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Novell (NASDAQ:NOVL)

F2Q10 (Qtr End 04/30/2010) Earnings Call

May 27, 2010 5:00 pm ET

Executives

Ronald Hovsepian - Chief Executive Officer, President and Executive Director

Dana Russell - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Robert Kain -

Analysts

Brian Wallins - Broadpoint Capital

Katherine Egbert - Jefferies & Company, Inc.

Jonathan Doros - UBS

Brad Zelnick - Macquarie Research

Mark Murphy - Piper Jaffray Companies

Richard Williams - Cross Research

Operator

Good afternoon. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Novell Second Quarter 2010 Financial Earnings Release. [Operator Instructions] Mr. Kain, you may begin your conference.

Robert Kain

Thank you. Good afternoon, everyone, and thanks for joining us. I'm Rob Kain, Vice President of Investor Relations for Novell. And with me today from our executive offices in Waltham, Massachusetts are Ron Hovsepian, President and Chief Executive Officer; and Dana Russell, our Chief Financial Officer.

We are here this afternoon to discuss Novell's financial results for the second fiscal quarter 2010. If you don't yet have our press release, you can access it by visiting our Investor Relations webpage at www.novell.com/company/ir. This call is also being broadcast through our website and will be archived on our website for a minimum of 12 months.

Before I turn the call over to Dana, I would like to take a moment to say that we will be providing non-GAAP financial measure during today's call. We believe that these measures enhance an overall understanding of our current financial performance and prospects for the future and enable investors to evaluate our performance in the same way that management does. Management uses these same non-GAAP financial measures to evaluate performance, allocate resources and determine compensation. The non-GAAP financial measures do not replace the presentation of our GAAP financial results, but they eliminate expenses and gains that are excluded from most analysts' consensus estimates that are unusual and/or that arise outside of the ordinary course of business such as, but not limited to, those related to stock-based compensation, acquisition-related intangible asset amortization, restructuring, asset impairments, litigation judgments and settlements, strategic alternatives review and the sale of business operations, long-term investments and property, plant and equipment. We have included reconciliations for these non-GAAP measures to the most directly comparable GAAP measures in our earnings release. As I mentioned, a copy of that release is on our website.

During our prepared remarks, we will mention some non-GAAP measures. The corresponding GAAP measures are: Q2 2010 GAAP net income of $20 million, GAAP EPS of $0.06 and fiscal 2010 GAAP tax rate guidance of 33% to 36%. We may also provide projections to non-GAAP financial measures such as projected non-GAAP operating margin and so forth. The corresponding forward-looking GAAP financial measures are not available and cannot be provided without undue effort because we are unable to accurately forecast information regarding expenses or gains such as, but not limited to, those previously described. We believe that the corresponding GAAP financial measure is not likely to be significant to an understanding of our business because there is likely to be substantial variability between projected and actual realization of expenses and gains described above and/or that such expenses or gains are likely to arise outside of the ordinary course of business.

We will also provide information regarding Novell's general product direction and roadmap. It's intended for information purposes only and may not be incorporated in any contract. It is not a commitment to deliver any material, code or functionality and should not be relied upon in making purchasing decisions. The development, release and timing of any features or functionality described for Novell's products remains at the sole discretion of Novell.

Finally, please note that during today's call, we may make forward-looking statements. You should be aware that our actual results could differ materially from those contained in the forward-looking statements, which are based on current management expectations and are subject to a number of risks and uncertainties including, but not limited to, factors described in our annual report on Form 10-K filed with the Securities and Exchange Commission on December 22, 2009, and in the press release we issued earlier today.

Forward-looking statements do not reflect the occurrence of unplanned or unanticipated events and cannot take into account unforeseen circumstances. Actual results for future periods may differ from those projected. Any forward-looking information that we provide in this call represents our outlook as of today, May 27, 2010, and we do not undertake any obligation to update our forward-looking statements except as may be required by the law.

With that, we are ready for our CFO, Dana Russell.

Dana Russell

Well, thanks, Rob. Novell's second fiscal quarter 2010 results were released a short time ago. The company reported net revenue of $204 million. GAAP income from operations was $20 million. Non-GAAP income from operations was $30 million, and non-GAAP income was $24 million or $0.07 per share. Foreign currency exchange rates favorably impacted revenue by $2 million and negatively impacted operating expenses by $6 million and the income from operations by $4 million on a year-over-year basis.

Overall results this quarter were in line with expectations, and non-GAAP operating margins were at the high end of our guidance. Despite recent events, which we believe had a negative impact on our business, especially in Identity and Security, we remain optimistic about our future. We feel good about the progress we've made in our Linux business and confident that our Identity and Security Management prospects remain favorable.

Now I'll highlight some of our business unit results on Pages 9 and 10 of our press release.

Our Security, Management and Operating Platforms product revenue was $109 million, which was flat year-over-year. Invoicing was down 3% year-over-year. Within this business unit, Linux Platform Products revenue in the quarter was $35 million, decreasing 4% from the year-ago quarter. Linux invoicing was down 1% year-over-year.

As expected, the depletion of the original Microsoft certificates last year makes for challenging year-over-year comparisons. Excluding Microsoft, invoicing growth was quite strong, up 46%. We continue to cite sizable deals with large enterprise customers, and we're pleased with the growth of our core business.

Moving on to Identity, Access and Compliance Management. Product revenue was $30 million, up 9%, and invoicing decreased 12%. As I stated earlier, the recent uncertainty has had a negative impact on our business, especially in Identity, where we believe our results would've been better otherwise. We observed this through several loss and split deals. We've also seen a reduction in contract length, which we believe is due to market uncertainty. If we were to normalize for contract length, invoicing would've been up 14% year-over-year. We remain encouraged by the growth opportunities in this market.

System and Resource Management product revenue was $40 million, consistent with a year ago. We saw strength in our new business due to increased traction of our endpoint solutions, which drove positive new invoicing growth, reversing recent trends.

Turning to our Collaboration Solutions business unit, product revenue was $72 million, down 9%. Within Collaboration, the combined OES and network-related product revenue was $42 million, down 7%. Invoicing declined rates have moderated to high single digits. We expect rates to remain within this range.

Operating expenses were down compared to a year ago primarily due to reduced product development expenses. G&A costs were higher primarily due to increased legal costs associated with our successful spill litigation. Total headcount at the end of the quarter was 3,500, consistent with the prior quarter.

Turning to our balance sheet and cash flow. Cash and short-term investments were $980 million compared to $991 million last quarter. Cash flow from operations was negative $7 million for the quarter, improved from a year ago primarily due to improved core Linux invoicing this quarter.

Turning to our outlook for the quarter, we expect revenue to be between $205 million and $210 million and non-GAAP operating margins to be similar to Q2 levels, assuming consistent FX rates. We now expect our full year non-GAAP tax rate to be 28% compared to our prior guidance of 24%.

With that, I'll turn the call over to Ron.

Ronald Hovsepian

Thanks, Dana. Before I review our second quarter results, I'd like to remind you of the company's position concerning the unsolicited conditional proposal we received from Elliott Associates to purchase Novell. As you know, on March 20, we issued a press release in which our Board of Directors announced its rejection of the unsolicited conditional proposal. We stated in that press release we do not intend to disclose developments with respect to any of these alternatives unless and until our board has approved a specific course of action. Accordingly, we will not be answering any questions regarding the matter during this call, and I ask for your cooperation in this regard.

Last quarter, I reviewed our strategy to lead in the emerging Intelligent Workload Management market and how our current portfolio end product roadmap uniquely positions us in this market. I'm pleased to report that we continue to make progress in developing solutions that build, secure, manage and measure intelligent workloads. We have a healthy pipeline, and we have recently announced new partnerships with several service providers. We believe this progress validates the promise of our Intelligent Workload Management strategy and our strength as a company.

In the area of building workloads, initial feedback on the SUSE Appliance Program has been very positive. Since its launch, over 65,000 users have built over 311,000 appliances using the SUSE Studio Online tool. In fact, one appliance, Google for Chrome, has been downloaded over 1 million times.

Large players like IBM and Ingres have also embraced SUSE Studio. IBM has already created SUSE Linux-based appliances in several areas, including Lotus IBM Foundations, IBM Lotus Protector for Mail Security and IBM WebSphere Application Server Hypervisor Edition. We are encouraged by the rapid adoption of this new technology.

In the area of securing workloads, we're on track to ship Novell Identity Manager 4 this quarter. IBM 4 adds significant functionality to Novell's flagship Identity Management product, making it possible to securely manage identities and access across physical, virtual and cloud environments.

Early reaction to the beta program for IBM 4 has been extremely enthusiastic. This quarter, we're also planning to release the beta version of Novell Cloud Manager, which help enterprises leverage a private cloud using their existing IT assets to better manage their workloads.

While many companies are releasing cloud construction tools, Novell Cloud Manager is unique and that we work with all the major hypervisors and all of the major hardware platforms. With Novell Cloud Manager, customers run their data centers as if it were a private cloud without expensive retooling.

Both Novell Cloud Manager and Novell Identity Manager 4 were previewed at our recent BrainShare user events in Salt Lake City and Amsterdam, where they received very positive reviews from customers and industry analysts.

We continue to build our partner ecosystem to compliment our solutions and expand our distribution channels around Intelligent Workload Management. We recently announced several relationships with the leading service providers.

Last month, we partnered with Verizon Business to offer cloud-based security solutions. The identity as a service offering, called Secure Access Services from Verizon, will be powered by Novell technology. And we will provide Verizon Business's customers with security required to run cloud-based applications. Security is the number one cloud concern for IT professionals, and this new service addresses that concern with a cost-effective, scalable solution.

Just a week ago, we announced a partnership with Vodacom Business, in which they have agreed to provide infrastructure and Software-as-a-Service solutions using many of our Intelligent Workload Management technologies, including SUSE Linux Enterprise, PlateSpin Virtualization and Workload Management and our Identity and Security products. Novell technology will power Vodacom's cloud hosting solutions.

The partnership is aimed at helping businesses securely provision, manage and monitor multi-tenant applications deployed in Vodacom's business cloud infrastructure. These service provider agreements are another example of how Novell is executing on our strategy to become the leader in Intelligent Workload Management marketplace.

Now turning to some other events during the quarter. We had an important legal victory determining the ownership of UNIX copyrights. The Salt Lake City federal jury's decision confirmed Novell's ownership of the UNIX copyrights, which still had asserted it owned in connection with its assault on many users of Linux. Novell has demonstrated its commitment to promote Linux, including defending Linux intellectual property.

Moving on to some comments around our business. Within our Security, Management and Operating Platforms business unit, our Linux product line continues to gain traction with partners, and we continue to enjoy the confidence of large enterprise customers.

Within our Systems and Resource Management product line, our Endpoint Management partners are building momentum, leveraging the strong adoption of Windows 7. During the quarter, we released ZENworks 10.3, which provides the tools to migrate the risks that come with large-scale Windows 7 migrations.

Our Identity and Security Management product line invoicing is up 7% in the first half of the year, and we remain confident in the solid full year performance.

Gartner recently positioned Novell Security Management products in the leader's quadrant, validating our leadership in the security market. Novell is now linked in the leader's quadrant and all of the Identity and Security Management products that are covered by Gartner, which distinguishes us from our competition. The strength of our portfolio, coupled with the uncertainty of the competitive landscape, enabled us to recruit four regional key Sun Identity partners.

Within our Collaboration business, declined rates had moderated, and we expect longer-term declined rates to be similar. At BrainShare, we previewed Novell Pulse, the first realtime collaboration platform for the enterprise. Novell Pulse is designed to deliver a collaboration environment that works the way people want to work, drawing on the best of instant messaging, document sharing, social connections and realtime co-editing in a secure and compliant manner. Through redefining the next generation of Collaboration, we believe Novell Pulse has the potential to revolutionize realtime business Collaboration.

Our second quarter results were in line with expectations. Our product portfolio continues to strengthen, and our IWM [Intelligent Workload Management] strategy has been well received. These strengths have allowed us to sign significant new partnerships, which extend our value and distribution capabilities. We remain focused on topline growth while managing our expenses.

With that said, I would like to turn the call over to the operator. Would you please open up the call for questions? Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Brad Zelnick with Macquarie.

Brad Zelnick - Macquarie Research

Ron, as I try to understand the impact that the uncertainty on your strategic review has had on the business, and I appreciate Dana's comments around the impact that it had, specifically on the Identity business. But can you maybe talk a little bit about why we didn't see as much of a drag on Linux invoicing? Or do you think, similarly, Linux invoicing could've been that much better? And then as you think about that, or maybe talk to that a little bit, can you talk along the dimensions of duration? So a mix of one- versus three-year subscriptions versus discounting as a result of customer apprehension and what's been going on.

Ronald Hovsepian

You got about five questions out of that one there, Brad. The recent developments, I think, affect customers in a couple of different ways. Those conversations really get magnified when a customer is making a platform decision over a long period of time, where we know those technologies sitting there for seven, 10, 12 years. And as you know, that platform around Identity is exactly that type of environment when you install that as a customer. So that is obviously going to have an opportunity for pause to occur inside the customer environment. So from that perspective, we did see those pauses. I personally participated in calls with customers, where we actually saw a deal slip because of that reservation that they do have. So factually, I could tell you firsthand experiencing some of that. In terms of the Linux business and the Identity business, the part that we can't judge is where we're not being invited into particular deals and where we don't see that. So the ones that we've seen our pipeline were managing appropriately. And as I shared with you, I'm participating in some of those calls just because we want to make sure that we try to lay all the customer concerns as best we can. The part that I can't measure that would've been additive to the performance would be the ones that we didn't see, that didn't flow through the business, that we were unfamiliar with, that didn't show up on our radar. So from that perspective, I don't have a mathematical point of view on that particular one. So that's kind of the range of the customer reaction. I'll let Dana comment a little bit on the annual versus multi-year.

Dana Russell

Well, I think it's safe to say, Brad, that the place that as Ron said, the place that we probably had the most significant impact is where customers have to make those long-term strategic platform decisions. And so the Identity business, certainly we had impact there. And that was meaningful in terms of slipped or lost deals there, that was a couple of several million dollars of impact in the quarter. But even if we disregarded that, and we just looked at contract life, the difference there would have had, which our deals where we renewed and things that have happened, however people wanted to do that with a shorter timeframe. And if we were to normalize that, we'd have been up irrespective of those slipped or lost deals by about 14%.

Brad Zelnick - Macquarie Research

And you also mentioned the Resource Management business and invoicing grew in the period. Did you quote a number? I might have just missed it or you're not looking to quantify that?

Dana Russell

Brad, could you repeat that. Sorry.

Ronald Hovsepian

It was around the endpoint, I believe was your question. Is that correct?

Brad Zelnick - Macquarie Research

I think you'd said on the Resource Management business, invoicing grew in the period but I don't think you threw out a number?

Dana Russell

Yes, I think what we said was that the invoice in management -- I can actually get a number for you for Resource Management.

Brad Zelnick - Macquarie Research

If you think about -- I mean you give us great metrics around Linux Identity and Resource Management, but if we think about the other side of the business, we could see what shows up on the P&L but it's tougher to know or gauge what the decisions look like in period, and you have a few things happening here. You have network 65 [NW65], which I know a lot of investors have been questioning as it moved from general support into extended support. Although if we look at the maintenance revenue on the P&L, it actually looks like things are trending pretty favorably, I guess on a relative basis. But also, relative to the uncertainty and what's happening out there, is there any commentary you can give us about renewal rates, specifically around that where in OES and Collaboration Solutions in general?

Ronald Hovsepian

As you know, we don't break out renewal rates on any of our products, but what I would say is we've been in close contact with those customers. We do regular surveys with those customers, and we have a very clear understanding of their intentions to migrate and where they are in that migration. And I think that probably feeds into our comments. Dana's prepared remarks and my prepared remarks around, we see similar decline rates or the decline rate that you've seen this past quarter moderating, I believe were the words we used. And that feeds into that commentary.

Dana Russell

Brad, we were up slightly with end point. Total Systems and Resource Management there, including the data center products, we were up about 3%.

Operator

Your next question comes from the line of Mark Murphy with Piper Jaffray.

Mark Murphy - Piper Jaffray Companies

A question just in terms of the maintenance revenue. I'm wondering, Dana, is it possible to look at it -- if you exclude the Microsoft effect year-over-year, and if you put it in constant currency terms, is it possible to approximate what the year-over-year growth would've been there in maintenance revenue?

Dana Russell

You're talking specifically for Linux, right, Mark?

Mark Murphy - Piper Jaffray Companies

Actually, I'm trying to get out of that number in aggregate, but I guess if you did it in Linux, that we can could back into that.

Dana Russell

You could probably figure it out. So this is a key point here. So maybe if I could elaborate just a little bit and to reiterate what we said earlier, the original certificates that we sold to Microsoft in 2007 were at a 45% discount from Linux. Today's pricing as we know is closer to 85% discount for large enterprise customers. And to put that in perspective, if all the original certificates sold to Microsoft were renewed at today's price, the total value instead of $240 million would be $65 million. So accounting for that difference, we were quite happy with the overall value of renewals we received in the quarter. And to clarify and emphasize what I said in my prepared remarks, in the first half of the year, we were up over 20% on an invoicing basis without any adjustment. If we normalize for the pricing difference in Microsoft certificates, we were up over 40%, actually closer to 46%. And if we actually excluded all Microsoft activity from all periods, we were up over 57%, well, close to 57%. So we've seen tremendous growth in the Open Source products during the first half of the year, and this has been very exciting. The growth here has occurred despite recent events, and we expect our long-term growth to continue at a very robust pace. However, just to make sure that everyone -- that we're clear on this, we are subject to swings due to the proportion of our business is dependent on large deals, and we'll continue to see swings on a quarterly basis. But as we look over the longer term for the entire fiscal year and future years, we expect growth rates to be at or above market growth rates.

Mark Murphy - Piper Jaffray Companies

I think that -- actually, what I'm trying to get out -- I think you're talking through the invoicing growth rates on the Linux side of the business. I guess I'm trying to get more the recognized maintenance and subscription revenue, where it looks like it's down about 3% year-over-year. And I guess I'm just trying to figure out if you had never -- if the Microsoft agreement had never occurred and we didn't have any currency fluctuations, is there anyway to approximate what that would look like?

Dana Russell

Yes, I think if the Microsoft -- let me just work a number here for you. From a product invoicing standpoint, well, and if I did this, you're going to have to let me work a few numbers here. But it had approximate $12 million impact on maintenance in the quarter for smock [ph].

Mark Murphy - Piper Jaffray Companies

And then maybe, Dana, just another question around this. Is there a way to think through what would your maybe a low watermark for your quarterly maintenance revenue or sort of whatever is built into your plan? And as we think about the revenue guidance that you provided here for Q3, or is that assuming that there's another as kind of a sequential decline in the maintenance and subscription revenue?

Dana Russell

Mark, I didn't follow you. I'm not sure I understand the question.

Mark Murphy - Piper Jaffray Companies

I guess I'm just wondering when you look at this, you've got maintenance and subscription revenue of about $154 million on the April quarter, and I'm wondering what you think is the low watermark there? Is that going to continue to decline sequentially or do you think that, that perhaps has already bottomed out?

Dana Russell

Well, I'm not sure how to speculate on that as we go forward. I suspect that we've been relatively steady with the maintenance and subscriptions there. Most of the decline is, as we've seen decline, that's been related to the Collaboration business, and then the anomaly associated with the Microsoft certificates. We do feel much better about our look forward here with the Collaboration business unit and feel like we're going to have a much more muted decline rates there. So I would suspect that we'd feel more bullish about maintenance and subscription revenues overall.

Mark Murphy - Piper Jaffray Companies

Maybe for Ron, could you -- any comment on the operating environment in Europe? Obviously, there are a lot of concerns about this in the marketplace, but it looks like you're guiding to a sequentially fairly consistent revenue result? Should we read into that, that you're really not seeing the signs of the degradation in the pipeline or any kind of change in tone from customers in the last few weeks?

Ronald Hovsepian

In terms of the pipeline and the marketplace, the pipeline continues to be healthy. It's up slightly from the prior year at the same point in time. So I actually see the right indicators inside the pipeline that we'd align with recovery. Obviously, geographic differences exist. So you've got the pressure in Europe as we all know, and AP continues to show good, generally good direction. And the Americas showed some level of recovery the last few week. Last week aside, we have seen some of that recovery in the Americas. So from that perspective, I see the general health of the market moderately, appropriately coming out of recession, heading in the right direction, and I see the increase in our pipeline also being a good indicator.

Operator

Your next question comes from the line of Michael Turits with Raymond James.

Jonathan Doros - UBS

This is John for Michael. When you look at the Workgroup business, I think it lost about a point of operating margin sequentially while revenues were up. Do you expect the margins here just to trend lower over time or should they steady out around 46%?

Dana Russell

Well, it all depends on the revenues there. I think as we go forward, if we can see relatively consistent revenue streams and then more muted decline that we've talked about here, then I think we'll be relatively consistent with the margins. But that's an area that we have optimized quite a bit. The margins are quite high. And so, it's more dependent on revenue than our ability to adjust the expense structure there.

Jonathan Doros - UBS

And then you mentioned some uncertainty among its customers, given what's going on with the company, but are you seeing that in the sales force at all? Was there any increased churn?

Ronald Hovsepian

Yes, I'm not going to talk about turnover or any of those things in any part of the company from that perspective, but we have tried to have a good, open communications with the entire company about the situation and what we have to stay focused on. And we've asked everybody in the company to remain very focused on the customer and what we need to do to execute.

Operator

Your next question comes from the line of Richard Williams with Cross Research.

Richard Williams - Cross Research

Just wondered if you could give me a little more color on the slipped deals? And then secondly, if you could give us a rundown geographically by business conditions as you saw them?

Dana Russell

I caught the first part of that, Richard. I did not catch the second part. So in terms of slipped deals or lost deals, the only thing that I can tell you is they're significant, meaningful. And I can give you an overall number that I equated to a couple of million dollars of impact there.

Richard Williams - Cross Research

And were they any particular. . .

Dana Russell

That was just as it related -- just to clarify, just as it related to the Identity business. Now they're accretive that we know about, right? So there could've been other things that we don't know about that impacted more in the Identity business or other parts of our business.

Richard Williams - Cross Research

Did you see slipped deals in other segments?

Dana Russell

No. I mean we weren't calling on anything specific in other segments of the business. But I think that those are the things that are more worrisome because were not necessarily in those in communications on some things that may be impacting that. We did see though a contraction, particularly in Identity, of what -- contract life, and that was the place that I think was a second area that we can measure, and say had a meaningful impact on the year-over-year growth rates.

Richard Williams - Cross Research

What is the duration, the average duration now?

Dana Russell

We didn't give out an average duration amount. But if we were to go through and calculate that, that moved us from a negative number to a positive number. And I think we said that we'd be up about 14% year-over-year if we were to normalize that.

Richard Williams - Cross Research

And then in terms of geography, could you just run us through each of the major regions and how business conditions appeared to you? Did you get that? I'm saying if you can go geographically, give us an idea of business conditions in each of the major geographies?

Dana Russell

Well, I think Ron can comment in a more general sense. I think in terms of the impact on Novell's business and how our business was by the different geographies, we were in very good shape in Asia, so that was strong for us. Europe also, even though they've had significant difficulties over there from a macro sense, we had a relatively good performance there. We suffered a bit in the Americas, in terms of some of our performance in particular areas, and I think largely due to some of the impacts associated with the recent developments here with Novell, not necessarily stating any weakness in the Americas or particular weakness with that business.

Operator

Your next question comes from the line of Katherine Egbert with Jefferies.

Katherine Egbert - Jefferies & Company, Inc.

Dana, you said 85% discount on the Linux deals [ph]. Can you break out for us, is that $0.15 to a dollar or does it also include non-renewals? Both the yield and per dollar and then also the number of deals that renew?

Dana Russell

Well, as relating to our list price, Katherine, so if you think about it, if you were to take the list price back in 2007, Microsoft got a 45% discount off that list price. That's what they paid Novell. Now, today, when we look at these large enterprise deals, off of our list price, what we're seeing is about an 80% to 85% discount. So there is a significant difference. You could actually work through the math there, but it's not $0.15 on the dollar, but it's about an 85% discount off the list price.

Katherine Egbert - Jefferies & Company, Inc.

What's the renewal rate? Like, is everyone renewing or some just not renewing?

Dana Russell

Well, I think in the quarter, what I said a few minutes ago, in the previous question there, was we felt very good in terms of the value that renewed in the quarter. So in contrast there to some comments we'd made earlier in the last quarter, that we had a number of things that had slipped out because companies that we'd sold some or placed some of the certificates at or just no longer in business. So there were some things that happened there that were beyond our control. This quarter, when you look at the value that we had, based on pricing that's in place today, we felt fairly good. We felt very good that we were renewing that value and even a little bit more with customers who had received certificates at the comparable quarter back in 2007.

Katherine Egbert - Jefferies & Company, Inc.

And then for Ron, how tied are your Identity product sales to the old Novell Directory Services, the NDS? Meaning, do you leverage that infrastructure much still or can you do anything until that compliant?

Ronald Hovsepian

From a technical point of view, those pieces have all been separated. From a go-to-market perspective, we do some bundling of different pieces to take advantage of that in the marketplace. But in general, technically, all that stuff has been separated over the last three years. That was part of the cleanup work that the team had done. So we're not wed to where products are integrated with other products like they were in the past.

Operator

Your next question comes from the line of Brad Whitt with Broadpoint.

Brian Wallins - Broadpoint Capital

This is Brian Wallins for Brad Whitt. Just a question on the domestic international revenue split. Does that still break out to about a high 40% international?

Dana Russell

Yes, that's approximately -- we're just over 50% in the Americas, so I'm defining Americas as being actually Canada and Latin America as well. But if you take that split, we'd be just over 50% Americas and the rest international. So almost a 50/50 split.

Brian Wallins - Broadpoint Capital

And then just looking at the 2Q revenue guidance and thinking about license revenue. Does the revenue guidance assume typical close rates or did you make any tweaks to that at all?

Dana Russell

No. We assumed fairly typical close rates. We know that there could be some impact with things, but assumed a fairly consistent close rates and we have very good pipeline, especially in our Identity Security business. So we felt very good about that and feel relatively confident that things will progress rather nicely in the third quarter.

Robert Kain

With that, I'm going to wrap up the call. I thank all of you for joining us, and speak to you soon.

Operator

And this does conclude today's conference call. You may now disconnect.

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