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Actuate Corporation (NASDAQ:BIRT)

Q4 2013 Earnings Conference Call

February 4, 2014 17:00 ET

Executives

Tom McKeever - General Counsel

Pete Cittadini - President and Chief Executive Officer

Dan Gaudreau - Senior Vice President, Operations and Chief Financial Officer

Analysts

Kevin Liu - B. Riley & Company

James Gilman - Drexel Hamilton

Operator

Greetings, and welcome to the Actuate Corporation Fourth Quarter and Full Year 2013 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions)

I would now like to turn the conference over to your host, Tom McKeever, General Counsel for Actuate Corporation. Thank you. You may begin.

Tom McKeever - General Counsel

Thank you. Good afternoon, everyone and welcome to Actuate Corporation’s quarterly conference call. Joining me to discuss our Q4 and fiscal year 2013 results is our President and CEO, Pete Cittadini; and our SVP, Operations and CFO, Dan Gaudreau.

Earlier today, we posted a copy of our financial press release and earnings call financial slides for Q4 2013 on the Investor Relations portion of actuate.com.

During the course of this call, we will be making projections and other forward-looking statements. These include statements regarding Actuate’s expectations, beliefs, hopes, intentions or strategies regarding the future, including the performance of legodo ag, which we acquired in January 2014. Our actual results may be very different from our current expectations. Factors that could cause or contribute to such differences include, but are not limited to quarterly fluctuations in revenues, other operating results and cash flows, our ability to successfully integrate legodo, general economic and geopolitical uncertainties and other risk factors discussed in Actuate’s SEC filings including its 2013 Annual Report on Form 10-K filed by March 8, 2013 as well as quarterly reports on Form 10-Q. We do not currently intend to update these projections or forward-looking statements except as required by law.

Now, I’d like to turn it over to Pete.

Pete Cittadini - President and Chief Executive Officer

Okay, thank you Tom and welcome ladies and gentlemen to our Q4 and FY ‘13 earnings call. Today, I have changed up my format a little bit. A lot of it will be prepared remarks and a bit of it will sort of be ad-hocs raw excitement, but I think at the end of the presentation, you will be more informed with Actuate and thus more valuable for you.

So let’s get started. Actuate’s business in Q4 and FY 2013 was good, but not to our expectation. Dan will be sharing more specifics with you later in the presentation. Right now, I would like to discuss some 2013 highlights and challenges as well as plans and outlook for 2014. Some of the highlights and for those of you following on with the slides, I am actually on Slide #4. One of the biggest highlights is breaking through the $3 million barrier mark of BIRT developers in our worldwide community utilizing our development product, BIRT. Very exciting for us and very strategic and important for our future, because it is the major market that we pursue and of course a market that is unique to Actuate.

During ‘13, we also experienced double-digit growth for overall BIRT iHub and license business of 14%. And again, I will reiterate our focus from a company and business perspective that it is all about BIRT iHub on a going forward basis. You all know that we have a legacy business, which is declining, but the reason you would want to hold this equity is because the BIRT iHub future associated with Actuate Corporation. We continue as a company to have best-in-class operating margins. And in 2013, they were 17.4%. We also as a business continue with the proceeding balance sheet with no debt and approximately $80 million in cash giving us all of the flexibility that we need to make all of the investments required for the future of our business.

In 2013, we experienced strong OEM business with many new OEMs, more than doubled new OEM business in 2013, this is testing to the technical strength of BIRT and the BIRT iHub for developers in that community. Also very positive growth for BIRT iHub with content services, which again is a very highly differentiated offering in the market from a statementing standpoint and that content services offering will become even more highly differentiated in 2014 and I will dig into some details a little bit later.

Some other relevant statistics that we normally share with you, 75% of our 2013 business came from the Global 9000 again defined as companies with annual run rates of greater than $1 billion. Our top four verticals were financial services, followed by OEM, followed by telecommunications, followed by government. And the financial services sector contributed to 45% of our overall business followed by the OEM group that contributed 31% to overall business at Actuate.

Moving on to Slide #5, let’s talk a little bit about the market. We believe the enterprise market is turning in Actuate’s favor in 2014. The improving capital spending environment is essential to IT funding of new projects and in 2014 the focus shift being to developing new customer facing applications. These large scale external applications require enough confidence in the macro future for a company to fund a project involving multiple developers to create serious value and competitive differentiation with solutions that are built once and deployed to many. Recent spending particularly in the BI and reporting market has been inwardly focused on making individual employees more productive. The shift towards applications for customers has been highlighted by Gartner and Forrester in the series of research notes and predictions that indicate increased IT investment in customer facing applications that leverage data to enhance brand experience by delivering personalized insights.

Actuate will benefit substantially from the shift to the extent that it happens. And we also did take a look at our own internal data associated with the percentage of our business over the years associated with customer facing applications or external outside the firewall applications. And indeed in 2009, ‘10, ‘11 and ‘12 we averaged 48% of our overall business from customer facing applications, whereas within 2013 it was only 33%. So we have an opportunity in 2014 to gain new customers and projects by taking advantage of this customer facing trend and our superior product capabilities as evidenced by our strong OEM business. There are three major initiatives planned in 2014 to increase BIRT iHub business. First, we will introduce a freemium version of the BIRT iHub. Second, we will transition more aggressively to the subscription licensing model. And third, we have created three business units focused on our three global markets that we have shared with you on the last earnings call.

Moving on to Slide #6, despite our success in building a very large community of open source BIRT developers, finding enterprise class projects is not happening as quickly as we have planned. We need to accelerate the identification of these enterprise developers and projects to gain new BIRT iHub customers. Thus today we are introducing BIRT iHub F-type, F for freemium. And I would like to discuss the drivers behind why now. Well, first of all in December of ‘13 we delivered to market iHub 3 which is an essential part for us of garnering share through a freemium channel. The product is finally at a maturity level with its user interface and ease-of-use where indeed it can be easily digested used by a freemium channel. Secondarily from a driver standpoint we’re between 3 million and 4 million BIRT developers on a global basis. And even though BIRT is an essential part of what has made us great to-date. As you know it is one of two parts when you look at the Actuate technology stack.

And we believe the community needs to get much more entrenched in knowledge of iHub and really understanding what iHub brings to the table as far as enterprise level projects that they are working on. So the sooner the community understands iHub the better off they will be the better off Actuate will be thus the F-type and freemium channel approach at Actuate. So what exactly is the BIRT iHub F-type? It’s a fully functioning BIRT iHub for small scale projects. It’s meant to gain ubiquity for the complete BIRT stack across our BIRT community and beyond. There is seamless upgrade capability to full-scale iHub for medium and large projects with flexible new licensing to bring Murex that are available and it will be shipping in Q2 of 2014.

Moving on to Page or Slide #7, let’s talk a little bit about the reality of subscription licensing at Actuate. Obviously subscription licensing eases and accelerates customer acquisition. And increasingly it’s the way that customers want to buy software or customers want to buy software on specific projects. Of course it would be very difficult to complete a transition to a subscription model overnight for Actuate. Thus, here are the changes that we’re making and are committed to for 2014. The BIRT iHub F-type can be seamlessly upgraded to a full-scale iHub on an annual subscription basis. BIRT Analytics, our analytical product will only be available and is only sold on an annual subscription basis. And a new group that we formed, the small and medium enterprise group that is an inside telesales organization selling to small and medium enterprises will only have subscription licensing frameworks available to it as part of its sales strategy.

So again subscription will become more and more of a reality through F-type upgrades to full-scale iHub, BIRT Analytics being available only on an annual subscription basis and SME which is small and medium enterprise group within at Actuate only being able to sell subscription licenses to small and medium enterprises.

Moving on to Slide #8, this slide sort of coincides with a similar slide that we showed you 90 days ago with regards to three markets that we believe are important to Actuate Corporation and our success in growth. And the essence of this slide is better operational focus will result in better execution and growth. Thus as of today we’ve reorganized into three go-to-market business units. On the left hand side you’ll see the enterprise BIRT’s Group. And this group is totally focused on the BIRT developer community in pursuit of customer facing applications and embedded BI for OEMs through the complete BIRT stack.

Secondarily or in the middle we have the BIRT Analytics Group that again goes after the market of the business analyst that’s interested in big data analytics that is interested in doing visual data mining and predictive customer types of analytics. Again a complete self-contained go-to-market group associated with that analytics pursuit.

Finally, on the right hand side, pursuing the Customer Communications Management market for us on a global basis is the Content Services Group. Now, this is the former Xenos Group that we acquired about four years ago up in Canada. And there, there is sort of the back end of the customer-facing application for the statements that are required, the archival of those statements, the retrieval of those statements. And as I will be showing you on the next slide sort of the evolution of what statements mean to the world with next generation digital realities, but again, these three groups stand in and of themselves. They not only include sales people, but marketing people, engineering people etcetera and they all are led by independent general managers that report to me directly. And thus they have the full autonomy to do whatever they need to do for their group to pursue the market that’s very important to Actuate Corporation. So again, there are the go-to-market business units.

Moving on to our Slide #9 and drilling down a little bit further into our Customer Communications Management market and our Content Services Group that is the group that pursues that market. We are very pleased that as of the end of last week, we completed an acquisition of a German company by the name of legodo. legodo is in the world of customer correspondence and thus goes hand-in-hand with the statementing part of the business through much more sort of ad-hoc real time and value-add than repetitive like statement. But legodo is in the business of creation, delivery and archival of that specific customer correspondence either with the statement or outside of the statement. And again, what the market will get from legodo as part of Actuate Corporation is again easy and rapid generation of personalized customer correspondence, the ability to communicate that correspondence through any channel, including mobile and social media, the ability to access existing ERP, CRM and other applications to create the personalized correspondence. And to-date, legodo has over 40,000 users with prominent companies that are utilizing that technology. And we are very excited to have them on board at Actuate Corporation.

Also another very strong differentiator for the Content Services Group in 2014 and beyond and this is great, because it’s driven by increasing pressures from government regulation and private litigation is the reality of accessible electronic documents and accessible PDF. Today, Actuate has been awarded a patent for automatically transforming high volumes of content into accessible electronic documents. And I will tell you within the last 60 to 90 days, the amount of pipeline opportunity associated with the pending reality of accessibility has just grown astronomically for us. I think that sales channel is the busiest sales group within Actuate Corporation primarily due to the pending reality of accessibility and it being an investment technology beginning in ‘14 onward. So we are very excited about the fortification of the Content Services Group with legodo and the whole accessible CCM offering that we have been awarded a patent on.

Now, moving to my final slide, which is Slide #10, a little bit about our plans on a going forward basis and guidance. As we said last quarter, we are in a position to give shareholders annual guidance associated with our BIRT iHub business. 2014 is an epic year for Actuate with all of its evolutions and new investments being made that we have previously discussed. We will make investments to add the right skill sets particularly in engineering and marketing to support our new initiatives in 2014. These investments are essential, even though some of these investments could impede revenue growth progress within the short-term especially 2014.

I am primarily referring to premium iHub and subscription licensing coupled with the continued erosion of our legacy business both license and maintenance. Nonetheless, they are the right investments to make now and will drive revenue growth at Actuate. However, in prudent Actuate fashion to make room for the additional skill sets required in 2014, we have already reduced expenses via headcount reductions from a high of 624 heads in 2013 to a current headcount today of approximately 500. We are keeping our sales headcounts at 70 and will be adding headcount to engineering and marketing during the course of the year.

In 2014 we expect the overall BIRT iHub business to grow at 10% from $75 million in ’13 to $82 million in ’14. The breakdown of this overall number is a 10% growth in iHub license revenues going from $40 million to $44 million, a 10% growth in iHub maintenance revenues going from $30 million to $33 million and a flat to slightly up iHub professional services revenue contribution of approximately $5 million plus. The legacy business will continue to decline in 2014 and our estimate of the combined license and maintenance revenue range for that business in ’14 is approximately $40 million. As far as operating margins go Actuate should post a 16% to 20% operating margin on the total company’s 2014 revenue.

So on wrapping up, I would just like to review some of the salient facts that should be important to you are certainly important to us. 2013 was not ideal, but it did contribute to building the BIRT iHub business and its future growth. The market trends in 2014 seem to be aligned with making IT investments in applications that BIRT iHub can uniquely enable. iHub 3 was released in December of ’13 with the maturity level where it is ready for a premium channel. Premium product and subscription licensing are serious investments at Actuate during 2014 and beyond for faster customer acquisition. Actuate’s three global markets are now aligned with three new go to market business units for focus and growth. And finally the company’s financial footing is as strong as ever giving us the full flexibility to do everything we need to do for our business on a going forward basis.

Now I would like to hand it over to Dan.

Dan Gaudreau - Senior Vice President, Operations and Chief Financial Officer

Thanks Pete. I am on Slide #12. This is the fourth quarter non-GAAP P&L discussion. Total revenues aggregated $32.4 million, a $3.3 million or a 9% decrease from Q4 2012, but up slightly sequentially. Although revenues were down in all geographies on the year-over-year basis, we experienced more significant weakness in our APAC region due to several large transactions in China, in Japan in Q4 2012 not recurring this year to the same level. We also believe that a weak macro and our recent sales force reorganization may have contributed to the declines. We ended the year with 64 quota carrying sales reps, down six from year end 2012. This decrease was partially attributable to the sales force re-org during the middle of 2013. However, as Pete mentioned our plan is to get back to 70 reps as soon as we can this year.

License revenues totaled $14.6 million, $900,000 or 6% below last Q4 up 2%when excluding the $1.2 million Oracle settlement out of the Q4, 2012 license number. License revenues were up 3% in North America but declined 40% in our international markets. An important fact to note is that we took $1.3 million in BIRT iHub subscription bookings in Q4, 2013. They will be taken ratably to revenues during 2014 this year. We estimate that the equivalent license value of these transactions on a perpetual basis would have been close to $4 million.

Maintenance revenues totaled $16.4 million in Q4, down $1.8 million or 10% from a year ago, but essentially flat with Q3. The year-over-year decrease was primarily due to fewer deals with the catch-up or back maintenance amounts. The maintenance renewal rate in Q4 was over 87%, the highest level since Q1 of 2011. Professional services revenues of $1.4 million declined $0.5 million or 30% from a year ago.

Non-GAAP operating expenses totaled $26 million in Q4, a decrease of $3 million or 10% year-over-year. We realized decreased costs primarily related to the headcount reductions in all functions except sales. Non-GAAP operating income totaled $6.4 million with a corresponding operating margin of 20% and non-GAAP diluted EPS of $0.09, the same as Q4, 2012.

Slide 13 for the full year, total revenues aggregated $134.6 million down 3% compared with 2012. In a few slides I’ll be discussing the mix of revenues between the BIRT iHub products and our legacy iServer products. License revenues totaled $60.6 million, an increase of $2.7 million or 5% year-over-year. Excluding the Oracle litigation settlement from both periods, license revenues increased 11% during 2013.

License revenues were up 11% in North America and 9% in EMEA. However, we saw a $3 million or 60% decline in Asia-Pacific license revenues. There were three license fee transactions greater than $1 million in Q4, 2013 and 12 for the full year. In 2012 license revenue included three in Q4 and 10 for the year. Maintenance revenues of $67.6 million in 2013 were down 8% from 2012.

As we mentioned throughout 2013, we expected fiscal 2013 maintenance revenues to be down from 2012. This was expected because of the higher level of back maintenance from reinstatements as well as the fact that the addition of new maintenance contracts from new license transactions would not exceed the 2013 negative revenue impact of contract terminations primarily coming from the legacy side of the business. On a positive note the maintenance renewal rate in 2013 was almost 86%, that’s the highest level in many years.

Non-GAAP operating expenses totaled $111.2 million for the year 2013, an increase of $2.2 million or 2% year-over-year primarily driven by our investment in sales and marketing. Non-GAAP operating income for 2013 totaled $23.4 million with a corresponding operating margin of 17.4%. We fell short of our 20% operating margin target primarily due to the high mix of subscription versus perpetual transactions in Q4, 2013. Non-GAAP diluted earnings per share were $0.32 for 2013, a decrease of $0.07 or 18% from 2012.

The next slide shows the North America International split of revenues for 2013 compared with 2012. The North America International revenue split was 79% and 21% respectively. Total revenues grew 2% in North America, but decreased 18% in our international markets. License revenues in North America grew $4.9 million or 11% for the year, 21% when excluding the Oracle litigation settlement payments from both periods. This growth was fueled primarily by increasing iHub demand. International license revenues decreased $2.2 million or 16%. License revenues in EMEA actually increased 9% year-over-year, but as I mentioned earlier, we saw weakness in the Asia-Pacific region attributable to several large transactions in 2012 that did not recur. We saw an 18% devaluation in the Japanese yen in just overall general lethargic IT spending on customer-facing application projects. Services revenues, specifically maintenance revenues, decreased across all geographies for reasons given before.

Slide 15. This chart shows the breakdown of revenues between our legacy iServer products and the new generation BIRT iHub products. As you can see from this chart, BIRT iHub revenues grew 14% year-over-year while legacy revenues declined 18%. The decrease in legacy revenues has been and will continue to be driven by decreased license demand, because we no longer proactively sell iServer products. And number two, lower maintenance renewals as projects or applications come to their natural end of life. These declines will definitely continue with our ability to predict future quarterly or annual iServer revenue amounts is extremely difficult. We still have approximately $35 million of active legacy maintenance contracts and we believe the legacy maintenance revenue stream will be around for numerous years albeit at a declining level. Our primary focus has been and will continue to be on BIRT iHub revenue growth. As Pete mentioned, we continue to expect solid double-digit revenue growth going forward as we gain new customers and existing customers start new projects using BIRT iHub.

Next slide, balance sheet. Cash ended the quarter at about $80 million, an increase of $8 million from September 30 and up over $13 million from year end 2012. Both the sequential and year-over-year increases were primarily the result of higher cash flow from operations and cash received from option exercises offset partially by stock repurchases. We repurchased $10 million of outstanding stock during the fourth quarter and over $26 million during the full year of 2013. Accounts receivable ended the quarter at $27.4 million, down $5.7 million from a year ago and down $3 million sequentially. The sequential decrease was due to a strong collections quarter following an unusually high back-end loaded Q3.

As a result, DSOs ended the year at 78 days, down 9 days sequentially and down 7 days from a year ago. Deferred revenues totaled $47.9 million at 12/31/13, up $1.5 million from a year ago and up $3.9 million from September 30 ‘13. Both increases reflect higher levels of baseline maintenance contract billings, that’s exclusive of that maintenance items. In addition, the balance at 12/31/13 included the $1.3 million of subscription bookings that will be taken to revenue ratably this year. Cash flow from operations totaled $24.5 million in 2013, the highest level since 2008.

Next slide. Today, we announced – or tomorrow morning I believe we are going to announce publicly the acquisition of legodo ag, a customer communication management software company located near Frankfurt, Germany. This is a technology acquisition complementary to the 2010 Xenos acquisition. This completes our CCM offering as defined by Gartner and Forrester. We are not required nor will we be disclosing the size of terms or size or terms of this transaction. Along with the acquisition, we have inherited 40 employees joining the Actuate family. Although we do not expect the acquisition to have material effect on our revenues in the near-term, we do believe that the operating expenses related to their operation will put pressure on the earnings per share in the near-term. However, over the next 12 months, we are hopeful that revenue synergies will more than offset this.

Next slide. Comments regarding 2014, industry analysts have predicted a resurgence in IT spending for customer-facing applications as Pete mentioned. Correspondingly, our internal plans have assumed continued double digit license and total revenue growth in our BIRT iHub product suite. This growth is expected to happen despite a significant increase in subscription bookings. As Pete mentioned, we made a strategic decision of future sales of certain products for example BIRT Analytics and sales in the certain markets small and medium enterprises will only be sold on a subscription basis. As you all know this will create downward pressure on near-term revenues, but we believe this pricing structure is in the best interest of the company and should create greater shareholder value in the long-term. 2014 we will see continued and probably more dramatic drops in legacy revenues. We believe that planning for a 30% drop in overall legacy revenues will be prudent. We have a more tenured sales force at the beginning of 2014 than we did a year ago. So we expect to less turnover and greater productivity this year.

To contrast the anticipated significant decline in legacy revenues in 2014, we have already taken certain fiscal year responsible actions in order to maintain overall non-GAAP operating margins of 16% or greater. From our peak headcount of 624 at June 30, 2013, we have reduced non-revenue producing headcount across all functions and are at approximately 500 employees currently. We do however intend to selectively hire in R&D and marketing in the U.S. this year in addition to personnel added as a result of legodo acquisition. And finally we will continue to repurchase stock. As of December 31, 2013, we had over $25 million remaining of the previous unauthorized stock repurchase amount of $40 million.

My final slide, some upcoming conferences that we will be attending, there are three of them coming up this quarter. First, on February 11, we will have a full day of one-on-one meetings at the UBS SMID Cap Symposium in Boston. On March 3, we will be presenting at the JMP Securities Technology Conference in San Francisco. And lastly, we will be presenting at the always popular ROTH Conference in Laguna Niguel on March 10.

We now open up the floor for Q&A.

Question-and-Answer Session

Operator

Thank you. At this time I would like to conduct a question-and-answer session. (Operator Instructions) Our first question comes from Kevin Liu from B. Riley & Company.

Kevin Liu - B. Riley & Company

Hi good afternoon guys. First question here just on the legacy business and as it relates to your fiscal ‘14 guidance Dan you mentioned $35 million in maintenance revenues and if you look at where you guys have had license revenues over the past years, it seems like giving up $15 million in license revenues is a bit dramatic, so wondering if you could talk about what’s going on there and why even with kind of the segment it selves forcing that focus of a particular group on that line item license revenues would be down so considerably?

Pete Cittadini

So Kevin, this is Pete. I will start with the answer. So the iServer business as you know is a business where we know where all of the clients are and all of the installs are. And we have the sales force that is able to sort of call on them on a quarterly basis and find out specifically whether indeed they are anticipating new capacity, they are anticipating computing environments upgrades or migrating the licenses to other legal entities if you will which are all sort of avenues for revenue associated with the legacy license part of the business. And based on the scarring that we have been able to do of our customer base that again is a known customer base to us, it doesn’t look like the license performance associated with that business is going to rival what it did in 2013. Again these doubts brought up sort of unbeknownst to us, the reason why we created the sales force was we could become more proactive and really understanding what was going on with those accounts and our preliminary information tells us that the license line in 2013 will I’m sorry in 2014 will clearly by off the mark from where it was in 2013.

Dan Gaudreau

But I would like to just get the math right here, Kevin and make sure we’re clear. That $35 million that I was talking about are active contracts. They are not all going to renew. You’ve seen in 2013 a 22% decline in that services business, legacy services number. Therefore you could assume that will continue to shrink. Therefore to deduce that licenses only five is not exactly correct mathematically.

Kevin Liu - B. Riley & Company

Yes, I understand that I mean certainly your deferred revenue.

Dan Gaudreau

It will be fine though.

Kevin Liu - B. Riley & Company

Have started to stabilize over the – in the past two quarters, right. So it’s not like we’re looking for – this was big of a decline on the maintenance line next year, so presumably licenses are still going to be down fairly considerably and it just seems odd given how stable that line was at least relatively speaking over the past year?

Pete Cittadini

I understand, but Kevin that legacy business is what it is, we are making limited investments in keeping it in touch for as long as possible but really all of the big investment is in the iHub growth.

Kevin Liu - B. Riley & Company

So how many sales folks do you have left for the iServer business?

Pete Cittadini

It’s the same as we had from the beginning. We have three in the U.S. one in EMEA, one in Asia-Pacific for a total of five globally.

Kevin Liu - B. Riley & Company

Got it. And then as it relates to BIRT iHub the 14% growth rate in the year it sounds a bit down from what you guys had been in the prior quarters and even in the earlier quarters you guys had talked about it pretty robust pipelines. So maybe help us understand kind of what happened during Q4 from a growth perspective and then why you go from a position where you’re talking about a robust pipeline to essentially talking about a freemium model?

Pete Cittadini

The net of it is we’re not getting to know the community as quickly as we like and not knowing the community as quickly as we like means that we don’t get to qualify that community to find where the enterprise projects are and without the enterprise projects there is no custom development associated with a customer facing application. So that’s really the net of it. There weren’t enough projects that we were aware of where we could have a really solid iHub performance in 2013.

Freemium will change that dramatically because freemium is a proprietary technology that is completely free to now an open source community that we created over the last seven to eight years with a portion of the technology stack where lots of times they just run with that portion of the technology stack without really being educated or knowledgeable or cognizant of the most important part of the technology stack that we deliver which is the iHub. They are using app servers to do little scheduling here, little cashing there, etcetera, etcetera. So the freemium iHub or the F-type if you will is essential because we believe we’ll be able to market to a very large portion of that community within the confines of 14, 15 and 16 and ultimately capitalize on just knowledge of more projects. We just couldn’t find the level of projects Kevin that we needed to by only leveraging the development environment within the community I mean that’s it in a nutshell.

Kevin Liu - B. Riley & Company

And then on kind of the talk around the subscription pricing plans, I guess first off with analytics being a fairly new offering for you guys, why even force folks into one particular type of model as opposed to just letting them buy how they like? And then maybe more broadly when you look at kind of the overall bookings growth, then I mean I think Dan mentioned you would expect on the whole that, that would be a nice growth driver for you. Maybe talk about what sort of growth you would think of on a companywide bookings perspective?

Pete Cittadini

Yes. So let me answer the first question. I mean, if you are serious about getting further and further into the subscription licensing business, but you just acquired a technology that’s pretty hot and you are saying just for short-term revenues sake, we will keep it perpetual, you will never get to subscription licensing. I think the best time to transition into a subscription licensing trademark is when you acquire interesting and potentially powerful assets that are not contributing revenue, which is exactly what we are doing with BIRT analytics. If you look at some of the competing products out in the market, specifically SaaS, they are sold exclusively on a subscription model as well. So again, since we have a lot of SaaS analytics and statistical capabilities within BIRT analytics with an easier to use front-end and subscription allows sort of a more frictionless way of acquisition of the product by current and new customers. I really think that’s the way the right way to go in. As Dan said, it’s the right focus for long-term shareholder value. And that’s what we are going to do.

Kevin Liu - B. Riley & Company

And just one last question, sorry, go ahead Dan.

Dan Gaudreau

Well, I was going to mention that to you, because I think you asked a question what kind of growth rate is in there, I guess I can just say that of the quotas handed out across our sales force greater than 10% of that is subscription related.

Kevin Liu - B. Riley & Company

Got it. And then just one last question on the subscription side, just wondering if the billing terms would be kind of annual upfront or how do you guys anticipate handling the cash flow aspect of it?

Pete Cittadini

Yes, ideally annual. I mean, we have so much cash. We don’t really need to get three years of cash upfront. However, we would love to get three years of commitments upfront and the sales compensation plans will be aligned with that whether there is cash or not. So we would ideally like to do a minimum of a year, a maximum of three years, but on the three-year type deal, there is no requirement for three years of cash as far as we are concerned, which again should be a facilitator versus alternative subscription technologies where they do want the cash upfront.

Kevin Liu - B. Riley & Company

Got it. Thanks for taking the questions.

Pete Cittadini

Yes.

Operator

Thank you. (Operator Instructions) Our next question comes from James Gilman from Drexel Hamilton.

James Gilman - Drexel Hamilton

Thank you. Good afternoon gentlemen. I just have a few questions that were bumping up against over here. Maybe I missed it on the description on the freemium product I like maybe a little bit more details around that? Is it for an unlimited period of time? Is it for a set period of time? Is it unlimited features or just limited features, if you could talk about that? The other thing though is moving on the other question would be subscription revenue, would you be breaking out our subscription bookings in revenue, do you see that breaking that out as a separate revenue line item on that? And the last question would be around the Dresdner recognition, that’s a nice recognition to receive. My question to you in reference when would that be translate into bookings in revenue?

Pete Cittadini

Okay, I will take the first one and I will give the subscription revenues to Dan. As far as the freemium product, the cool thing about the upside that a full functioning iHub from a feature standpoint. Of course, all freemium products have some sort of calibration in them. With us, the calibration will be data to be published, so very much like I guess Splunk that has a free product depending on how much data comes in. Our products were approximately a gigabyte of data being published on a daily basis is completely free. And then if your application requires more than that gigabyte of data to be published on a daily basis, then we have the ability of allowing you an annual subscription, a user-based model, a work unit model or an unlimited data model to upgrade that F-type to a full use or full scale iHub where there is no whole spot from a data standpoint. But the great part of what we are doing here is we are really allowing the community the complete understanding of the full power of the iHub. The complexity of multiple data stores coming into it, the ability to do arbitrarily complex stuff within the iHub, transforming data into information, dashboarding capabilities, interactive viewing capabilities and we are trying to be astute with the calibration where its free for the community which is number one for us because we need to surface more enterprise level projects. But for the projects where they would never really turn to Actuate and spend money for any sized iHub for their smaller projects they can use the F-type for that project in its entirety. So right now we are looking at a gigabyte of external data to be published, but we will get a better handle on that as we do our testing over the next few months before we launch the final product in Q2 of ’14 James.

Dan Gaudreau

And regarding the revenue separate line item, we will definitely break it out once it achieves 10% of our overall revenues. I think you will be able to track it more or less through the change in deferred revenue depending on how granular we get in the 10-Qs.

Pete Cittadini

James, are you there?

Dan Gaudreau

Gone. James? Operator?

Operator

(Operator Instructions) We appear to have no further questions at this time. I will turn the call back over to Mr. Cittadini for closing comments.

Pete Cittadini - President and Chief Executive Officer

Okay, ladies and gentlemen, thank you for tuning in. And we will be talking to you in approximately 90 days. Thank you again.

Operator

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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