Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Mike Bishop – Investor Relations

Ken Denman – Chief Executive Officer

Anne Brennan – Chief Financial Officer

Analysts

Tom Roderick – Stifel Nicolaus

Matthew Hoffman – Cowen & Company

Mike Abramsky – RBC Capital Markets

Scott Sutherland – Wedbush Securities

Charlie Anderson – Dougherty & Company

Scott Zeller – Needham & Company

Openwave Systems Inc. (OPWV) F4Q10 (Qtr End 06/30/2010) Earnings Call August 5, 2010 5:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Openwave Fourth Quarter Fiscal Year 2010 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator instructions) This conference is being recorded today, Thursday, August 5th, 2010. I would now like to turn the conference over to our host Mike Bishop from Investor Relations. Please go ahead.

Mike Bishop

Thank you. Good afternoon, everyone and thank you for joining us today to discuss the results of Openwave Systems fourth quarter of fiscal year 2010. Joining me today from Redwood City are Ken Denman, Chief Executive Officer; and Anne Brennan, Chief Financial Officer.

Before we discuss the results of the quarter, I want to remind everybody that we are operating under the rules of Regulation FD. The fourth quarter financial results press release was distributed at the close of market today. And, if you've not yet seen a copy, you can find one at our website at openwave.com. For your convenience, this call is being recorded and will be available for playback from our website for three months.

Before we begin, I'd like to remind you that any remarks that maybe made on this call or in our earnings press release about future expectations, plans or prospects for the company may constitute forward-looking statements for the purpose of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

The actual results may differ materially from those indicated by the forward-looking statements as a result of various important factors. These factors include the specific risk factors discussed in the Company's press release that was distributed today, and in the company's filings with the SEC, including but not limited to the fiscal 2009 financial results on Form 10-K and any other reports subsequently filed with the SEC. We intend to make several forward-looking statements during the call that are based on management's current outlook as of today.

We do not intend to update these business outlook statements until the release of Openwave's next quarterly earnings report and disclaim any obligation to do so prior to that time. We reserved the right to update the outlook for any reason during the quarter.

I would like to note that during the discussion of the financial result unless otherwise indicated, gross margin expense and earnings related item are reported on a non-GAAP basis which excludes stock based compensation, realized losses and impairments on investment and goodwill, amortization of intangible, restructuring expensed and amounts related to unusual event.

Please access our financial metric summary which is available on the investor section of openwave.com to review Openwave historical financial performance, as well as reconciliations of the non-GAAP measures we report to the corresponding GAAP measures.

Now, I'd like to turn the call over to Ken.

Ken Denman

Thanks, Mike. And good afternoon everyone. Today we reported revenue for the fourth fiscal quarter up $43.6 million and breakeven non-GAAP net income. Bookings for the quarter were $35.8 million. For the full fiscal year, revenue was $183.3 million with bookings of $170.7 million. We did not get our revenue and bookings scores. We improved bookings by 10% from the prior fiscal year but of short of our absolute bookings target.

Today, I want to talk about two things. The first is the factors that led to our not meeting our goals and second is to discuss the progress we made over the past year to improve our prior portfolio. Specifically, the mediation family of products, Media Optimizer, Analytics and Smart Policy, which all built on a foundation of Integra our next generation platform.

First, our performance. As we discussed on the last call, there was a customer concentration risk that took its toll in the back half of the fiscal year. In the first half, we had solid bookings levels. In Q3, FY '10 our largest customers dramatically and certainly reduced spending as a result of an internal assessment.

When we need a sales forecast by beyond at fiscal 2010, we were prepared to absorb a 15, 20, maybe even 25% reduction in purchases by our largest customer, if that scenario will happened. We certainly did not anticipate kind of more than 80% in the second half of the year, reducing the results in our bookings numbers.

Giving some idea of discovered their involvement with us, our pipeline for this customer on the symmetry one showed several bills valued at multiple 10s of millions of dollars which bolstered our confident.

By June, we booked less than $10 million from that customer. Generally speaking some operations has been delayed platform purchases until we have more certainly of market trends. Plan migrations before have GD closed – some near-term decisions. I'll point out that this particular customer remains a very good customer. In support of several core platforms and we believe the Integra family including our comprehensive suite of service enablers, analytics, content application and optimization will handle a greater and greater proportion of enable traffic.

We don’t know when or if this customer will return to historical buying patterns. We expect they will continue to purchase our product but we expect they will contribute a lower amount in fiscal 2011 relative to what we saw in past years. To reiterate, we were indeed impacted on back half of fiscal 2010 by the issue of customer concentration, clustering things for me personally is that the headline numbers betrayed the real progress we have made as a company in our 18 months, that brings to move to item two.

Or new mediation product family. This quarter I'd like to continue to spotlight media optimizer because we believe it simplifies how we transformed our product development cycle to align with the demand of OIP market and how we can reduce the customer concentration risk to our new product and services.

Further more optimization is a significant market opportunity for us. The total available revenue opportunity for video and web optimization is more than $1 billion but we do our adjustable market opportunity at approximately $120 million for FY ’11. Now it’s all about adoption and finding the need if that occur. Other rate is been working very hard to build the superior product that positions to capitalized on the opportunity we see before us as carriers that may decisions on the next generation software infrastructure that will support more traffic flow into their networks.

Although, we've been talking about these opportunities for sometime the typical product buying cycle for our customers is 12 to 18 months. We have seen early validation for trails several deals have already been closed and we anticipate several more deals in the first half of the fiscal year related to our new product portfolio. To add further color, I'd like to talk to the timeline of the rollout Media Optimizer which we believe will be a significant revenue driver for the company in the future.

Bear in mind other products in a new mediation family, such as Analytics and Smart Polity have a similar timeline. A year ago at July we established the development plan for media optimization. In February a Mobile World Congress we announced the product to the market and established a customer target list which included carriers around the globe. In mid April we have officially launch the product and since then we've been excited to see our customers pulling up into trails.

As of today we will be completed or in the process of conducting 20 trails with Media Optimizer with many more opportunities in the pipeline. The trails are an important step because carriers are investing both time and resources to evaluate – since on the market and access the strong indicator of purchasing interest.

We're encouraged by customer profile of the trial participants more than 60% our new customer prospects to open late. We saw only regarding our customers witness for a stand both the high quality user experience and the bandwidth maximizing money saving value that our product delivers but they also demonstrate the investment and asset interest carriers are taking and exploring optimization as a solution to their bandwidth problems. We believe our approach to optimizing video is unique in the market and that open label will be a market leader.

The solution is designed to be context where taking into a account the device, the type of content, subscriber attributes, as well as real time network conditions. We use advance technique like content aware compression, pre testing, dynamic contend detection and intelligence in cashing, so that the optimization and delivery of video is intelligent, policy driven and could easily liked to share pricing and up sell revenue opportunities. We believe that this product will be a core element in our customers ability into first manage the going traffic volumes and than monetize their traffic.

And Calgary report that we have secured a new video optimization customer this quarter. The first carrier among the 20 trails has made a decision. Emerged integrated telecommunications company also referred to as dual, because Duplay operator in United Arab Emirates, France to deploy media optimizer to manage their video traffic.

They were one of the first to go to trial with a full RP. Bundled deal also includes Integra with Optimizer, Web Adaptor and Media Adaptor, all of this will help you better manage and monetize their mobile network traffic. There was also a new customer for Openwave.

We secured this deal due to the products technical superiority, as well as used confidence in our market vision and stability as a business. Winning new customers is important to our goal of diversifying our customer concentration and I believe we are well positioned to deliver in F5 iRules.

We are clearly not the only vendor hoping to capitalize on the operator’s immediate need to maximize bandwidth. Other players are responding to RP's sometimes in partnerships with point product vendors, sometimes with large scale hardware and software bundles.

In the due RP many players came to the table including there incumbent managed services provider which happens to be a large networking equipment manufacturer. When it came to the trial, we were the clear winner.

The optimization opportunity is highly comparative at this point. Vendors are going to extremes in order to win deals and secured an incumbent position. We believed an incumbent position is key to future revenue as the traffic volume increase and follow-on deals for complementary products like Analytics and Smart Policy have more normalize pricing.

Underpinning our media optimizer offering and other service neighbors is Integra. After a period and which are Integra platform was ahead of the industry demand curve, it is seeing some significant attention driven by the demand created from our new services enablers. We are winning with Integra in place that would have been improbable a year ago. A due and a Vodafone guitar [ph] in the Middle East. At a major operator in south East Asia.

At Vodacom in South Africa, and Telefónica in Spain as spread here in the states. And as a major operator in Asia path that is running all mobile device web traffic through open live Integra including iPhones IV, I pad and enjoy public smart phone traffic. These carriers are among the first to select in that – there next generation all IP software platform and they chose Openwave.

Currently the sale cycle is going gated as you can imagine on trials RPs and a number of competitors. Although we expect sale cycles to eventually compress, they haven’t yet. The combination of factors coming to play. We are at inflexion point in the market as operators struggle with the implications of the next investment cycle.

We believe this uncertainly will pass the technology and solutions are tried, tested and referenced. In spite of rocky fiscal 2010, we have made dramatic improvements and we are excited by the future. Openwave now has a highly comparative industry leading portfolio products available on the market. We can make that statement because we understand that success starts with people.

We have built a great team in the last 18 months and have focused on rebuilding our market and product vision while revamping the value proposition. [inaudible] our successful be our ability to successfully market and sale these products, now that they are market ready. And we have a solid momentum going into fiscal 2011

We have recently stepped up our sales talent with new hires. We have a new VP of EVA to exchange our several key big positions in a group also. We’ve got a new executive to lead our channels effort, and we’ve added a major account leaders for AT&T, Horizon Vodafone in Latin America and we’ve up our quota caring team members numbers for FY’11.

Now, that we have the products, it's time to go. And it's interesting how much is expense to recruit top guys [ph] talent once they get product proximity to our new product family. I would also like to note that our messaging portfolio remains a solid underpins to the business.

This quarter we launched our next generation messaging platform, e-mail a mix, latest edition which enables operators to offer mail boxes with near limitless storage capacity at a significant at a lower cost in current solutions.

I am pleased to report that we signed our first deal for email and makes [ph] stylus edition with certain link communications. The top-ten cable broadband provider located in the US. To help enable set a link with true geo redundancy and disaster recovery.

I know many of you are interested in our thoughts on revenue in fiscal 2011. And to be clear, our growth depends on the conversion rate and market share, we’re able to capture in this early stage of our new product rollout. At this point, it would be premature to provide an outlook without a better sense of how we’re executing the hints those metrics and the outcome of the product trials.

I would try to provide you with clear understanding of our bookings and revenue performance in the back half of 2010 and the quality developments of our plans to ramp up a mediation family and our new products in 2011. We optimizers clearly exciting but we’re equally optimistic on all new products.

I will now turn the call over to Anne to review the quarter’s financials and he will open up the call for your questions. Ann?

Anne Brennan

Thank you, Ken. And good afternoon, everyone. I will now provide a details, so many of the financials for the fourth fiscal quarter. As, Mike, mentioned earlier unless otherwise stated, gross margin expense an earnings related items are reported on a non GAAP bases.

Revenue for the quarter was $43.6 million and increased of $3.5 million or 8.8% quarter-over-quarter. This increase was attributable primarily to stronger license revenues. License revenue was $15.7 million an increased of $3.1 million or 25% sequentially and comprised 36% of total revenue.

The quarter-over-quarter license increase is primarily due to an improvement and the results of our main regions. Maintenance and support revenue was $15.2 million a decrease of $200,000 or 1.5% sequentially which comprised 34.4% of total revenue.

Services revenue was $12.9 an increased of $600,000 or 5% sequentially. This increase was primarily due to a large services transaction in Asia. Services revenue comprised 29.7% of total revenue.

Original rate and the revenue in the June quarter towards a continued increased in the mix of our international business, 51% of our revenue originated from customer’s base in the America’s, 20% from the EMEA and 29% from Asia. This compares the last quarter’s state bank [ph] up 53%, 16% and 31% for the Americas, EMEA and Asia respectively. For the fourth fiscal quarter of 2010, Sprint represented 27% of revenue. No other customer represents greater than 10% of our revenues for the quarter.

Turning now to our gross margin. We achieved a 67.5% blended gross margin for the quarter, an improvement of 2 point, 3 point sequentially. Gross margin improvement was attributable primarily to a proportional increase in license revenues which carry higher gross margins.

Gross margin on license of 99.2% decrease slightly from 99.6% prior quarter or 0 point 4 points. The maintenance and support margins of 69.3% decreased by 1 point 8 points from 71.1% last quarter primarily due to additional labor expense.

Services margin of 26.8% increased 3 point 9 points from 29.9% last quarter. The sequential increase was primarily due to the lower third party costs in the current quarter. As for operating expenses, in fiscal quarter 4 research and development expenses were $10.7 million and $200,000 increase or 1.5% sequentially.

The quarter-over-quarter increase is attributable primarily to reduction and development brands for EMEA facility.

Fiscal quarter four sales and marketing expenses up $10.2 million, or $700,000 lower or 6.5% as compared to the prior quarter. Due primarily to lower spend on marketing events in the fourth quarter.

General and administrative expenses of $7.2 million increased $1.5 million or 26.5% from $5.7 million in the prior quarter. This quarter-over-quarter increased is primarily a result of higher professional fees for sales and audit [ph] work performed earlier in fiscal quarter four.

Additionally, we’ve experienced an increased of $500,000 and by debt expense quarter-over-quarter consistence with the increase in accounts receivable. Our headcount increased by five employees from 579 at the end of March to 584 at the end of June.

The increase in headcount was attributable primarily for an increase in our research and development function. TIA matrix's page [ph] hosted on the website for great events of headcount life function.

On a GAAP basis, in the June quarter, interest and other income with the charge of $100,000 which compares to a gain of $1.5 million in the prior quarter. The decrease from the prior quarter was primarily due to a receipt of $1.7 million from the legal settlement finalized during that quarter.

Income taxes increased $200,000 to $1.3 million in the June quarter compared to $1.1 million in the prior quarter. The increase is primarily due to higher taxes in our international regions.

Overall, for the quarter ended June 30th, 2010, Openwave posted a GAAP loss of $0.03 per share and with non-GAAP breakeven. Reconciliation from GAAP to non-GAAP profit and loss can be found in our press release and on our website.

Turning now to the balance sheet. Cash receivable increased to $31.2 million at the end of June from $25.7 million at the end of March. Primarily the result a declining on two large billings in fiscal quarter four.

Our overall DSO increased by 60s days from 58 days at the end of March to 64 days at the end of June. We continue to maintain our overall DSO target of 80 days. The fair revenue increased to $46.9 million as of June 30th, 2010 as compared to $43.4 million at the end of March.

The quarter-over-quarter increased was attributable primarily to a large maintenance renew billed in the quarter. We ended the quarter with $119.4 million in cash and investments which represents a decreased of $4.2 million or 3.4% from $123.6 million last quarter. This is the result of $3.3 million of cash used in operations and $1.2 million for the purchase of fixed asset.

As we launched a new products and the trails advance, we continue to have a strong balance sheet that positioned us to take advantage of the carrier transition to know IP environment. As Ken mentioned, the second half of 2010 was a challenging from the bookings standpoint. A recent backlog in bookings levels will impact revenue in early 2011. heading in that backlog rules out over a four to six quarter period.

I need interaction with our new product set. We expect to build backlog to benefit revenue later in the fiscal year. I will now turn the call back to Ken.

Kenneth D. Denman

Thanks, Anne. Before we open the call to your questions, I wanted to say that we are rapidly moving to implement our trials in an effort to simultaneously diversified our customers based and improve our financial performance. We are not waiting for thing to saw the mind but we’re actively working with new carriers to demonstrate the value and the technical superiority of our new product offerings.

As well as working with the existing customers on upgrade opportunities. As we’re moving to 2011 we believe openly these in a strong comparative position and we’re looking forward to decisions from key customers and prospects on a next generation software infrastructure. Operator I would like to open the call to questions.

Question-and-Answer Session

Operator: (Operator Instructions) Our first question comes from the line of Tom Roderick with Stifel Nicolaus. Please go ahead.

Tom Roderick – Stifel Nicolaus

Hi guys thanks and good afternoon. Ken I am hearing you talked about some challenges in the bookings line with your biggest customers Tier 1 in the U.S. here and obviously Spring fall to that category. I am wondering as you think about the future, how comfortable you are that installed position at that Spring and AT&T haven’t been compromised and I understand from your comments that its – what looks like delay now but you do anticipate them to keep buying. But this 4G as a networks standard mean less for alliance and mediations solutions, is there lesser of place where Openwave going forward and what sort of assurance are getting from your biggest Tier 1 that your network changes and ongoing changes with their structure doesn’t put your position there longer term at risk?

Ken Denman

Okay. Hi Tom thanks for the questions. I am confident very confident that are ongoing position within these large at Tier 1 players is going to be stable to improving overtime with more traffic actually coming from smartphone or smart devices across our mediation platforms. So overtime as we get more and more the traffic coming thought our investment it will be very helpful from a license perspective. The areas that we are seeing risk today or where see delays – delay in decisions it tend to more on the legacy side. So I think that’s not a surprise and really begin underpinning at your question is, how strong we do feel about our next generation platform position and I spoke more specifically to at least one of those operators in my comments where basically I indicated that they were in fact in integral customer.

The fact that we are just wrapping up the deployment of integral Integra and going to the certification I think is that’s really good sign that our position there is going to be long-term because in effect we've made the sale that we are the right platforms to move in from 3G to 4G. So while we may be taking some hits on the delays of some upgrade or improvement on platforms, newer platforms – older platforms, excuse me, legacy platforms. We are actually in at least one of those providers wrapping up the deployment of our next generation platforms. So still really good there.

The real question for us is sort of navigating this, the historical fin levels on the legacy platforms with the ramp up on new. But again when I go across the platform that we are currently affording in both of our authorized operators, I feel I have a level of comfort that we will remain situated, we will remain seated in those customers because whether its a directory platform or a mediation platform 3G to 4G transition does not change the need in our view for that fact, when I think and the customers view as well otherwise we went into first decision. So the need data traffic, need mediations in 4G that's really something we haven’t talked enough about that. There was some thought maybe when I first came to this job 18 months ago I was hearing thing like well with 4G you don't really need gateways or and we don't really have a gateway in the mediation and we do mediation and I think increasingly over the last mini quarters, operators come to the realization that if they don't manage data traffic they get their brains beaten out

Tom Roderick – Stifel Nicolaus

Okay. Great you know, brief follow up from me, in hearing your talk on service bit more and more about going to market with hardware distributors and network infrastructure providers, is that the necessity to move that requires you to get closer to some of those players and does that change the way in which you developed your products under it changed the way in which you go to the market with your sales force.

Ken Denman

I think the answer over the long haul is to that it could, but what I see today is that there going to be multiple, multiple ways to address this market directly and because we’re basically in the wild west right now as you think about sort to this transition to 4G and what operators are finding out about their need to manage the traffic and what happens when they don't. So in these sequences in the life cycle of these product evolution typically we’re going to see more direct and through traditional channel partners.

Over time I do think some of the very big boys and girls who are more or less sitting on the side lines right now are major competitors tend to a the software companies most of them private by the way. The large network equipment manufactures look for opportunities. The partner with folks but they are trying to decide if this phase is big enough for them to invest and it will be overtime we certainly believed.

And ultimately, they are going to have to make a decision around how to outplay at that point, partners, partnership opportunities will become hair mouth and who knows you could rebuilt the role of layer on. I think that’s well done to road.

So I think, Tom we are in sort of the process right now approving out the market and seeing the market get sized and I think its going to be revolt. So the answer, each of those things you’ve mentioned will be answers over time.

We’re very mindful of the fact that we need to be have to go to market multiple ways. We need to be able to go to market directly. We also are going to market with partners from a development standpoint, we need the capability, the dexterity and the software stats and solutions to be able to support partners of all kinds including you know OEM players. So we have a lot of different thoughts on our roadmap.

Tom Roderick – Stifel Nicolaus

That’s very helpful. Thank you, again.

Ken Denman

Thank you.

Operator: Thank you. And our next question comes from the line of Matt Hoffman with Cowen & Company. Please go ahead.

Matthew Hoffman – Cowen & Company

Thanks. Look, Ken, bit of the mix pact here, you that you got the first win here for media optimizer but sounds like the beginning over the next fiscal year here is going to be a challenge for the company.

So, let’s talk to the ramp. You got 20 trials out there, you got one good customer deal. What was the number of trials 90 days ago and what is the right number in terms of trials that you like to be add 90 days from now?

Ken Denman

Might be trials 90 days ago were four or five were in that range. So that’s the ramp over that period of time. I would like to be able to spot based on where I see this market heading and how I see people pulling us in the trials and when we look at our – what we build is a final and so we look at the total market available around the world looking the final, looking our engagement.

I believe we need to be able to support 20 simultaneous trials around the world at some point. So, well, at pipeline 20 today, the way I think about this is simultaneous trial so Matt, that's my mindset and is the next goal. How we open the amateur, how do we make sure that around the world we could support 20 second. That’s the big deal I mean from a resource, from a talent.

And, to do a quality job, everyone of those has a big opportunity, they don’t want to stumble. So, and if you translate and the reason that the important, of course is not only that means that will support net users. Like you got to respond more importantly I think the majority of those trials will be with new customers and the new customers are the way that we address the customer concentration as you – but, frankly it's the way we accelerate growth in the business.

Matthew Hoffman – Cowen & Company

Okay. What's the average link of time then that you expect. Have you try to taken them may be for the velocity here. Of the wins as we look to the back half for their models for a next year. Next fiscal year?

Ken Denman

What I can tell you is at least what our experience have been today and by the way before I supply your answer you mentioned deal which are really productive on our new products therefore we actually have another win last fall which was [inaudible] in Malaysia.

So, we – I don’t want to pointed out that we actually – we’ve actually gone to market a couple of times and taken out our comparators and got the win we did that before we had our own product that looked good at the win and a little more third party content that we wanted but that win is out there. Secondly, to answer your question. We have seen trails go from third from [inaudible] 13 days to may be, may by three weeks. So, I think that will actually see some trials that would be five to seven days. I think there are 13 day time frame is probably a pretty good averaged in terms of what we expect. Market turn [ph] where we’re trying more things are supporting more service enablers are looking at more things may be we go to three weeks or four weeks but I think 13 days probably good average.

Unidentified Analyst

Okay. So we should expect to see a whole new set of operators over the next 90 days coming and try the product and then if that’s correct then we also what kind of yield do you expect from these trials?

Ken Denman

First of all, I want to make sure that. You after that, you and I are clear that the whole decision process can take two to three to four months from the client that we start to see. To a time that we get to go ahead on the trial or we get the trial done often trying to tried to followed by an issued RP we hope that we’ve impacted that RP, whether a trial and then they are the process of getting that them, a short list and that’s the final and a contracting process. So, I want to make sure that do you have perspective I am going to stop and part has been make sure that and I fully understood your question.

Matthew Hoffman – Cowen & Company

Yeah the question is we are trying figure out if you have 20 and trail to date sounds like with the shortened try and you relatively mixed out on that. Does it sound like or trials if I understood you correctly.

Looking out 90 days and still had demand for the product you would have purchased say 20 again but there is a change out of this 20 that you’re supporting and waiting for decision from the 20 that we were looking at today that was [inaudible] first time we’re dealing with this pipeline issue on optimized and then just trying to figure out what the yield made they what the total velocity is on the probably media optimizer.

Ken Denman

So, the 20 is there’s a limit. The 20 that were on right now is sort of the universe of yields that we have committed at this point the universe of trial that we have committed. There is a I believe ultimately that be a much better market and so what I am saying is that I want to trying to get the point where I can support 20 simultaneous trial where your capacity is much lower than that so we are going to be going that up overtime.

In terms of the – the best answer I can give you in terms of what do we expect see from this first chance of 20 trial over the next couple of quarters is, I think that the probably half of those to ten to twelve of those it is my best estimate of the number decisions that might be taken in that times so but and then you have to add on even once the decision is taken that can sometimes be a contracting process so first of there obviously say that we can get 10 decisions some potentially and the balance of that year and will be we are all be able to great our performance against those, as we get into the calendar year.

Matthew Hoffman – Cowen & Company

All right, perfect. They want to do is that in licenses or bookings for this report?

Ken Denman

Well

Anne Brennan

There would in booking somewhere but not its like written your number.

Ken Denman

So, that would be in the bookings number and we’ve been in the process we’re starting the process what we deciding the process as the deployment soon so that’s not going to be in revenue.

Unidentified Analyst

Okay so with the legacy product is down even more than the I think we are down versus 18 13% sequentially in bookings or something like that. So without there due and [inaudible] even power is that correct.

Ken Denman

Well that was fair. Yeah.

Matthew Hoffman – Cowen & Company

Okay. All right another question you and bad debt that that’s new that something we haven’t heard for a while what happen there is 500 million is that one time or something we should factor in looking forward.

Anne Brennan

Its 500 quarter-over-quarter. Roughly you said 500 million, Matt.

Matthew Hoffman – Cowen & Company

Okay.

Anne Brennan

Yeah.

Matthew Hoffman – Cowen & Company

I am sorry.

Anne Brennan

Yeah. It’s driven by the increased in the balances of fairly formulate to not something that you should necessarily building because it’s part of our run rate, it is time to be one of the higher and numbers quarter-over-quarter this timeline.

Matthew Hoffman – Cowen & Company

Okay. And then the last question [inaudible]. On the tables we’re up a little bit and the DSOs were up a little bit and I guess we are part to answering on back that side, but go ahead and step us through the velocity in the business and closing business to nearly quarter what happed there and ?

Ken Denman

And especially with regards to DSO. Yes and uptake of six days that’s the functional of AR balance increasing from I think 25 to just over 30 and 31 and so that the driver really for the DSO balance and then missed with their early.

Matthew Hoffman – Cowen & Company

Yeah. Was the business like coming in the quarter, you didn’t get paid for your book-to-revenues but didn’t get paid I’m mean just was there are a lot of deals that came in late in quarter trying to figure out there?

Ken Denman

The drivers about number really is the billing, the billings were skewed towards the back end. If you look under the coverage at the profile base their and its primarily the current prosperity so the profile is set behind that number is relatively good if you reset back to my comments. I think I mentioned that when eliminating you that building number up in the quarter.

Matthew Hoffman – Cowen & Company

Hey, great. Well, thank you and good luck.

Ken Denman

Thank you.

Operator: Thank you, and our next question comes from the line of Mike Abramsky with RBC Capital Markets. Please go ahead.

Mike Abramsky – RBC Capital Markets

Yeah, thanks very much the question is in the pipeline in the head wind from I guess just going back to your earlier question do you expecting that revenue growth in the app 11 either under a debt case scenario will be positive or doesn’t now look like it could potentially be negative and also in Q1 particularly because this brand or should be expect normal seasonality could it be lower then typical work is the there is still be or could make it higher then typical just where you are standing today and what you are watching at could just give us a sense?.

Ken Denman

Sure mike so that first five question we believe that where going to see maintain gross years and revenue so that the starting point of course that mean that where going to have see execution and delivery against the new product or trails and booking and so that I mean it absolutely in the say that haven’t but haven’t said that we had the thing in place got the products out with actually going in the market we’ve got initial wins the only trail result to been encouraging so for nearly you said there is piece of respect depending upon new product launch and delivery you always have to be nerves when you say but again we then working on this for a while we spend 18 months I am getting our strategy right out where the market was going to go building products being a [inaudible] products getting early feed back from the customers and getting well so when I looked that became in to this year with some confidence about our new products week, but clearly underneath the coverage we have to assume a lower level bookings and revenue contribution from those larges customers given what we’ve just experience in the last two quarters all of that with all of that under consideration our view and our plant for this year that we’ve seen revenue growth.

Mike Abramsky – RBC Capital Markets

I think it was a second parts of the question which was in Q1.

Ken Denman

Seasonality…

Mike Abramsky – RBC Capital Markets

Yeah. So, if I would back to last year in Q1 relatively high close to 15 million we indicated that point in time, the services was a high component about that revenue profile and are feeling ranges services revenue right now is that its more than that number just adding an access of $23 million to again if I point you back to my prepare comments and the fact that we’ve seen a softening in bookings in the last couple of quarters that would indicate backlog that will go over a regular and 4 to 6 quarter period and if you take that into account as well as the fact that we generally see a big shift of 10% that would give you best idea what we were thinking about Q1 in terms of revenue?

Ken Denman

All the last mixture of 10%

Anne Brennan

A big shift but bookings that we are taking in the quarter with revenue that the benefits in the quarter, does that help

Ken Denman

10% – that is what…

Anne Brennan

The wrong number, I get the portion of that the revenue each quarter which comes from backlog and there is a big shift in the quarter and that the portion that generally 90% form backlog and 10% from big shift that all I am referring to.

Ken Denman

With some quarter to quarter basis

Anne Brennan

Yes

Mike Abramsky – RBC Capital Markets

Okay and are you going to give me restructure or repositioning of reverses to address the any possible capacity ready to think change in deal. I know you could carry out. I apologize that's for Mike assumption but my assumption not yours.

Ken Denman

So as we wait we monitor the business and it is the reading factor of the company we exchanged for couple of quarters as the order backlog. So we would just be behind for back and adapt what we have to and with the 9 to deposit ability [ph] so something that we fell good for natural course of business

Mike Abramsky – RBC Capital Markets

Okay. So there is no specific plan here but you know just look at it and system was the trial that you were talking about which seems positive how many of them deactivate you expect to convert in the first half of next year well there is something that is what feasibility you have to that?

Ken Denman

So the I think its very positive, first of all the customer perspective as I mentioned in my comment from cluster respective tries cost them money it represent them investment on their part so that's typically pretty nice fine signal because they are going to make some decision on most of them are actually to make a decision with why we think of them as being the confidence grave engagement as frankly where everything I say about the child is I want to get shoulder to shoulder my comparators we have a better product I want to assure that and I welcome the opportunity and get it in front of them get in front of the customer being in competition with matrix [inaudible] broader bought here in building up platform verses of point solution is really demonstrates the customers relation for ever. In regards that what we expect you know what we expect to see in the next couple of quarters I plan to get to Q1 Q2 and Q3. So it's a sort of reason of mix I think that we will see several deals as we decided with the know how we can figure out is how many actually contracted because we find a contract in process can take a little longer than I would like you were working short that short net work with operator at the end of the day. So included in that for me give me more guidance than that, but I will say that loud and clear we ended the market in re optimization using the optimization of lead in drug communication family for I'd say again we end be the market leader so whatever decisions are taken at we talked about this over the course of time future quarters over the years how the conversation with year about to the market leader.

Mike Abramsky – RBC Capital Markets

Okay. Thank you very much.

Ken Denman

Thanks Mike.

Operator: Thank you. And our next question come for the line of Scott Sutherland with Wedbush Securities. Please go ahead.

Scott Sutherland – Wedbush Securities

Great. Thank you good afternoon

Ken Denman

Thank you.

Anne Brennan

Hi Scott

Scott Sutherland – Wedbush Securities

So bidding back on the some trial 20 deals, you have mix of Tier 1 and Tier 3, can you kind of update, give us some of the number average deals size if this connect way to?

Ken Denman

Well, I believe that the average deals side looks I mean, going to do it by peers Mike because I think that's probably…

Scott Sutherland – Wedbush Securities

Not now.

Ken Denman

Pardon me.

Scott Sutherland – Wedbush Securities

Scott now.

Ken Denman

Oh Scott, Sorry. Sorry Scott. That's the right way to think about it. I still believe that we're looking at two or three deals in 1to $3 million range. I think we're still looking at Tier 2 deals in the 4 to $8 million range and I think Tier 1 deals will be in the 9 to $13ish million additional dollar range. Now what we see is that in this first crunch of deals there will be hardly competitive and I intend to be very competitive. We're going to do our takes, we're going to get footprint, we're going to get seated, incumbency of huge in demand of mix at market. So there are some risk on the first – in this first way of deals around – I don't think of it as risks because I think that my observation is that many of the players, many of the operators in this phase undersized what they are going to need, they take more conservative approach going in and we've already seen that in fact with, with our first couple of wins. We seen those customers come back almost immediately even before the inch drive and as for additional capacity or additional sites. So I guess – I certainly we'll get to those ranges within 10 to12 months of initial on the initial purchase of stock

Scott Sutherland – Wedbush Securities

Okay. So you got 20 deals, you said hopefully winning 10 to 12 of those if I heard you correctly and you have a 3 to 4 months back haul to the contract and you recognized revenue over 4 to 6 quarters, is everything there correct?

Ken Denman

Well, you said waiting 10 to 12 I said, I thought it would be 10 to 12 decisions.

Scott Sutherland – Wedbush Securities

Okay. And $10 decisions, what are your kind of goals for run rate?

Ken Denman

We certainly going to be a market leader so that's our goal

Scott Sutherland – Wedbush Securities

Okay. So that’s till be announced. Well, look into your revenue outside Sprint for the last 5 quarters other cuts of revenue I get the target without AT&T that they've bounced in and out the top 10%. But the other revenue OpEx Sprint has been slightly up, you weight this on form getting new customers are you selling new stuff into these customers or it more the field stuff, what's keeping up still borne obviously Spring has been – it looks to be issued then?

Ken Denman

Well we feel until the last quarter we really selling them the old stuff which is pretty huge part of the challenge. It's really difficult to kick in the door with legacy products because a lot of operators decide that weather they are happy to swipe that asset as that can so to get to the next generation. So that’s been a real challenge and a challenge that the team stepped up into. All the marines and himself done assignment that we fund the new products to put it in hands of our team and put in for our customers. I don't think its an asset that 60% of the trial customers are net new customers dealt with.

Scott Sutherland – Wedbush Securities

You talk about what sort of pipeline, I mean, that 20 trial on the optimization, you talk about how the pipelines are forming and continue to form towards Integra and forming for quality management, on analytics and other things are you seeing 10 to 20 trials there or how those…

Ken Denman

Partially they are very related. So you can hear me Scott, you already heard me being our stock increasing about the mediation family because our license unhappy for us to go in or compete where there is a point solution offering or RRP. We always focus on extending that deal for that opportunity to the product family. So our deal – right now the heart requirement that big meet the market places disagree optimization video optimization, so we focus on that but it's really to our advantage to bring in our ability on the analytic side and the smart policy side. I think it is supporting dynamics pricing and campaign. We really are – we tried to bring those in right away or we bring them in as [inaudible] so basically part of the products that customer serge it on later then we, we have a deal so as to speak. So is very much of platform sale, so literally for us we try to sell every time all the products to this in the worst case we bring one position that to point it at that platform to easily support those other products features.

Scott Sutherland – Wedbush Securities

Okay. Then really quickly please kind you give an update how you metric adoptions going, where locations is now and what was the other million increase in G&A?

Ken Denman

Well, the messaging platform – messaging business has continued to take a form very solidly. We have a, that one of the areas where we legate that we had a good backup for the year with messaging particularly in Japan but also in other places we mentioned certainly. And so messaging continues to be a real solid performance for us. We also by the way have new products coming out that are [inaudible] messaging space where the [inaudible] that one was all about IPD-6 support again they report in Asian markets. And then [inaudible] expectable edition and so we have delivered some new product to keep that product family going and make sure that we remain relevant in that product line so got locations we continue to be a solid performer against the key customers that we are there either emergency in land provider or we have commercial locations and [inaudible] there are still opportunities out there that we are looking at that market is growing much slower than the other parts of our business.

Anne Brennan

And then on the other part of your questions go around G&A expense taking up to drive us there, the first one is book to profession fees, Q4 and Q1 represents our high professional fee quarter consolidate. So that’s what driving that and on top of that next year we actually had a higher skew towards Q4 rather than Q1 on that by integrity and then in the second part of it was on bad debt. So we saw there was an uptick in the actual year balance and the bank debt increase accordingly, so nothing more than that.

Scott Sutherland – Wedbush Securities

Okay. thank you.

Anne Brennan

Thanks.

Operator : Thank you. And our next question comes from the line of Charlie Anderson with Dougherty & Company. Please go ahead.

Charlie Anderson with Dougherty & Company

Good afternoon thanks for taking my question. I wonder if I could start again with media optimizer, just going back to the due when can you quantify may be some of the trial bit of what return there versus your competitors with allowed you to win and then I wonder if you, do you have any other decision that you have lost in the quarter to competitors in that on that technology?

Ken Benman

So the key in the due range was we took a platform approach. I think the initial RFI was actually very fairly narrow and in areas of optimization by the time that we get engaged with customer we were able to I think adjust that discussion or the RFP was a bit extended RFP that recognized in optimization as well as other aspects of variation family. So from my perspective Charlie then the main thing was getting into our broader some range of needs to again what’s going on the markets and then of course going in and providing a great user experience against all of the metrics that were being tested. So there are folks that can go in and compete on just requesting the video contents and just sort of new force compression. We are able to demonstrate that we can deliver great optimization and even better that we were – we had ranges as memory so as we – we were demonstrating our capabilities delivered between 30 and 70% optimization of traffic throughput with a better user experience and that I think was key to our win.

Charlie Anderson with Dougherty & Company

Okay. And then in terms of were there any other decision made when other direction of the quarter?

Ken Benman

Yeah. I mean, not that were particularly in trust. I am aware one other deals where we were – it was not a trial done, it was a demo and we did not win that one but whether where we're engaged in the trial and again for me I want to get head to head, shoulder to shoulder with my competitors because I know we show well.

Charlie Anderson with Dougherty & Company

Was that just they were incumbent and no else can avoid it?

Ken Benman

Yeah that was basically a fairly short discussion with looking at I think that they just look at some demos and in the family move forward. So it was this point – I think we own that by the way, I think that wasn’t – that we should have been more intimate with the situation even if there if an incumbent there our job is to get shoulder to shoulder and demonstrate our values. So I take that as hit.

Charlie Anderson with Dougherty & Company

Going back to Tier 1 North American customers here, what sort of wild cards this year that can make sort to go up or down versus where you sit today and you talked about going to this year with pretty heavy expectations didn’t come out that way and walk me to some of the scenarios here?

Ken Benman

Well, did you referring your questions specifically in North America Charlie?

Charlie Anderson with Dougherty & Company

Yeah, North America the Tier 1 customers…

Ken Benman

Yeah, I think that are wide card here is Latin America, I think Lat Am is very interesting market and then there is also opportunities I think Canada. So and then there is couple of there is recent one major U.S. operator that we don’t have a strong relationship with or we have had a history of doing lot of business with its been pretty obvious, thing tend to be different with the talk to you and that we have a history and relationship with but there is one missing and thing start to be – we really need to have a relationship with them and that’s very much priority for us.

Charlie Anderson with Dougherty & Company

And then a question for Ann, I know you've probably the best visibility, maybe you’re your operating expenses in Q1 do you expect up down neutral there?

Anne Brennan

Well, we're maintaining our range in high 20s. We did see an uptick in R&D

there is an investment (inaudible) the new product releases which were optimistic, there is a investment R&D this posture to in mid 20 to high 20s is where we think we are – we main for now.

Ken Benman

We want to be – I just over lay Ann a very good answer, so just say that – that trials on free, at least to us. We know that we need to fund those trials and we need to fund good execution. So we're (inaudible) we're cognizant of the business model and managing our – managing the business well to deliver a solid result and we are going to invest in trail. So that just mean we have to sharpen our pencils.

Charlie Anderson with Dougherty & Company

That trail cautious you up in R&D Ken?

Anne Brennan

No we've seen as pre sales, so would be in the sales and marketing line. So development obviously and R&D and any PC activity was even in here this marketing line.

Charlie Anderson with Dougherty & Company

Got it. Thanks so much.

Anne Brennan

Thank you.

Ken Benman

Thank you.

Operator: Gentlemen we have time for one more question last question. And our last question comes from the line of Scott Zeller with Needham & Company. Please go ahead.

Scott Zeller – Needham & Company

Thanks. I wanted to ask about the bookings the we've seen recently in the next generation products, can you mention a few wins that had up to 30 UAE. Now we heard about some metrics about the trials and the scale of revenue if it could come from those wins if they convert. So can you give us sense what you've already booked, what the booking are for the next generation product?

Ken Benman

Very, very small relative to – you know a very insignificant part of the current booking profile.

Scott Zeller – Needham & Company

Okay. And how do we get comfortable then from the 20 trails that the booking size will accelerate to what use simply suggest then?

Ken Benman

Well, as I've indicated I think that the initial number that we see will be in the range that I described. I do think that we will see opportunities particularly as you get out several quarter and if more traffic it’s push through, we do think there is eventually more licenses will be purchased just through it with capacity in traffic hitting threshold. So the combination of delivering those trails, delivering the bookings and following on with analytics and policy wins in addition to the media optimizer that I think the combinational will get us to where we have some comforts. I would also point out that we include – you should remember while this is a new products to you Integra continues to be a solid performer for us and it is a foundation of heart of these offerings. So again if we continue to role Integra out that’s a contributor to the revenue profile going forward as well.

Scott Zeller – Needham & Company

Okay. I may have missed it earlier in one of Ann responses, but there was question about services revenue looking forward and did not get the colors, so if you could please review that?

Anne Brennan

Yes. So the way we look at services really is as we feature our revenue lines, I have to say that there is a way going into it. So I think of that generally in to 12 to 15 range and their last couple quarters have been on that – on that range, that heavily thing about it.

Scott Zeller – Needham & Company

Okay. Thank you.

Anne Brennan

Thank you.

Ken Benman

Okay. Thank you for the joining the call. The opportunity we have before us is significant. We are well positioned to be a major player in the video optimization space which we believe will be crucial to operated success in near the future. Optimization provide us logical entry point to our all IP traffic navigation, analytics and massaging solutions and now more then the average the network operated need intelligence software to maximize their existing infrastructure in the base of searching demand and get the must done their future investment in new networks. We are focused on an optimistic about growing our bookings revenue and margin in fiscal 2011. We’re expect to be competitive and we'll focus on aggressively growing market share to drive the business forward. You can imaging us the number of trail then wins we secure for new products, as well as the conversion rates. Thanks again and I look forward to talking to again next quarter.

Operator: Ladies and gentlemen this includes this concludes the Openwave fourth quarter fiscal year 2010 earnings conference call. If you'd like to listen to a replay of today’s conference call, please dial 1800-406-7325 and for international participants please dial 1-303-590-3030 and enter the access code 4323188 followed by the pound key. The replay will be available until August 19th 2010. Thank you for your participation, you may now disconnect

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Openwave Systems Inc. F4Q10 (Qtr End 06/30/2010) Earnings Call Transcript
This Transcript
All Transcripts