Covisint's CEO Discusses F3Q 2014 Results - Earnings Call Transcript

Jan.24.14 | About: Covisint Corporation (COVS)

Covisint Corporation (NASDAQ:COVS)

F3Q 2014 Earnings Conference Call

January 23, 2014 04:45 PM ET

Executives

Ed Yuen – Investor Relations

David McGuffie – President & CEO

Enrico Digirolamo – CFO

Analysts

Michael Nemeroff – Credit Suisse

Rob Owens – Pacific Crest Securities

Kirk Materne – Evercore Partners

Operator

Hello and welcome to the Covisint Corporation Third Fiscal Quarter Results Teleconference. At the request of Covisint, this conference is being recorded for instant replay purposes.

At this time I’d like to turn the conference over to Ed Yuen. You may begin.

Ed Yuen

Thank you. Before we get started, please note that certain comments made on this call will contain forward-looking statements regarding expectations about future growth and financial results based on Covisint’s current forecast of the aspects of its future business. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from historical performance or current expectations. Risk factors are included in today’s press release and Covisint’s public filings with the SEC. We have posted our earnings press release and presentation to the Investor Relations portion of our website at www.covisint.com.

I will now turn the conference call over to David McGuffie, Covisint’s President and Chief Executive Officer.

David McGuffie

Thank you, Ed. Welcome everyone to Covisint’s third quarter fiscal 2014 earnings call. Joining me on today’s call is Rico Digirolamo, our Chief Financial Officer. I’ll begin by discussing our business and financial highlights during the quarter. I will then turn the call over to Rico, who will walk you through our financial results in more detail. Finally, we’ll open the call to take your questions.

Turning to Slide 3, in the third quarter we continued to make significant progress on our major strategic objectives. Our subscription revenue increased 21% year-over-year to $17.6 million. This is strong growth in the most important and profitable part of our revenue. As we have previously discussed, our long term strategy is to make this a larger part of our overall revenue mix and we are progressing positively towards this goal.

Our services revenue was $6.5 million for the quarter. We have less services revenue than anticipated for this quarter partly because some of the work will be rolled over into Q4. But more importantly, we are seeing the investments in our platform pay off as the shift in our revenue mix is happening faster than we have anticipated.

We added 21 new customers to the Covisint platform in the third quarter and 21 agreements with existing customers. This continues a trend of major account expansion based on the capabilities of our platform to solve strategic problems across multiple use cases. The third quarter also featured significant groundwork on our partnership with Cisco. This partnership is a result of one of the most in-depth technical and business due diligence processes we have ever seen. It’s a validation of our platform, our go-to-market teams and technical capability and it will offer access to partners, customers and influencers that we wouldn’t otherwise reach.

Under the agreement, Cisco will embed Covisint technology within the Cisco Exchange platform to provide high value connected industry solutions to Cisco customers worldwide. The combined offerings will be available to customers within the coming weeks to support a variety of enterprise solutions for financial services, energy, healthcare and manufacturing. The platform will include enterprise grade business services that securely provision applications, data devices and processes through powerful cloud user experiences designed for both desktop and mobile users.

The partnership also leverages Covisint’s deep legacy in providing hardened identify management across highly federated operating environments that are typical in Internet of Things initiatives. The first customer uses our plan for the first half of 2014 in North America. This is a key step in our long-term strategy to work with channel partners for the services and distribution of our platform.

In Q3, we continue to aggressively acquire the people, processes and infrastructure needed to operate as a fully independent public company. We have added a seasoned general counsel and HR leadership as well as built out our finance staff. We have made a significant process in implementing the systems that will facilitate our separation from Compuware. As part of this process we have added three new independent Board of Directors members: Sam Inman, Dave Hansen and Philip Lay, three highly respected minds in technology, to Covisint’s Board. Their global experiences in creating and guiding winning strategies for Cloud and other technology companies will significantly contribute to Covisint’s execution as we enter the next phase of our growth as a public company. We are continuing to invest in and deliver new platform capabilities. As you know, the Covisint platform allows our customers to connect, engage and collaborate with our customers, business partners and suppliers. Extending our core confidences of security, integration and presentation this quarter, we released new features around ease-of-use, self administration and mobile alerting.

Our investments over the last three quarters have focused on enabling partners and customers to do more self administration, integration and development on the Covisint platform. We have also soft launched our Covisint predictive analytics solution into certain trial markets. This solution will allow health care organizations facing financial risk and accountability for overall patient health to identify and intervene with those patients at greatest risk for costly health issues, you will hear more about Covisint predictive analytics this quarter.

Turning to slide 4, we show the subscription revenue growth. As I had mentioned earlier, subscription revenues increased 21% year-over-year in the third quarter and for the first three quarters of the year, we have 20% growth year-over-year. We are pleased with the accelerating growth trend for our subscription revenue.

Turning to slide 5, we provide a snapshot of our revenue mix trends. Over the past four quarters, subscription revenue as a percentage of our total revenue has increased from 61% in the fourth quarter fiscal 2013 to 73% in the third quarter fiscal 2014. On a year to date basis, subscription revenue mix has increased from 63% in fiscal ’13 to 68% in fiscal ’14. We remain focused on growing subscription revenue as a percentage of our overall business.

The subscription business is a higher margin business and the lower operating expenses will drive our path towards profitability.

Finally a word about services, as we have previously stated our long-term services revenue mix objective is 25% of our business. We are successfully progressing in this objective and are ahead of projections on this goal. The investments that we have made in the platform allow us to launch initiatives in a frictionless fashion and open the platform for customers and partners to do more of the services work themselves. Additionally, we continue to focus on developing our network of channel partners that would provide the services. As a result, we would be refining our expectations for our service business to be flat to a slight decline for the full year. Rico will provide more color on this.

Turning to slide 6, you can see our revenue by business unit. Auto revenues were $10.6 million in Q3, a decline of 22% year-over-year. A key driver in the automotive year-over-year revenue number was that General Motor services revenue declined on a compared basis. Last year, the GM services revenue was particularly strong because of the complexity of some of the rollouts at the time. These specific complex rollouts are now successfully behind us as they are now live and online. General Motors still remains our largest services customer.

We have been cautious in discussing specific customer agreements in the past because our customers feel that utilizing the Covisint platform is a competitive advantage with very specific ways that they are driving innovation within their business.

Hyundai Motor America recently went public with the announcement of their Blue Link Connected Owner Platform. With Blue Link Hyundai offers its customers the latest in vehicle information and applications such as remote start, remote lock, unlock, vehicle health reports, social media, location services and more. Covisint provides the Cloud platform that manages and secures all of these features. The Covisint cloud platform was originally selected to allow Hyundai the flexibility to add new telematics and infotainment features literally on the fly whether developed by Covisint, Hyundai or third parties

This gives Hyundai a tremendous competitive advantage as they are delivering continuous innovation be it Blue Link to the customers. Our relationship continues to grow with Hyundai as this innovation grows as recently evidenced by Hyundai’s demonstration at the Consumer Electronics Show in Las Vegas of a Google glass prototype working in conjunction with Blue Link.

This interface is managed and secured in the cloud by Covisint. More features will be added to Blue Link over time and it will be expanded to more Hyundai vehicle models as well further growing Covisint relationship with Hyundai. This is a great partnership that continues to grow and shows again Covisint’s capability to deliver increasing value to our customers over time.

Health care revenues were up 9% year-over-year at $8 million. We have particularly strong growth in recurring revenue and health care while the services business was down on a year-over-year basis. As we continue to make these complex implementations more reputable and easier to implement, we accentuate our core value proposition, a faster time to market with less risk. A great example of the capabilities that our platform delivers in health care is with Day Health with 5,100 employee organization in Delaware. Day Health chose Covisint to improve the health of its employee population based on our capabilities for integrating and analyzing data from numerous sources. We believe employer based accountable care initiatives will be a key market driver going forward as more organization seek population health management solutions to manage cost and improve care quality for patients and employees. The accountable care market is now moving from pilot and planning stages into implementation. As a part of the ACA legislation, all hospitals will need to address these outcome based model over the next 36 months.

This quarter, we sign our first significant international Health Care Agreement in Asia Pacific. This agreement centres on managing workflows and patient care nationwide and we believe additional opportunities exist and impact for this solution.

Enterprise revenues increased 87% year-over-year to $5.5 million. We continue to see substantial growth opportunities in vertical markets such as financial services, oil and gas, pharmaceuticals, manufacturing and others. We also see continued demand for differentiated capabilities in security, integration presentation driven by the massive growth in connected with things. We are pleased with our growth and subscription revenue, as well as, the market drivers and macro trends that we believe will bring additional opportunities for growth in the weeks and months ahead. With that I would like to turn the call over to Rico to drive more financial details.

Enrico Digirolamo

Thanks Dave, and good afternoon everyone. Now, let’s have a look at the table on the left side of slide 7 which represents a pro forma non-GAAP financial overview of the quarter. Just to remind everyone, the non-GAAP presentation excludes the impact of stock options, compensation, intrigues R&D spend as a period expense versus the GAAP approach which capitalizes a portion of the R&D. The GAAP P&L, the non-GAAP P&L, reconciliation of GAAP to non-GAAP as well as, our balance sheet and cash flow were included in the press release. As Dave mentioned, we delivered third quarter fiscal ’14 revenues of $24.1 million. We delivered third quarter subscription revenues of $17.6 million or 21% year-over-year growth. This continuous the multi quarter swing of 20% growth for the most important element of our business subscription.

Subscription revenues represented above 73% of our total revenues for the quarter, for the past nine months subscription revenues represented 68% of our revenues.

As we continue to expect the subscription revenue to become a larger part of our overall revenue mix, we have made investments in the platform to make it easier to implement and then capabilities for others to give the service such as service partners and internal resources and this is the key driver behind our long-term target of 75% of total revenues coming from subscription.

Gross margin came in around the range where it has been in the past few quarters at 51% although subscription revenue was a larger percentage of the revenue for the quarter, our gross margin remains stable when compared prior period because we saw decline in sources margin. It will be continues right size for the services business to expand to our customers – to expand our subscription revenue as a portion of our overall, we expect margins to improve. Regarding operations expense, we stepped up our investments in sales and marketing versus a year ago which we can say with confidence has been a major enabler for the subscription revenue performance.

Regarding G&A expense, we are making progress in the cover up process and we are pleased with progress till date.

We finished the quarter with $3.6 million loss, the bottom right side of this chart provides our outlook and expectations for fiscal ’14. Our guidance is based on the current market conditions. For the fourth quarter of fiscal ’14, we expect the year-over-year subscription revenue on the range of 18% to 20% and we expect services to be down in the range of 9% to 11% when compared against the same quarter last year. Overall, fourth quarter total revenue growth versus a year ago will be in the 6% to 8% range. For the entire fiscal ’14 this adds up as follows. As we indicated in the last call, we expect our year-over-year subscription revenue to be in the range of 18% to 20%. As Dave mentioned, we will revive the services outlook for the entire to finish flat or a slight decline versus the heavy 2013 fiscal year.

Accordingly, we expect fiscal year total revenue growth in the 10% to 12% range. As we said at the last call continue to expect to finish year with a net loss in the range of $12 million to $15 million and we expect our outstanding shares at the end of the fiscal year to be 37.5 million. Free cash flow for the quarter was negative $2.8 million which was in line with our plan is slightly ahead of where we finish the previous quarter. We are in track to continue to expect a free cash flow. We will turn positive in the fourth quarter of fiscal 2015.

With that, I will turn it back to Dave for summary remarks.

David McGuffie

Thanks Rico. We are pleased by the strong performance of our subscription business during the quarter and remain excited by the market opportunities as enterprise transformation in the Cloud services continues. With that I would like to turn the call back to the operator, open up the lines to take any questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will come from the line of Michael Nemeroff with Credit Suisse.

Michael Nemeroff – Credit Suisse

Hey guys. So just a couple of questions on the services decline and just more importantly, I guess, how subscription revenue can grow apace without the services implementations revenue leading it?

David McGuffie

Hey Michael. There are four major strategies we had about reducing the services. One of them is making the solution more repeatable. Our R&D investment over the last 24 months have focused around making the deployment more frictionless, easier to deploy. Second is utilization of channel partners in the sense of having channel partners like Cisco, like some of the other do the services themselves. So in the sense we are reselling, recurring - they are reselling, recurring and doing the services work, it gives us much more scalability and much more focus towards the recurring side of the revenue. So we have invested significantly as far as bringing in a channel partner like Cisco and others. And we are continuing to focus around the channels side of things. Third is around our APIs. The API is the Application Programming Interface pieces putting those out there and helping train our customers in order to do some of the work themselves. And I think that’s something that they’ve wanted to do and asked to do and they are actually doing now. So the fourth piece of it is in some of our customers like in is the like General Motors is that they are just at a point with the platform, still using, seeing getting great value of it where they are not doing as many projects at this time.

Michael Nemeroff – Credit Suisse

Could you give us a sense of what the growth rate and the auto segment was ex-GM?

David McGuffie

I don’t think we have that.

Michael Nemeroff – Credit Suisse

And then, another question around the gross margin for the quarter, how much, I guess, I am just trying to understand if the mix was more subscription, I know Rico, you said that the gross margin was lower. I am just trying to understand why the gross margin didn’t come in higher given the service revenue was so far below expectations?

Enrico Digirolamo

Yeah, you know, Mike, it is because we had a whole lot of folks tied up in the services business on the expenses side. As we enter the quarter and as we get towards the end of the quarter, it kind of did the right kind of shifting we needed to do to get rid of them. So we ended with too much cost piled in the very beginning of the quarter and we ended up effecting the whole quarter.

Michael Nemeroff – Credit Suisse

I guess, the question is that at what point in the quarter did you realize that the services weren’t going to come in at about the same rate? Was it just the timing of things, milestones that weren’t met, or because I think you said that there was some bleed over – there will be some bleed over from the services into Q4, how much of that will come over, will extend into Q4?

David McGuffie

Yes, we basically have rolled that into the guidance number that we have. Some of it will roll over the quarter itself from a services standpoint. It would drop below, kind of the line as far as the average. If you look at the previous quarter, it is going more like more along those lines. So this one is going to be a little bit of an anomaly, it is slightly below what the average is. But overall, we gave the guidance for the full year; we are going be flat to slightly declining on the services revenue.

As far as getting visibility into the services revenue, as you know the services unlike the recurring side of it where you have a good visibility to it, the services revenue is more real time and it is what you actually deliver and you hit milestones on it. Some of the milestones because it’s the end of the calendar year we had a difficult time with customers getting signed off at the end of the calendar year and some of that bled over, but we saw this and coming into the quarter, I believe that customers in many cases even wanted to do - thought they were going to do some more work and then did it in another fashion.

Michael Nemeroff – Credit Suisse

Just looking at the Q4 guidance, do you still expect to get the normal Q4 true up of the PQRI revenue and then also ex PQRI, do you expect that the subscription revenue would grow in Q4 because based on the guidance, it doesn’t seem as if that is going to be the case?

Enrico Digirolamo

Yes, we will still be cracking down the PQRS as we have in the past. And the other subscription revenue, actually it is going to move along pretty well, quite well actually.

Michael Nemeroff – Credit Suisse

So sequentially it should increase?

Enrico Digirolamo

Yes, exactly.

Operator

(Operator Instructions) Our next is from Rob Owens with Pacific Crest Securities, please go ahead.

Rob Owens – Pacific Crest Securities

Thanks and good afternoon everyone. So just a follow-up on that. So the PQRS revenue then should be down a little bit year-over-year and that would lend to the guidance overall for subscription and just that 18% to 20% subscription growth that includes PQRS kind of rolled up [inaudible] is that correct?

Enrico Digirolamo

Yes, it is correct.

Rob Owens – Pacific Crest Securities

Okay, great. And if we look at the gross margin line to hit on that again, any color that you can give on the subscription gross margin and maybe how it tracks sequentially, I don’t believe it was actually broken out in the press release?

Enrico Digirolamo

No, it wasn’t broken out. As we said before we are at a point now where we still can’t split that out for you. But last few quarters, our subscription revenue has actually been slightly growing up, couple of basis points a quarter. As we continue to add more subscription revenue so it goes up. So it has been up a little bit or flat for the last three consecutive quarters.

Rob Owens – Pacific Crest Securities

So is it safe to assume you are still in kind of 69% or 70% subscription gross margin range at this point?

Enrico Digirolamo

Yeah, that is right.

Rob Owens – Pacific Crest Securities

Okay, great. And then you had some very strong new customer additions as well as follow on customers and maybe you can talk a little bit about some of the incremental projects that you guys are doing and where the areas of growth are. And then if I look at the incremental subscription revenue year-over-year, any indication at this point on what came from kind of new customer deployments versus expansion in the customer [inaudible], thanks?

David McGuffie

As far as the amount of revenue, well, we announced the agreements. There is 21 agreements new and 21 with the existing but - what happens in our business is that you sign a new customer and the expansion happens within the first 12 months. I talked about Hyundai, it’s a great example, today is at – that deal was signed initially 12 months ago. But since then we have signed a number of other agreements, over 10 other agreements with it and continue to add on more functionality on to it. So that’s the way that the subscription grows within the first 12 to 24 months significantly. A lot of projects and lot of efforts. So as far as the split in revenue from new and existing I am not sure...

Enrico Digirolamo

I don’t have it in front of me. But probably close to half, half again.

David McGuffie

Yes, traditionally, it’s been about 50:50.

Rob Owens – Pacific Crest Securities

And then just lastly, to focus on the new customer signings I believe you have 11 last year, 21 this quarter. So I am not asking you to get fiscal ‘15 guidance at this point, unless you are prepared but it would seem like that the pipeline for new activity in that subscription revenue outlook for 2015, should be relatively robust, so any color you could give around that would be great?

Enrico Digirolamo

Rob, you are right, at this point we are hesitant to talk about 2015, I think we will be more prepared to talk about that in the next call.

Rob Owens – Pacific Crest Securities

Okay, thanks.

Operator

Our next question comes from the line of Kirk Materne with Evercore.

Kirk Materne – Evercore Partners

Yeah, thanks very much. I guess on the services business given that it’s going to be smaller than was originally anticipated and understanding sort of the broader thought process around trying to get more of the business on a rateable basis. I guess when from an investment perspective do we start to see the benefits of that on gross margins, because obviously the entire point of having services to be smaller portion of the total business, just to try to gross margins higher that was really what was – to sustain gross margin improvement. I guess when – I guess have you started right sizing the services business or how are you guys thinking about that because without seeing that you are disclosing – just taking the revenue narrower down [ph]?

David McGuffie

Got it. Yes, that’s definitely -- it is going to take through Q4 we expect to start seeing improvements within the margins in Q1 as we rationalize the services business. You're absolutely right it's a matter of rightsizing it, we are continuing to work with our partners and manage that piece of the business. So we think it’s going to take another quarter in order to rationalize it and then we should see the improvements.

Kirk Materne – Evercore Partners

And then on the new customer signings, you obviously – as Rob pointed out, the absolute numbers of sort of 2x versus last quarter. I guess are the ASPs – I guess what’s going on with the size since we get a view on your backlog, I guess what’s going on in terms of the size of the deals, are they staying about the same? Meaning if I was thinking about the contribution of new business from those new signings over the last two quarters, are the ASPs about the same size so the actual billings contribution, booking contributions has also doubled, or can you just give us some color about that I guess?

David McGuffie

Well, the number of agreements are all over the map. The ASPs are all over the map on that. So the ASR is a number that we’re going to report out on an annual basis and that’s really drives off the bookings number. We are satisfied where we are at and looking forward to reporting that in Q4. But going off of the number of -- the number of deals it’s difficult to track into from a bookings standpoint, it’s just amount of activity going on.

Kirk Materne – Evercore Partners

I guess I was asking specifically about the newer deals with new customers, meaning you guys did 11 last quarter and 21 – that’s not a ton of deals. So I was just curious of the new customers that are signing up, are that contracts getting bigger or are they getting more bold in terms of using you guys or are they mostly – are they all starting at a similar level and then expanding, I was just curious –

David McGuffie

They start at a similar level and they expand. As I was talking about earlier in the first 12 months, we sort of get the initial piece and then they start adding on another piece on top of another piece on top of it and the ASR keeps building.

Kirk Materne – Evercore Partners

And then lastly you guys added a lot of new sales, sales head count, can you just talk about the sort of I guess progress, some of the newer members of the sales team are making in terms of becoming more productive and how that’s I guess progressing against the plan?

David McGuffie

Sure, absolutely. I guess there is two points around the sales force every one raised [ph]. One of them is there has been a tremendous focus around the channel side of the business and that’s really – comes from across the organization, sales, marketing, finance, delivery, they training people, all about enabling the channel organization but it’s a large focus right now with the announcement that we made about Cisco. But there’s just other partners that we are also working with. So there is a large amount of focus there right now and then large amount of resources being spent, and we expect that to deliver dividends in FY15.

The second side is we are about the – from the number of on-boarded quota carrying reps were about where we were what we reported last quarter. We have a strong pipeline of people right now that we are about to bring on and we should have a big jump in that this quarter.

Kirk Materne – Evercore Partners

Thanks very much.

Operator

And thank you. We will go now to a follow-up from the line of Michael Nemeroff with Credit Suisse.

Michael Nemeroff – Credit Suisse

I just wanted to follow up on the Cisco partnership and if you could just expand that a little bit and tell us whether there are any financial milestones that you expect or when we could start to see the impact of that relationship on the ASR in this fiscal year and next fiscal year?

David McGuffie

Sure. We are working with them right now around those financial milestones. I can’t report on those right now. But we have some good expectations around that and we are in – we are talking about deals right now. So it’s just been a process that we have been going through for a couple quarters now with them and a lot of planning, a lot of due diligence around it embedding into their synchronous communications, their collaboration products into – together with our platform. So we are working with their go-to-market people right now and they are with their sales people. And we have high expectation on it. It’s really an exciting project and dealing with them has been very good.

Michael Nemeroff – Credit Suisse

Is this going to be taken out through all of the Cisco sales people or was there just a certain division or key group of sales people within Cisco and then also will Cisco sales people who eventually will go to market with it, will they get quota credit for co-selling with you?

David McGuffie

Yes. From a quota credit standpoint, my understanding is yes, I am -- this is the Cisco services unit is the product line but I think all Cisco sales people will be involved in it.

Michael Nemeroff – Credit Suisse

Great. Thanks very much.

Operator

You have another follow up question this time from Rob Owens with Pacific Crest Securities.

Rob Owens – Pacific Crest Securities

Hi, thanks gain. If you look at the sequential subscription strength in the quarter, was any of that due to overtures with existing customers or is a lot of that kind of new customer contracts coming on or expansions coming on?

David McGuffie

In every quarter we have some overtures. There is a little bit of overtures in every quarter. I think it levels out –

Enrico Digirolamo

Sequentially I don’t think it was any more than it was the prior quarter.

Rob Owens – Pacific Crest Securities

So sequentially December was no different than September, so that’s –

Enrico Digirolamo

Exactly.

Rob Owens – Pacific Crest Securities

On a pure net new contract strength. And then along the lines of the 21 net new customers, and just really strong customer acquisition, is that coming direct, is that coming via some of the channels you guys are getting in place? Kind of help us understand if that number is an aberration or is that the type of performance we should continue to expect?

David McGuffie

That number is going to – it goes up and down. Remember on the responder, the responder side of our business there is a number of contracts there. So from an ASP standpoint, these deals are in different levels. So we should see that – I mean it will go up and down depending on the quarter as far as the number of new deals.

Rob Owens – Pacific Crest Securities

Were lot of those direct, were some of those channels added?

David McGuffie

Yes, some of them were channel added, I don’t have the spread in front of me here. But we have some existing channels and we have new channels that are coming on to. AT&T is a channel – has been a channel partner. Some of that were with AT&T and some of them are – were similar some other channel partners.

Rob Owens – Pacific Crest Securities

And maybe one last one, just in terms of either renewal rates or any expectations for existing customer run-off as you start to look at the next couple of quarters?

Enrico Digirolamo

Rob, there is nothing new to report to actually. I think the last time we might have mentioned – we mentioned – actually there is nobody new to report. What will happen though is we reported in the 10-Q sort of the Chrysler EDI which sort of ended a year ago finally started to show up year-to- year analysis, which will have the effect of looking like a couple hundred thousand more when it shows up in the 10-Q. But that’s like sort of old news. There is no new news.

Rob Owens – Pacific Crest Securities

So that inhabits your growth rate but what we are seeing in terms of those numbers is net new customers?

Enrico Digirolamo

Right. Exactly.

Rob Owens – Pacific Crest Securities

Okay, thank you.

Operator

And we have a question from Michael Nemeroff with Credit Suisse.

Michael Nemeroff – Credit Suisse

Yes, so just one around – first, can I – I mean it sounds as if I can characterize it this way that – because I think we always expect that the services revenue was going to drop off probably a little bit slower than I think you guys are seeing now. But it sounds as if you are as bullish about the subscription piece of the business as you’ve ever been, that sounds like you have just a stellar quarter of new customer growth. Can I characterize it that way?

David McGuffie

Absolutely. Yes, we are really excited about the recurring side of the business.

Michael Nemeroff – Credit Suisse

And so just on those 21 deals, can you give us a sense for the size – is there an ASP that, you track that, that gives you comfort as Rob had mentioned before about the fiscal ’15 subscription revenue which given the number of these deals are fair – pretty close to the averages in the past, does bode pretty well for that subscription growth next year – next fiscal year?

David McGuffie

I don’t have that data. That’s something we will take into consideration for next time. It’s certainly surprise [ph] in ASP and the number of deals there. But we just don’t have – I don’t have it right in front of me.

Michael Nemeroff – Credit Suisse

But on average, does it feel like it’s about the same as it’s always been in terms of – but just the larger number of deals?

David McGuffie

Yes.

Michael Nemeroff – Credit Suisse

Great, okay, thanks much guys. I will keep my promise of the final question. Thanks very much.

David McGuffie

Okay.

Operator

And ladies and gentlemen, we will now conclude the question and answer portion of today’s conference. I would like to turn the call back over to Ed Yuen.

Ed Yuen

Thank you all for joining us on this conference call. We look forward to speaking with you again next quarter. Thank you.

Operator

And that does conclude our conference for today. Thank you for participation and for using AT&T Executive Teleconference. You may now disconnect.

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