Selectica's (SLTC) CEO Blaine Mathieu on Q1 2015 Results - Earnings Call Transcript

Aug.12.14 | About: Determine, Inc. (DTRM)

Selectica, Inc. (SLTC) Q1 2015 Results Earnings Conference Call August 12, 2014 5:00 PM ET

Executives

Blaine Mathieu - President and CEO

Todd Spartz - CFO

Analysts

William Myers - William Asset Management

Pat Walravens - JMP Securities

Nick Farwell - Arbor Group

Eric Martinuzzi - Lake Street Capital Markets

Operator

Good afternoon, and welcome to the Selectica First Quarter Fiscal Year 2015 Earnings Call. On the call with us today from the company we have Blaine Mathieu, President and Chief Executive Officer and Todd Spartz, Chief Financial Officer.

Before we get started, please note that this conference will include forward-looking statements within the meaning of the Security Laws. These forward-looking statements will include discussions about the Company’s business outlook, anticipated financial and operating results, product development and future plans.

Such forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by the forward-looking statements. Such risks, uncertainties and other factors include but are not limited to those that are contained in the company’s filings with the SEC including the Risk Factor section in our most recent Form 10-K as supplemented in the company’s Form 10-Q as each as field by the company with the Securities and Exchange Commission. The Company does not assume any obligation to publicly release any revisions to forward-looking statements discussed during the call.

In addition, on the call we will refer to certain non-GAAP financial measures to help understand the company’s financial performance and future results and to supplement the financial results that we provide in accordance with GAAP. The company has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP counterparts in our earnings release filed with the SEC earlier today and available on our website at www.selectica.com in our Investor Relations area.

With that, I would like to now introduce Mr. Blaine Mathieu, President and Chief Executive Officer of Selectica. Blaine?

Blaine Mathieu

Good afternoon and thank you for joining us for Selectica’s Q1 2015 earnings conference call. With me today is our Chief Financial Officer, Todd Spartz.

During our call today, I will provide an update on acquisition of Iasta, post close and review some of my thoughts on our fiscal year 2015 outlook, strategy and direction. Todd will then provide further details on the Q1 financials and then we will both be available for questions.

On July 2, we closed our acquisition of Iasta, an industry-leading sourcing and spend management solutions company. We are very excited by the immediate traction we are witnessing as a combined entity.

We’ve been engaged with both new and existing customers across multiple continents and verticals and have already demonstrated a beta of our product integration with a major global consumer financial services company who is an existing client of both Selectica and Iasta prior to the acquisition.

The line of business owner was incredibly impressed by the potential value of the business intelligence delivered by extracting their contract metadata out of their vendor contracts on Selectica’s contracting platform and analyzing this information in the Iasta smart analytic solution. The result will help them make dramatically better spending decisions.

They saw the potential business benefit as obvious and that this combined solution could deliver material bottom-line value.

In addition to this client, we have had numerous indications of interest from existing Iasta customers regarding connecting their sourcing and spend management solutions with Selecta’s truly robust enterprise contract life cycle management tool and we intend to review our product integration roadmap with more clients in the coming weeks.

Now let me turn to our performance in the quarter, our last excluding Iasta. As we move deeper into fiscal 2015, I am confident that the turnaround plan we put in the place over the last year has Selectica positioned for growth, particularly in the second half of this fiscal year due to progress relating to our three principal drivers of growth for 2015.

First, growing our core customer base via our expanded sales and marketing efforts with more feet on the street domestically that we finished putting place in Q4 and our newly expanded sales presence in the U.K. that Iasta has brought to the table.

I am very pleased to report that we successfully signed influential new enterprise customers to both our contracting and sourcing solutions during the quarter and are enthusiastic about the pipeline of perspective clients we’re currently engaged with possible solutions.

A second driver of growth is leveraging our existing customer base now more than doubled via the Iasta acquisition by moving seed customers into growth mode by adding additional users, expanding to new divisions and up-selling value-added applications and services as well as cross-selling our new solutions across our collected customer base now 240 enterprise customers strong.

An important example of this was our closure in Q1 of one of the largest U.K. based retailers. We are proud to report that his well-known brand, which started out as a smaller implementation is now Selectica’s largest contract management client. We intend to provide further details on this customer’s implementation once they have gone fully live.

The final growth driver is continuing to expand our total addressable market beyond traditional contract lifecycle management solutions so called CLM into highly related and still contract centric market opportunities like we just did in the strategic sourcing market with the acquisition of Iasta.

This acquisition not only significantly increases our addressable market, but provides Selectica with more scale with which to execute against that market opportunity.

Another milestone for Selectica this quarter was the official ‘go-live’ of our contract management solution with an important division of a leading multinational conglomerate. This implementation has been in process over the last few months and we are very excited to report today that we successfully delivered on the customer’s complicated structure and requirements. I am looking forward to future expansion opportunities with this huge enterprise customer.

It is exhilarating to have our first quarterly earnings call together with Iasta. David Bush, Jason Treida and Todd Epple the Iasta founders have assembled an extraordinary team and we’re confident in the incremental opportunities both teams are now bringing to the table. I want to welcome Dave, Jason and Todd and their entire Iasta team and look forward to bringing you further success stories as we progress throughout this year together.

As you may have seen, on August 8, we filed an amended Form 8-K with the SEC, which provides a full set of audited and consolidated Iasta financials for the years ended December 31, 2012 and 2013, unaudited consolidated Iasta financials for the quarters ended March 31, 2013 and 2014 as well as condensed, combined, unaudited pro forma financial statements for Selectica and Iasta for the fiscal year ended March 31, 2014.

On a pro forma basis, the combined entities produced $26.8 million in revenues in fiscal 2014, compared to $15.8 million for Selectica as a standalone entity, or a 69% increase, which gives us the scale as I mentioned earlier with which to accelerate execution against our financial and strategic goals.

Now let me turn it over to our CFO Todd Spartz who will walk you through further commentary on the financials. Todd?

Todd Spartz

Thank you, Blaine. I too would like to welcome Dave, Jason and Todd and the rest of the Iasta team aboard. Now let me provide a bit more color to the financial results reported in the press release.

This past quarter saw a 6% increase in total revenue from $3.5 million in Q4 FY 2014 to $3.8 million in Q1 FY 2015 driven primarily by a significant increase in non-recurring revenues as we were able to recognize substantial deferred revenue in connection with the go-live of the major multinational conglomerate noted above.

We also experienced the full quarter impact of an anticipated decline in recurring revenues as we felt the lagging financial impacts of certain legacy customer transitions that were mentioned last quarter as a part of our initiative to reduce our exposure to less profitable business.

Billings, defined as revenues plus the change in deferred revenues for Q1 FY 2015 worth $3 million compared to $3.2 million in Q4 FY 2014 and were likewise affected by the legacy client transitions discussed above.

I am pleased to report that our gross margins improved in Q1 FY 2015 to 40% from 32% in Q4 FY 2014 driven by higher revenues noted above and slightly reduced total cost of revenues. Though we don’t provide specific guidance, we do expect our gross margins to continue to improve over time as we shift increasing amounts of our resources to billable activities and more profitable projects.

Total operating expenses for Q1 FY 2015 were $4.5 million up slightly from $4.3 million in Q4 FY 2014. However, much of the increase in the quarter was in G&A, which included one-time charges of approximately $300,000 associated with the Iasta acquisition.

There was also an increase in sales and marketing expenses sequentially as we continue to ramp up our go-to-market efforts and a more than offsetting decrease in research and development as much of the development effort in the quarter were new product, features and functionality that were capitalized according to GAAP.

Turning to the balance sheet, deferred revenues were $5 million in Q1 FY 2015 compared to $5.7 million in Q4 FY 2014, the result of competing and recognizing subtle major deployments that resulted in an increase in non-recurring revenues and a corresponding decrease in deferred revenues.

Cash was $12.2 million in Q1 FY 2015 versus $16.9 million in Q4 FY 2015. Finally, DSOs were 60 days in Q1 FY 2015 down from 76 days in Q4 FY 2014.

To summarize, on a sequential basis, revenues were up, costs were down and operating expenses would have been down if the onetime acquisition cost for Iasta were excluded. In the coming quarters I look forward to reviewing and discussing the combined Selectica and Iasta financial results. I will be happy to further address the results disclosed in the earnings release during the Q&A.

I would like now to turn the call back over to Blaine. Blaine?

Blaine Mathieu

Thanks Todd. As I noted previously, I am very excited about Q2, our first quarter with Iasta, officially part of the Selectica story. The market demand for our joint solutions is evidently there and we see a clear path to material improvements in results in the quarters ahead.

I would now like to open the call to Q&A. Operator, please begin the Q&A session.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from the line of William Myers with Miller Asset Management. Please proceed.

William Myers - William Asset Management

Hi. Nice quarter. So we’re expecting to see higher revenues from the Iasta acquisition. Do you expect that new customers apart from the Iasta acquisition would have any perceivable impact on revenue in this current quarter?

Todd Spartz

So I think you are asking were any new Iasta customers contributing to revenue for Selectica in this quarter that we are reporting or in Q2.

William Myers - William Asset Management

I am actually asking if any new Selectica customers are -- will be contributing -- are expected to contribute to revenue in Q2?

Todd Spartz

So we did book significant number of new customers in our Q1 and they will contribute for the full quarter in Q2.

William Myers - William Asset Management

Okay.

Todd Spartz

Did that answer your question?

William Myers - William Asset Management

It answered my question and if you were willing to put a number on it, I will take that.

Todd Spartz

No, yeah. We’re -- as much I would like to but we are not -- we're not going to provide guidance at this point in the quarter.

William Myers - William Asset Management

Right. Too much to hope for. And if I could just ask about -- you did have billings down a little bit sequentially. Is there anything to see in that or is that just a matter of timing?

Todd Spartz

Yeah we had and we’ve talked about this in previous calls, that we had some legacy customers. There was some transition, some strategic focus for the company. We wanted to focus our efforts on profitable customers and step away from the unprofitable business that we had gotten ourselves in.

These were customer transitions that were known to us, one or two or more quarters ago. But we are finally now to the point where they’re finally finishing the impact to our financials and that ultimately drove down the billings in the quarter.

William Myers - William Asset Management

Okay. Well thank you very much.

Todd Spartz

Sure. Thank you very much.

Operator

Thank you. And the next question comes from the line of Pat Walravens with JMP Group. Please proceed.

Pat Walravens - JMP Securities

Hello. Great, thank you. So Blaine, it’s been like nine months for you now, right? What have been the pleasant surprises and what have been the not so pleasant surprises?

Blaine Mathieu

I have been asked this question many times and I would say not too many unpleasant surprises mainly because I was given a very good briefing about Selectica and its situation before I came in.

I knew very well what we had in front of us and where we were particularly in terms of focus on customer success that frankly the company had not had until it began its refocus on that a year ago. So I would say very few downsides surprises.

On the upside, I was surprised and remained surprised to this day how strong the brand ultimately is in the contracting space. During the latter half of last year, we had turned down sales and marketing considerable and as I just mentioned we had only just recently in Q4 really turned it back on fully.

We had turned down sales and marketing and yet lead generation did not stop and being a former marketing guy as well, I can appreciate the power of marketing but in this case, the power of Selectica’s brand carried through and pulled through a lot of lead generation. A lot of those leads are now part of the pipeline that we’re working through in the deal cycle right now.

So that was a positive surprise and then certainly when I came into this role nine months ago, I did not at all think that we would be in this situation now with Selectica and Iasta together and really addressing a much larger market opportunity than was originally in front of us a year ago or nine months ago and that’s just an incredible opportunity and when I look at the customer traction we’re getting right now with existing clients and new prospects with this combined solution, I am very, very pleased with it.

Pat Walravens - JMP Securities

Great. And maybe just drill into that little bit, so who do you find yourself competing against and how’re you differentiating?

Blaine Mathieu

Well there are not many companies that have a full solution with true enterprise contract management as well as true enterprise level sourcing procurement solutions. IBM, Emptoris and SAP Ariba are probably the two that most often come to mind.

Now we definitely do see them in the market, although they do tend to focus more on SAPs install base or IBM install base. I think we’re increasingly seeing that with these guys and there are a lot of enterprise customers out there that haven’t focused all their apples with either IBM or SAP and want to just have best of breed solutions and we can compete against those days any day.

In fact on the Iasta side, when we were often competing against Ariba and Emptoris and if we ever did lose a deal to one of those guys, it was often because Iasta didn’t formally have true enterprise level contract management. They had basic contract management at the Iasta platform but true ECLM enterprise contract management they didn’t have.

Well, now we’ve got that together. So we’re really excited now that we’re back out there against those guys with the product offering we have.

Pat Walravens - JMP Securities

Great and then last one to me and I know this is a small company and the numbers aren’t great, but how many sales people do you have now and what’s your goal in terms of growing that organization?

Blaine Mathieu

Well we've had to the best of my knowledge we’ve never actually released those exact numbers and for competitive reasons, I think you’ll understand why, but certainly by bringing Iasta and Selectica together and now selling into our install base and beyond we’ve increased the number of feet on the street by nearly double and having said that it’s not in our near-term plan to continue that increase.

I think on the sales and marketing side OpEx, between Selectica and Iasta is more or less where it needs to be. As I mentioned earlier in my talking points, we’ve really finished the reinvestment in the sales team back in Q4 of last year and now we’re just beginning to see the fruits of that, so I don’t see another major push to significantly expanding the sales team any time soon.

Pat Walravens - JMP Securities

Okay, great. Well thanks for the perspective.

Blaine Mathieu

Thank you.

Operator

Thank you. And the next question comes from the line of Nick Farwell with Arbor Group. Please proceed.

Nick Farwell - Arbor Group

Blaine or Todd, this is Nick Farwell. I just want to follow-up on some of the comments you made earlier just to make sure I understand them correctly. The decline of both deferred revenues and billing sounds like it’s largely a function of legacy transition basically to clean-up your customer base. Is that accurate?

Todd Spartz

That is accurate. There was also as mentioned in the talking points, we had a major customer international conglomerate, a major division of that international conglomerate that we were delivering a very complex CLM implementation for.

There were a number of milestones that we needed to achieve in order to recognize the deferred revenue that was on the balance sheet and so in this quarter you’ve noticed that there was a sequential increase in those non-recurring revenues associated with that implementation and there was a corresponding decrease in the deferred revenues.

The other piece of that is exactly what you stated. The other piece of the deferred revenue decline was due to this transition that we’re working through and our large and more compelling work.

Nick Farwell - Arbor Group

Yeah. So that -- and that's what I wanted to ask, is it likely that we -- you have -- the company has experienced a low point for which the nature in deferred revenues and billings as represented by Q1 ’15, obviously they will be skewed with the last acquisition but trying to look at it sequentially apples-to-apples.

Todd Spartz

Yeah, when we look at our customer base now and obviously we have a customer success team that is focused on reaching out and contacting those customers on a very current basis. We feel very confident that the vast majority if not all of the churn associated with those transition issues is now behind us and feel really good about moving forward.

That isn’t to say that there won’t ever be churn, right? Because those companies get cut, companies go bankrupt, but we feel we’re now entering a phase in our lifecycle where the churn will be ordinary operating churn.

Blaine Mathieu

Yeah, I would agree with said, we’re now -- we've now passed the point of turning off on profitable customers. We love all our customers now. Of course we don’t want any of them to churn, but as Todd said any SaaS business has more normal course of business churn. I am sure we will have that as well. But what we previously called a strategic churn, I think a new term we coined for the industry is over.

Nick Farwell - Arbor Group

And Blaine would then again X last that we see the recurring revenue start to ramp via the U.K. retailer and presumable others in the pipeline, so as opposed to being down sequentially for the first -- maybe with the transition completed, the pipeline are a bit more robust, some actual implementation in the U.K. and one or two others, that we may start seeing that recurring revenue line again bounce off what maybe the nature in Q1 fiscal '15?

Todd Spartz

Nick, I think you’re exactly right. This is Todd.

Nick Farwell - Arbor Group

I am sorry.

Todd Spartz

No, no and as we said we did sign a major international retailer. That was late in the quarter but we will recognizing that revenues starting in the beginning of this quarter and as we said, we don’t see any other strategic churn, so that points to sequential revenue increase for the Selectica-only business quarter-over-quarter.

Blaine Mathieu

Having said that, as I indicated earlier, I think that is everything Todd said is precisely true. I still do hold to what I’ve been saying for some time now, which is it will be the second half of fiscal 2015 when we begin to see more significant return to growth both Selectica and Iasta, prior to Selectica. We’re targeting large enterprise customers.

There is a fairly lengthy deal cycles, these are fairly lengthy implementation cycles and so there’s lot of great stuff happening as I talked about earlier, but these things do take time to work the cycle through the systems. So I think you’re exactly right, but it will be the second half of FY ’15 before we get to see a stronger growth.

Nick Farwell - Arbor Group

Is that -- going back to Todd’s earlier comments about gross profit margins, is that also fair to expect not knowing the last, so I'll just talk about Selectica initially. The gross profit margins given mixed transition, the other factors you’ve commented on, should start expanding from the -- what was quarter 77%, I am sorry, I don’t have my notes in front of me. 71%, so we start to see the gross profit margins as reported start to increase sequentially?

Todd Spartz

Well, to be clear in Q4 we were at 32% gross margin. In this quarter we’re up to 40% gross margin.

Nick Farwell - Arbor Group

Yeah I was looking occurring only, sorry.

Todd Spartz

No problem, no problem. We expect the recurring gross margins will probably be reasonably flat.

Nick Farwell - Arbor Group

Okay.

Todd Spartz

Now that’s really a function of technical support cost and data center cost and those are fairly fixed in the technical short term.

But on the non-recurring revenue side, we did need to ramp up significantly to address our customer issues that we’ve talked about and now we’ve kind of cycled through that and now our professional services teams are on more billable projects as opposed to doing non-billable work and we’ve been able to really focus on profitability and the combination of those two events will lead to organic gross margin improvement and then Iasta, if you look at their financial results, they have operated at a much higher gross margin of around 75% total gross margins. So that will of course also be accretive to our combined gross margins.

Nick Farwell - Arbor Group

Yes. Thank you, Todd. That’s very helpful and just a pass no one of the quick question if it's okay. Could you talk a little bit about cash flows? If I have these numbers accurate numbers little, continue to help me you come in with let's see 12 to -- you pick up 7.5 from the financing, I am going into second quarter now.

You pay out $7 million to Iasta. So you end up -- I have something in the $9 million to $9.5 million area after maybe a $2.5 million loss in the September quarter. So the end of September quarter, you might be $9 million to $9.5 million. Is that a reasonable target?

Todd Spartz

Well, we don’t provide specific insight on cash. But what I would characterize it as is you’re right. We closed the pipe for $7.5 million. $7.5 million went back out. We did have some deal cost as we mentioned in the quarter. So that eats into the $0.5 million that’s left over. This will be a quarter that we will have some burn. But we will have Iasta and they operate breakeven to slightly cash flow positive. So that could be helpful.

We also acquired some cash and are able to convert the cash. So we feel at this point fairly very confident in our ability to execute on our plan.

Nick Farwell - Arbor Group

Okay. So you have some non-recurring expenses beyond the $300,000 associated with closing the Iasta transaction. It will appear in the September quarter that we’re not fully expensed because of timing perhaps in the first quarter?

Todd Spartz

There are some other deal costs. I would characterize the vast majority of them as being recognized. So I would not expect a material amount of expense associated with the acquisition going forward.

Nick Farwell - Arbor Group

Okay. Thank you. I appreciate it.

Todd Spartz

Thanks Nick.

Operator

Thank you and our next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Please proceed.

Eric Martinuzzi - Lake Street Capital Markets

Given the combination with Iasta, I am curious to know the go-to-market strategy for the sales force. So I presume you got your legacy Selectica sales force, your legacy Iasta sales force and then just wondering are they -- they sort of continue on and execute your plans that were in place or is there put in -- then put in place a combined sales comp plan already or is there any hybrid effort where new opportunities where you can offer sourcing and procurement and CLM at the same time. Is there a separate team handling those types of opportunities. How’re you going to market post merger?

Blaine Mathieu

Yeah, thanks Eric. As we indicated in the last call, our general strategy for handling the Iasta Selectica integration at least initially is to consider these as fairly independent units. We want to minimize any integration risk.

Having said that and I touched on some of my earlier comments, we and I personally have been surprised in a positive way by the reception that our current clients as well as prospects, but especially our current clients have -- when they have been coming to us and we’ve been telling them about this new solution that we can bring together on either side.

And it’s been quite surprising to me and without releasing numbers, I would say it’s fair to characterize that a significant number of our clients are currently in discussion with us about considering the other solution. That’s especially true on the Iasta client side where virtually 100% of those clients could use a CLM or contract management solution.

On the Selectica side, we have many procurement clients who could use a sourcing solution, but we also have general counsels and legal clients and others that might not be interested in sourcing.

But on the Iasta side, virtually all could make use of a CLM and it’s surprising how quickly and how interested those clients were in engaging in discussions with us. So that’s a long way of getting to the point of your question, which is we are looking at bringing the sales teams together with a unified go-to-market, unified sales approach, sooner rather than later because the market and our clients expect it.

They don’t want to have to talk to multiple different people or different organizations. They want to find out what is the solution that we’re bringing to market? How does it work? How does it work together and so we’re definitely cross-training the sales people and making sure that everybody can sell everything.

Eric Martinuzzi - Lake Street Capital Markets

Okay. And then just and going into the Iasta financials that you’ve filled on August 8, curious to know, it looks like they were about 10% or 11% growth on 2013 versus 2012 and I know they had a different fiscal year and when you guys stay -- was a growing enterprise, $11 million. Is there any reason just for blunt instrument modeling say with the $11 million and divide by $4 million, we're at about $2.75 million a quarter contribution from them and I know sometimes and for acquisitions you will lose some of that revenue due to purchase accounting could you give me some insight there as…

Todd Spartz

Yeah, I think -- this is Todd, Eric. So couple of points on that, one point is in their Q1, which is prior fiscal year to ours, they did have a lot of consulting revenues that aren’t repeating going forward, so there is that to keep in mind.

With respect to your question about what happens through the acquisition and the deferred revenues. There is in the 8-K a pro forma table and if you do look on the balance sheet, the fair value impact of the deferred revenues is noted there.

It’s about $1.6 million hit, so that isn’t say that that’s incredibly linear and it isn’t broken out between recurring and non-recurring revenue but in general, there is a bit of a hit to their revenue of about let's say $400,000 a quarter. That said, they are definitely growing as you had pointed out and we expect that to continue. So that to a large extent will mitigate much of that deferred revenue impact.

Eric Martinuzzi - Lake Street Capital Markets

Do you plan on reporting a non-GAAP revenue number to reflect that?

Todd Spartz

Yeah, that’s a great question. I think we have not yet talked about it internally. We will certainly consider that. Certainly we will probably strip out the amortization of the intangibles as a pro forma kind of non-GAAP financial measure. But beyond that, we need to kind of -- as we’ve just filed these financial statements I think we need to kind of consult each other and determine how we’re going to handle that going forward.

Eric Martinuzzi - Lake Street Capital Markets

Okay. I would certainly go forward just so we can have kind of a year from now, we’re not talking -- we have an apples-to-apples as opposed to the opposite?

Todd Spartz

Eric, that’s a great point. Thank you. Good feedback.

Eric Martinuzzi - Lake Street Capital Markets

As far as the operating expenses, I get it for the legacy business. I want to make sure that model forward the combined density that what growing number to be using for September? I know you talked about expecting to have, seems was not the goal here, it was about maintaining the two businesses and the infrastructures with them, but any guidance on the operating expenses?

Todd Spartz

Yeah Eric, what I would say is that from an operating expense perspective I would characterize Iasta as being relatively flat going forward. I think as Blaine mentioned, the investments that we both needed to make have been made. It’s now about integration and execution.

So with respect to the Selectica expenses, on the R&D front, I would expect that our investment will be relatively flat but as we do capitalize certain expenses and because it depends on where we are in the development cycle, how much of that will be capitalized versus expense, the precise level of expense might be a little bumpy.

So that isn’t to say it will vary dramatically but I would characterize this quarter as probably being a significant amount of capitalization and we may not experience quite that much in future quarters.

From a sales and marketing perspective, we’ve brought on a few sales folks recently. We think we’ve got the right team now going forward. We haven’t recognized the full quarter impact of them being on Board, but I think once this quarter has worked it course, that will be the case and then on the G&A side, we obviously won’t have the M&A costs recurring.

But outside of that we don’t really see our expenses declining. So I think the run rates that we saw prior to this quarter are good guideposts going forward.

Eric Martinuzzi - Lake Street Capital Markets

Okay. And then for again from modeling purposes given the financing, what’s a good share count to use for Q2?

Blaine Mathieu

Yeah, so we reported in our proxy that was filed recently that we had 6.5 million shares outstanding and we also reported that we had -- and this was as of 7/11. So this is I think very current.

And then we had preferred stock, 125,000 preferred shares that will convert once those shares are voted on in the Shareholder Meeting later this month. So those will convert at a 10 to one basis. So that will be another 1.248 million, so it’s 7.7 and change, call it 7.722 million shares outstanding.

Eric Martinuzzi - Lake Street Capital Markets

Okay. Thank you.

Blaine Mathieu

Thanks Eric.

Operator

Thank you and the next question comes from the line of Nick Farwell - Arbor Group. Please proceed.

Nick Farwell - Arbor Group

Blaine, could you give us some sense of where you think the company is in a general -- obviously in a general sense, where you’re with respect to your comfort in providing reference accounts given the transition the company has gone through for the last year, for example, is this large U.K. retailer willing to be a reference account or Disney or GE or some of your other key customers of Selectica and/or Iasta feeling incrementally more comfortable providing you the references you need to obviously enhance the sales cycle?

Blaine Mathieu

Yeah, that’s a great question and obviously you recognize as I do how critical reference customers are in selling B-to-B solutions to enterprise clients and the fact is its virtually impossible to sell enterprise software to B-to-B clients without references.

And so obviously that has a been a being focus of this company over the last 6 to 12 months in particular to get our clients in the place where we could use them as references, they’d be willing to be references and I just purely talking on the Selectica side.

Now I will talk about Iasta in a second. But on the Selectica side, we’ve made -- I would characterize it as incredible progress and it was easy because we had a low base of referenceable customers a year ago, but now we’ve got quite a number of referenceable customers that we can use depending on what the industry is of the prospect or whatever the case is.

So we actually have a nice what I’ll characterize as a nice go-to list of brand name clients that we’re now that we're using continually as references and again virtually every deal we did last quarter is as a direct or indirect result of having those references. We still have more work to do but the company has come a long way in that regard.

On the Iasta side, as we discovered during our own due diligence about the company, they’ve got rabidly loyal, excited customers who just simply love them and they’ve so great reference customers and we’re really excited to be now getting our CLM solution into some of those customers and talking about pilot programs and how we’re going to get -- turn them into not only great reference customers for our sourcing solutions but also for CLM.

So yeah, a lot of progress has been made in the last year on that and we’re in a dramatically different place as a company than we were six to nine months ago on that front.

Nick Farwell - Arbor Groups

Did I read that the Global Financial Services contract and the contract with a major -- I guess a division of a multinational, are both of these have been signed and are implemented and perhaps going to -- you'll recognize revenues in the second quarter that you didn’t in the first or maybe some modest amount in the first?

Blaine Mathieu

Yes, as what normally happens in enterprise software most deals for whatever reason it’s the bane of all CEOs but they tend to get done right at the end of the quarter, right?

Nick Farwell - Arbor Groups

Right.

Blaine Mathieu

So what that means is you get the deal but you don’t actually get any revenue recognition until the following quarter, which is where we are now with some of these major clients that we recently signed. No they will start to affect our results in the quarter we’re currently in and beyond.

Nick Farwell - Arbor Groups

Okay. Thank you. I appreciate it.

Blaine Mathieu

Welcome.

Operator

Thank you. (Operator instructions) Thank you, we have no other questions in the queue at this time. I would now like to turn the floor back to management for any closing comments.

Blaine Mathieu

I just appreciate everyone’s time where we are as I noted really excited about Q2 and very happy and pleased with the initial progress we’ve seen around bringing Selectica and Iasta together and the reception they’ve got from the market. Thank you very much.

Operator

Thank you. This does conclude today’s teleconference. You can all disconnect your lines at this time and thank you all for your participation.

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