so we don’t look at it as a major change in anything that we’ve been talking about.

Mark Woodward

Yeah, Matt this is Mark, just maybe a little bit more on that. I think the thing we are focused on is the full year guidance is basically, consensus has come out to be the same. As Peter said we do get sometimes pilots close sooner than we expect and that will sometimes bring a certain amount of revenue acceleration with them as well and we experienced some of that this quarter.

Matthew Pfau - William Blair & Company

Got it. And then on the professional services revenue front; what are you guys expecting, and do you think the churn of that professional services revenue to partners when we look out for next year is kind of going to be; do we think it could be -- revenue could be flat or is there going to be more churn and it should continue to decrease when we’re thinking about building our models for next year?

Peter Maloney

Consistent with what we said at the end of last year we’re currently modeling our business for it to be about flat maybe a slight growth and that’s what we currently expect.

Matthew Pfau - William Blair & Company

Okay, so signing PwC and then possibly Accenture doesn’t really change anything, is that right?

Peter Maloney

It doesn’t, no.

Matthew Pfau - William Blair & Company

Okay. And then on the professional services as well, it looked like the margins this quarter came in better than, we were expecting at least -- how should we think about that. I think you had previously said to have that you were thinking margins would be slightly negative for professional services gross margins that is for the full-year. Is that still your expectation?

Peter Maloney

I definitely expect that to be for Q4, and I think that for the full-year it would be breakeven to slightly negative.

Matthew Pfau - William Blair & Company

Okay, great. And then last one for me, I think you guys have previously said that, in order to sustain 30% or so subscription revenue growth you need to add 15 to 20 customers per year and to date you’ve added I believe 11 organically. So how do you think you’re on track for the fourth quarter to fall in those range and are those customers the right size to get you to that sustainable 30% revenue growth for a subscription revenue growth?

Mark Woodward

Yes, I would say we’re right on track. We typically add more customers in the later part of the year that we did early in the year and to keep part of what you just said it's also the size of those customers. And the one thing that we’re talking to a bunch of ourselves here about figuring out a way to give you little more visibility into this but the thing that you don’t see is really the quality and quantity of our upsell business, right? So the majority of our bookings typically come from selling in the install base not from new customers. And so, while 15 to 20 customers is a guideline that we give and we’re comfortable with that number. There’s a lot of growth happening back into that install base that you really don’t have very good visibility into.

Matthew Pfau - William Blair & Company

Got it. Thanks a lot for taking my questions guys.

Mark Woodward

Yeah.

Operator

Thank you. The next question is from Brendan Barnicle of Pacific Crest Securities. Please go ahead.

Brendan Barnicle - Pacific Crest Securities

Thanks so much. Peter, I just wanted to follow up on that pro services commentary around sort of flat to maybe even up a little bit for next year. If we think about that on a sequential basis with what you’ve guided to for Q4, do you see that as the low mark or do we still go lower before we start to ramp back up on that pro services business?

Peter Maloney

Our view is just likely said at the end of last year. So it's the high $3 million to $4 million a quarter seems to be about where the trough is. Now clearly professional service is very lumpy right, and it depends on the timing of bookings, it depends on the timing of deployments. And so, I’m not saying I’m giving guidance for next year as to what the trough of PS would be, but we’re pretty comfortable saying that next year we continue to expect flat to up a little bit for the year for PS right now.

Brendan Barnicle - Pacific Crest Securities

Okay. And then as we think about similarly on the subs growth, any reason why that wouldn’t continue to increase sequentially quarter-to-quarter like it has over this past year just given some of that -- any of the changes that would change that all?

Peter Maloney

The subscription growth and sort of the smoothness of the growth is impacted by when we book additional business and then also go live dates, and so we are seeing an acceleration on our Q4 guidance, and so as long as we’re booking at an accelerated phase I could see that continuing.

Brendan Barnicle - Pacific Crest Securities

Okay, great. And then lastly I know you went to great lengths to explain calculated billings isn’t a great indicator, but we did see a nice or at least better than we expected improvement in deferred revenue. What was behind that again, I don’t know if you explained it in your commentary or not. If so, I missed it and I apologize.

Peter Maloney

Sure. Some of the deferred revenue and the reason that you can’t just let the deferred revenue is it's impacted by the timing and the mix of quarterly and annual billings, but also we typically do have a strong Q3 and Q4 for billings and we saw that this quarter. We did really good billing this quarter and so that did impact deferred revenue. At the same time we continue to build, un-build deferred what we call backlog off the balance sheet and that continues to show good growth as well.

Brendan Barnicle - Pacific Crest Securities

And so that strength that you saw in Q3 given that it's partly seasonal, did that pull any forward from Q4 or is that just Q3 and Q4 should equally remain strong?

Peter Maloney

It did not pull anything forward and Q3 and Q4 should remain strong.

Brendan Barnicle - Pacific Crest Securities

Great. Thanks guys.

Peter Maloney

Yes.

Operator

Thank you. The next question comes from Richard Davis of Canaccord. Please go ahead.

Richard Davis - Canaccord Genuity

Thanks. Mark, a question for you; if we kind of fast forward it two or three years looking backwards, what percentage of your growth do you think would be kind of coming from inorganic versus organic, is it two thirds, one third 80/20 or just, how do you king of think of that mix and I know it's a variable thing, but I’m just kind of curious because I do think your space is definitely right for a consolidation. Thanks.

Mark Woodward

Yes, Rick I don’t have a specific model lease the one that I am ready to share in detail yet. There definitely is inorganic revenue on a percentage basis if we continue to grow the rate that we’re growing obviously the organic revenue is going to be the real driver, and I would say it's probably I don’t know 20%, I could see it being it over the next couple of years 20% to 25%, but like not a lot more than that, again I’m just spit balling right, if things that we would require we think would be smaller and over the time over the period of two to three years could grow to that maybe.

But I think our focus right now is more on looking at the different kind of areas that we think are great for just incremental opportunity for us to sell on our platform into our installed base and then we just make those build versus buy decisions as we move along. As we did with ICON we were already starting to develop something there and then we found something to allow us to move to market much faster with a broader product than we had even envisioned for our self. The revenue from that is not a lot, but we think over time that, that will grow substantially.

So there is less time, we don’t have a lot of acquisitions planned at this time, things that we’ve got even a year out. But I do expect that they will happen and I do agree with you that there are some interesting opportunities in this space for us.

Richard Davis - Canaccord Genuity

Got it, now that’s very helpful. Thanks very much.

Operator

Thank you. (Operator Instructions) The next question is from Michael Huang of Needham & Company. Please go ahead.

Michael Huang - Needham & Company

Thanks very much. Just a couple of questions for you guys. And Happy New Year to all of you guys. So first of all, maybe in terms of kind of the business that you did with the installed base, without providing specific granularity here could you talk about how the number of transactions or kind of maybe the size of these transactions compared to what you’ve been seeing. Like how is that trending maybe on a year-over-year basis?

Mark Woodward

Yes, that’s something obviously we do look at and I would say it's trending positively pretty much over quarter-to-quarter basis. We typically will do more transactions in each sequential quarters and the quarter before and that’s trending well. And the number -- and it's been pretty consistent in how that growth has gone. So we’re feeling good about that.

Michael Huang - Needham & Company

And the size of those transactions given the breadth of your footprint I mean that -- has that grown as well?

Mark Woodward

I don’t know, I think, certainly the number has and that’s a wide range Michael because sometimes we will do, someone may add a trading partner and its $5000. And then we do another sell to Microsoft and it's a $0.5 million and I am talking about in annual ARR so kind of triple that for the booking. It really does range. We certainly, as we’re doing more transactions we’re doing more large transactions in just the absolute number, but we’re also just doing more total transaction. I honestly haven't gone back over the last couple of years and maybe I’ll do just to see what this number looks like, to see what the average upsell is on an annual basis or I mean on a quarterly basis, I honestly haven't looked at that.

Michael Huang - Needham & Company

Great, okay. And then in terms of that Microsoft upsell that you saw, and then I think you had talked about getting into the sale cycle pretty much at the eleventh hour, who were the competitors that you saw there, and were there any other kind of SaaS vendors that competed for this business?

Mark Woodward

Yes. It was a combination of kind of the old guard -- I will tell you who they are, I mean it was, I think it was SAP, JDA and Conexus and that’s kind of who we’re probably going to see in most of the deals. And Conexus is the only fast player. They have a combination of on-prem and SaaS.

Michael Huang - Needham & Company

Got you. And did it boil down to you versus kind of SAP or who is the final …?

Mark Woodward

Yes, we don’t know that actually. They didn’t tell us that, it was – we literally got in. From the time that we submitted our response till the time we got award was like a week. And all we know is who was in there and we don’t really know – they didn’t rank us. All we know is that we came in first.

Michael Huang - Needham & Company

Great. Congrats on that. And then on the, with respect to the pilot activity; I just wanted to see whether or not you could provide some commentary around maybe how that's trending. And I can't recall, when you talk about your new customers, does that include -- is that inclusive of all the pilots that might be new to your business as well or is there some pilot stuff that, in addition to that?

Mark Woodward

Yes, so when we talk about like, well the first part of the question was like the trending of how they add on a quarterly basis in terms of numbers is that what you asked first?

Michael Huang - Needham & Company

Yes, running right now versus maybe what you've been seeing over the past couple of quarters, would you add all that?

Mark Woodward

Yes, again it's not exact, but I think roughly on a percentage basis its close. It's about what we’ve seen in the past. When we talk about pilots, we’ll talk about pilots as a new customer if the customer has signed multi-year contract where the kind of, to get out of jail – the ability for them to get out of the agreement or not move forward is based on us not performing. So in those cases we will count those new customer recoveries never not gone through with one of those. If it's something where I would say true three month pilot and nothing happens after that and then we negotiate a new contract, we don’t talk about those as new customers until they have converted.

Michael Huang - Needham & Company

Okay, got you. And then final one for you, and I think somebody had touched on this earlier and, when you think about customer adds, and obviously Q4 is typically -- it is the quarter where you see the greatest customer add quarter, I mean do you think -- is there a possibility, given where we are now that this Q4 and kind of this fiscal year could be up versus what you saw last year, even though you had a couple really, really strong customer add quarters last year? I mean is that out of the -- do you even have a shot at that or does it look like it's going to overall be down year-on-year, given the fact that I think in Q2 last year you really had a nice one.

Mark Woodward

Well, the biggest difference from last year to this year is last year we were very focused on selling that ELN offering with Oracle and that’s something we have not focused on this year just because of the size of deals and things like that, I mean we put the focus much more on our much larger direct customers and that’s what's taken the overall count of quote deal count or our new customers logo count down, if you remove those we’re probably slightly up. I wouldn’t expect to see something dramatically out of the range of what we’ve been discussing for Q4.

Michael Huang - Needham & Company

Got you. Okay, great. Thanks so much guys.

Mark Woodward

Yes.

Operator

Thank you. The next question is from Mark Schappel with Benchmark. Please go ahead.

Mark Schappel - The Benchmark Company

Hi, good evening. On a couple conference calls this evening, so I apologize if someone has gone over this question here. But Mark, starting with you, with respect to the ICON acquisition, I was wondering if you could just give us an idea of what supply chain applications that they have that seem to be generating most of the interest with your existing customer base at the moment.

Mark Woodward

It’s really about -- probably around supply planning. Well the ability to -- coupled with the live, the real time data that we can bring in from the E2open network and the ability to feed that data into these engines that can then help customers understand in real time how to deal with changes in the supply base or in demand. So changes in the trading partner network. So suddenly we have a sudden increase in demand or we’ve got a shortage somewhere, now what do I do about that? And the ability to kind of analyze and model those kinds of changes and at extremely granular level is, that’s probably where we’re seeing the greatest interest. And it really is -- it’s nice to see, we’ve talked about this Microsoft win. One of the reasons that we won that is because the ability that we have to bring in the real time data. That was a real advantage for us that nobody else was talking about it. And that is where we’re probably picking up most of the traction, most of the interest.

Mark Schappel - The Benchmark Company

Okay. Thank you.

Operator

Thank you. The next question is from Scott Berg of Northland Capital Markets. Please go ahead.

Scott Berg - Northland Capital Markets

Hey, Mark and Peter. Congrats on a good quarter. Two questions from me. First of all, Mark you briefly touched on being able to sell some of the new ICON functionality that you built in during the quarter. Can you give us maybe a little better understanding? Are you ready to fully go to market with that new functionality or is that really, at least in Q4 here, is that really more of a fiscal maybe Q1, Q2 event in fiscal ’15 to start looking at?

Mark Woodward

Yes, I think there is a chance we could get another customer or so this quarter. But I think as we did with Microsoft, it is kind of in a beta phase, so it’s -- product is developed and we just and the customers that are willing to take it on before its gone generally available where there maybe a few bugs they work through us with, then we will take some customer like that. We are really making it available for real general delivery in the Q1 timeframe or the Q1 timeframe. So we’re really not looking for to close a lot of deals right now. They got to be real specific in terms of the fit and the customers willingness to help us through that beta process. So it could be one or so, but generally I think expect that to start next year.

Scott Berg - Northland Capital Markets

Okay, great. And I guess the last question for me is, is as you kind of reflect so far on where fiscal ’14 has been in terms of your new and upsell bookings, has that ratio or combination between new versus upsell in line with your thesis through the first three quarters or has one been maybe a little bit stronger than your -- beginning of your expectations?

Mark Woodward

Well our -- the upsell has been stronger -- the larger percentage of our bookings has come from upsell versus brand new customers for the last couple of years. And I see -- we see that trend continuing, but new customer bookings has been good as well. What tends to happen though and one of the reasons we see that phenomenon is that a customer may do -- I will just make up a number -- a $500,000 original deal with us that’s more kind of like a pilot $500,000 a year, so may be a 1.5 million booking and after six months, eight months, nine months, they get through kind of an expansion of it and then decide to go much bigger and then we may do a $1 million a year or $3 million upsell on top of that. So with the same customer often times we will see the upsell being bigger than the initial sale. And then plus the fact we have a 105 customers we’re selling into I think we’re probably forever going to see that upsell part of our business be larger than the new business.

Scott Berg - Northland Capital Markets

Great. That's all I have. I will jump in the queue. Thank you.

Operator

Thank you. We have no further questions in the queue at this time. I would like to turn the floor back over to Mr. Woodward for any additional remarks.

Mark Woodward

Again, thanks very much to everyone for attending and we will be doing our normal investor marketing and we have some conferences we plan to attend in this quarter as well. So we look forward to seeing you all later this month and next month. Thanks very much.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation.

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