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Executives

Mike Bishop - IR, The Blueshirt Group

Ken Denman - CEO

Anne Brennan - CFO

Analysts

Matthew Hoffman - Cowen and Company

Scott Sutherland - Wedbush Securities

Charlie Anderson - Dougherty and Company

Scott Zeller - Needham & Company

Openwave Systems Inc. (OPWV) F4Q11 Earnings Call August 1, 2011 5:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Openwave’s Earnings Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Monday, August 1st of 2011.

And I’d now like to turn the conference over to Mr. Mike Bishop of Investor Relations. Please go ahead, sir.

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 2011. Joining me today from Redwood City are Ken Denman, Chief Executive Officer, and Anne Brennan, Chief Financial Officer.

Before we discuss the results for 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, which includes the non-GAAP to GAAP reconciliation. 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 would like to remind you that any remarks that may be 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 2010 year-end results on Form 10-K, and any other reports subsequently filed with the SEC.

We intend to make forward-looking statements based on management’s outlook as of today. We do not intend to update these statements until the release of Openwave’s next quarterly report and disclaim any obligation to do so prior to that time. We reserve the right to update the outlook for any reason during the quarter.

I would like to note that during the discussion of the financial results, unless otherwise indicated, gross margin expense and earnings related items are reported on a non-GAAP basis, which excludes stock-based compensation, certain realized losses and impairments on investment, amortization of intangibles, restructuring expense, discontinued operations and amounts related to unusual events.

Please access our financial metrics summary, which is available on the Investors section of openwave.com to review Openwave’s historical financial performance and reconciliation of the non-GAAP measures we report to the corresponding GAAP measures.

With that, I’d like to turn the call to Ken.

Ken Denman

Thanks, Mike and good afternoon, everyone. We issued three announcements at the close of market today; our financial results, the details of our restructuring and the employment of Peter Feld to the Openwave board.

In today’s call, I will highlight we are fundamentally resetting our business both structurally and strategically and now we are adjusting our FY ‘12 operating model to adapt to market and technology changes.

We are restructuring in the wake of our quarterly bookings result but our actions are consistent with the strategies that the Board put in place two years ago when we launched our turnaround process. Two years ago if you recall this company was focused on legacy gateway location and messaging products. We were losing market share and our customers were headed in the new direction.

We began our turnaround process by completely revamping our product strategy and developing new products that could position us for the market’s new directions. We knew it would take some time to be selling these new products.

Last quarter, we thought we hit an inflection point. We were encouraged by our Q3 bookings result. This quarter’s results, however, show that the market is developing more slowly than we had expected. If this quarter’s booking trend continues, we believe, that this restructuring is the best way to create shareholder value. Although we still believe the market will move toward our products, our actions today reflect our disciplined response to the trends that we are seeing in this quarter’s bookings, as well as a challenging market outlook that is being echoed by other perspective vendors in our space, which weakened spending, anticipated from service providers in the second half of this year driven by CapEx reductions that will be lower than historical and seasonal patterns.

In short, we are moving forward with a plan that is designed to ultimately move the company to profitability and to be well positioned for future growth. Before I go into details of business going forward, I will recap quarterly numbers. Revenue was $35.2 million. Non-GAAP EPS was a net loss of $0.10 per share and bookings were $28.5 million. This last number was the factor that determined the actions we were undertaking. If bookings had shown a result similar to last quarter, we would have allowed more time for the plan to unfold.

Going forward, the focus of our investments will be exclusively on the products that are gaining market traction, and where we see strong market growth. In contrast, we are making cuts that will drastically reduce our spending on products or solutions that are legacy or that are underperforming. In other words, we were focusing on two product sets. Our focus will include our core all-IP messaging and mediation platforms. In our main line to shareholders, we laid out the transition, we have been making with our products and R&D investments. The changes we are now making to the company continue along that same path of focusing on all IP platforms.

Let me detail our go forward plan focusing on three components; one, the savings and go forward model, two; the cost of doing this restructuring and three; the implementation strategy. Our FY ‘12 operating plan includes a fundamental re-architecture of nearly every aspect of our business; sales, products, R&D and G&A. This will allow us to move forward with streamline product set and the right cost structure to position the company for long-term sustainability and cash preservation.

As you will see from today’s restructuring announcement, we plan to reduce non-GAAP operating expenses by approximately 30% or 30 to $32 million year-over-year. The gross margin, cost of revenues and operating expenses I will discussed were all non-GAAP and reconciliation from GAAP to non-GAAP profit or loss can be found in our press release and on our website. This includes a reduction in our overall head count of approximately 18 to 20%.

In addition to reduced head count, we expect to realize significant cost savings to a reduction in labor costs associated with our offshore developments support and other discretionary spending. These cost reductions will come on top of certain cuts we’ve already made throughout FY ‘11. As a consequence, our target fiscal 2012 model reflects gross margin percentage in the mid to high 50s, R&D expense at approximately 20% of revenue. Sales and marking at approximately 20% of revenue, G&A at approximately 10% of revenue, In terms of restructuring cost, we anticipate taking the charge of approximately $6 million for severance payments and to bring down our operating expenses.

I will not elaborate on the details of the implementation plan. We were moving forward in FY 2012 with a focused product strategy. We are committed to maintaining our market leadership position in those areas of our core all-IP mediation and messaging platforms where we have gained the most market traction and see the most customer opportunity. More importantly, we are working towards the designing and delivering a channel aid product set that is built on open standards and open protocols so that we can integrate more easily into the next generation of all-IP frameworks of our customers and partners.

In each of our focused areas, congestion control, price plan innovation and converge messaging, we have completed the initial R&D new product development investment cycle as we shared in our main letter to share holders. We are now delivering on initial deployment securing reference ability and evolving the product to remain competitive.

Our goal in the restructuring process has been to focus our R&D resources on the products with the most potential upside. For the products outside that focus, we are migrating them into our legacy managed portfolio group. As part of our technical product support team, which are designed to ensure, we were able to satisfy current customer commitments while minimizing development costs.

This managed approach is structured to allow us to continue to realize returns on our legacy products and grow our margins while also enabling us to maintain customer relationships and to have the opportunity to discuss new product insertions. We are realigning our engineering resources in line with our focused product strategy and into cost efficiencies and greater management of our product development.

Belfast will undertake additional development work previously outsourced to offshore development centers. We intend to continue to maintain a concentrated set of architect and design engineers in Silicon Valley. As we significantly reduce our offshore development dependency, we expect to be able to tightly managed projects end-to-end with higher quality and more cost effectiveness.

Another area we are adjusting in R&D is a reduction in custom development. A certain amount of custom development expense is a fact of life with the sales of our customer set. But as our customers continue to embrace more standardization in their next generation network architectures, we intend to continue to drive greater standardization and openness of our products and platforms. This will be an area of discipline and focus for us.

It’s clear that we cannot continue business as usual from sales perspective. Moving forward, it’s vital that we build and leverage a multi-channel sales approach, both to reduce our expenses but also to effectively maintain our presence with major customers who will be key to our future. To succeed we must get the most out of key partnerships for solution development as well as for scale and distribution.

We are moving forward with a nimbler team focused on those markets where we have established end roads and have our largest concentration of customers. We will be streamlining our presence in regions where we have not witnessed strong enough direct sales traction. In these regions we intend to work closely with our channel partners to lead new opportunities on our behalf.

In order to successfully bolster our global scale reach and sale we move into leverage the indirect channel through key partnerships with companies like Juniper and F5. We expect to deliver our first jointly developed media optimization solution with Juniper shortly, and are already heavily engaged with them in joint go-to-market activities in key regions.

In Q4 we signed a new win with F5 and a customer in the Americas. We also partnered with HP on a key deal in Japan last quarter. With our global partnerships we expect to be able to deliver our innovated technology as part of a much larger value proposition, which is reflective of the buying patterns we are seeing from Tier 1 operators who are working with large network equipment manufacturer to build out the hardware and software infrastructure for their next-generation 4G networks.

I cannot overemphasize the ongoing commitment we continue to have to our incumbent customer base. Our strategy is grounded and taking care of longtime value to customers. We will deliver on the commitments we’ve made to them and we will continue to hold a direct relationship with our most valued customers while simultaneously moving them on a path to our newest products. By focusing our resources in product set, we feel will be in an even better position to support our customers.

Finally, our patent monetization program remains a core piece of our strategy and we are actively pursuing it with discipline. We believe that we have taken the right steps to unlock the value of our intellectual property portfolio. We will have more say on this topic in coming quarters.

I would also like to note that today we announced the appointment of Peter Feld to the Openwave Board of Directors. Peter is a Managing Member, Portfolio Manager and the Head of Research in Starboard Value LP which owns approximately 9.9% of the outstanding shares of Openwave. Peter’s appointment expands the Board’s membership to eight Directors of whom seven are considered to be independent of management.

As part of the appointment, Peter has been appointed to two committees. A nominating in governance committee and a special projects committee that includes Robin Abrams, Jerry Held and Charles Levine and was formed earlier this year to work with the management and the board to advise and support them on a broad range of activities to enhance shareholder value and other initiatives. We look forward to Peter’s perspective adding to the deliberation of the board.

In summary, our strategy has been to pursue the market opportunity we felt existed for our product set. We’ve also been cognizant of the fact that there was an unlimited time or investment to pursue this opportunity, recognizing that we are now making certain changes to adjust to the current market reality with a more focused and targeted product set, with the goal of creating profit and future growth for the company and its shareholders.

As we move forward in FY ‘12, we are dramatically realigning the cost structure of our business to position the company for long-term sustainability and cash preservation, focusing our product set on two core all-IP platforms, and investing in the products with the strongest demonstrated market attraction or better managing and investment in our portfolio by two products. Bolstering our channel strategy and focusing our direct sales on regions with the greatest concentration of customers and demonstrated success and finally consolidating R&D resources to lower cost and tightly managed quality.

I’ll turn the call to Anne to cover the financial details now.

Anne Brennan

Thank you, Ken, and good afternoon everyone. I will now provide a detailed summary of the financials for the fourth fiscal quarter and provide elements of the restructuring plan. Overall for the quarter ended June 30th, 2011, Openwave posted a GAAP loss of $0.09 per share and a non-GAAP net loss of $0.10 per share. Reconciliation from GAAP to non-GAAP profit or loss can be found in our press release and on our website. Revenue for the quarter was $35.2 million, a decrease of $3.7 million or 9.5% quarter-over-quarter.

Licensed revenue was $10.3 million, a decrease of $1.7 million or 13.9% sequentially and comprised 29% of total revenue. The quarter-over-quarter decrease was primarily due to a higher than normal level of revenue from an EMEA customer in fiscal quarter three.

Maintenance and support revenue was $10.7 million, a decrease of $0.8 million from the prior quarter. This decline was primarily attributed to a large customer in Asia which reduced its renewed support services and reach.

Maintenance and support revenue comprised 30% of total revenue in both fiscal quarter three and fiscal quarter four. Services revenue was $14.3 million, a decrease of $1.2 million or 8%, sequentially. This decrease was primarily due to two projects driving more revenue in fiscal quarter three due to achieving certain milestones.

Services revenue comprised 41% of total revenue. Regional breakdown of revenue in the June quarter shows that 48% of our revenue originated from customers based in the Americas, 21% from EMEA and 31% from Asia. By comparison in the March quarter the regional breakdown of revenue reflected 41% of our revenue from customers in the Americas, 26% from EMEA and 33% from Asia.

The decreases in EMEA and APAC are due to fiscal quarter three license and services revenue that has not recurred in fiscal quarter four. These were partially but not fully offset by incremental license revenue generated in the Americas region. For the fourth fiscal quarter of 2011, Sprint represented 20% of revenue; no other customer represented greater than 10% of our revenue for the quarter.

Bookings in fiscal quarter four decreased 41% from the third quarter of 2011. In Q4, we did not close several large deals that we had expected and in general, we closed fewer new product deals than we anticipated.

Turning now to our gross margins, we achieved 53.8% blended gross margin for the quarter, a decline of 3.6 points sequentially. The gross margin decline was primarily in licenses and services. Gross margin on license of 95.9% decreased by 3.5 points from 99.4% in the prior quarter, primarily due to an increase in third party products included in the mix in fiscal quarter four particularly for location manager licenses. Maintenance and support gross margin of 63.3% decreased by 0.9 points from 64.1% last quarter, primarily due to a reduction in revenue related to the lower renewal rates, as we reached the end of our renewal cycle.

Going-forward, we do not expect maintenance and support revenues to decline significantly. Services margin of 16.5% decreased 3.5 points from 19.9% last quarter. The sequential decrease was primarily due to a loss accrual for customer in fiscal quarter four to reflect revised project terms.

As for operating expenses, in fiscal quarter four, research and development expenses remain consistent with the prior quarter at $9.8 million. Fiscal quarter four sales and marketing expenses of $11.4 million were $1.3 million or 10.3% more as compared to the prior quarter, primarily due to lower sales commissions as a result of reduced bookings and also lower expenses in connection with trade shows specifically Mobile World Congress and CTIA which we attended in fiscal quarter three.

General and administrative expenses of $5.9 million increased slightly by $0.1 million from $5.8 million in the prior quarter. During fiscal quarter four we recorded 600K credit to bad debt expense, primarily due to the collection of an aged receivable which was offset by higher legal costs associated with our patent portfolio program.

Our head count decreased by 11 from the prior quarter to 536. These decreases were primarily among the general and administrative and sales and marketing groups. Please see our metric sheet posted on the website for a breakdown of head count by function, as well as our reconciliation from GAAP to non-GAAP amounts.

As a reminder, the gross margin, cost of revenues, and operating expenses I just discussed were all on a non-GAAP basis. On a GAAP basis, in the June quarter, interest and other expense was $433,000 which remained relatively consistent with the prior quarter expense of $467,000.

Now turning to the balance sheet. Accounts receivable decreased to $22.3 million at the end of June from $25.3 million at the end of March, primarily the result of the lower bookings in fiscal quarter four. This in turn decreased our DSO to 57 days for fiscal quarter four down from 59 days in the prior quarter.

Deferred revenue increased to $38.5 million as of June 30th, 2011 as compared to $37.1 million at the end of March. This $1.5 million increase is primarily due to cash received in advance of revenue on a specific project in Asia, partially offset by progress on certain customer projects.

We ended the quarter with $96.8 million in cash and investments, which represents a decline of $4.6 million or 4.5% from $101.4 million at the end of the previous quarter. This is primarily the result of $4.1 million of cash used for operations as well as $0.9 million in fixed asset purchases offset by $0.7 million received on employee stock purchases.

As Ken commented in his prepared remarks and as detailed in the 8-K filed today, we are implementing a restructuring plan. This plan is designed to address our cost base to enable us to be sufficiently capitalized to reach profitability. It reflects the contingencies of our operating plan given the fiscal quarter four bookings results and thus lower than anticipated adoption of our new product.

The FY ‘12 operating plan includes specific targets for the composition of gross margin and operating expenses. We expect to begin to realize a portion of the benefit of these plans in the first quarter, with the full benefits in the following quarters. We also expect to use approximately $3 million of cash in the current quarter in connection with this restructuring.

In light of the restructuring and anticipated bookings, we expect to achieve profitability in the second half of fiscal ‘12. As I said last quarter, this management team is committed to driving to profitability. We believe we are taking the necessary steps toward positioning the company for stronger financial results and improving returns for our shareholders.

Operator, we’d now like to open up the call for questions.

Question-and-Answer Session

Operator

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

Unidentified Analyst

It's Chris sitting in for Tom. So just a quick question for you, Ken, you mentioned in the shareholder letter earlier that you sent out, you had provided a breakout between the legacy bookings and the all-IP bookings at around 70/30, I think it was through the first nine months, just wondering if you could give us an update in terms of what the full year number came out as and maybe what it was in the current quarter?

Ken Denman

Sure. The legacy bookings through the first nine months actually were 39% actually through FY ‘11, it was 39%. If you are looking at Q1 through Q3 number, so that cumulative for Q1, Q3 was 31%. And then for the full-year bookings number, it was 75%.

Unidentified Analyst

Okay. So you are saying the full year bookings number was.

Ken Denman

I’m sorry; the fourth quarter number was 75%.

Unidentified Analyst

75% was related to your new products?

Ken Denman

Yes, was related to the IP framework, all-IP Mediation, all-IP messaging. So, once again, if you look at FY, 2011, full-year, its 39%. Q1 through Q3, 31% of FY ‘11. And the Q4 number which is what got us from the 31% to the 39% was 75%.

Unidentified Analyst

Got it. Okay. Thank you. That helps a lot. So it did increase dramatically and I assume. So is it safe to say in terms of the weakness in the bookings number a lot of it was due to the fact that legacy products were not renewed or you just didn’t do as much business as you thought you would there?

Ken Denman

Yes. That’s absolutely true, that’s the big part of it, and we also didn’t see as many new product sales as we wanted. So, I don’t want to walk away from that one. But absolutely you got the right point.

Unidentified Analyst

Okay. So, just a touch on that new product topic and maybe touching on the partnerships as well, because you mentioned that as a potential channel going forward. Exactly, like how have the partnerships ramped like the F5 and maybe the Juniper partnership and I don’t think there is a tangible product for Juniper yet, but can you maybe give us a roadmap in terms when you expect some these partnerships to generate a little bit more in terms of meaningful bookings for you?

Ken Denman

We are seeing as I mentioned in my comments, we continue to see good wins on a quarterly basis from F5. We are obviously looking for more in terms of numbers of deals but in each of the last several quarters we’ve seen nice wins with them and we expect that to continue by the way the relationship and the efforts between the sales teams and the field between Openwave and F5 are continuing to build. And we are refining our products together as we make progress.

As regards to Juniper, we are absolutely focused, dedicated I think as Juniper is. We were both investing. It’s a joint both from an R&D joint development program as well as from a training perspective. We are investing a lot in our global road shows and training the Juniper sales force and they are investing as well. We would expect our first product, if you will, the GA released out a little later this summer well – the month of August, and we expect to be in our first trials in the September through October timeframe. Obviously we’ll hit the road as we’ve said before with the fully integrated product in that early first half of FY ‘12. So we’re building pipeline today jointly and we are engaged with customers, but I really think the material impact is going to be in FY ‘12. Excuse me, back half of FY ‘12.

Unidentified Analyst

Got it. Thank you. And then in terms of, if we could drill down on maybe some of your major customers and specifically Sprint since it looks like they are kind of the one remaining that’s a good slug of your bookings, can you kind of maybe paint a picture for us in terms of how much of their spending is legacy versus all-IP? And how do you expect that to look going forward?

Ken Denman

Well, we have a nice position at Sprint relative to our legacy platforms. As you know, and I’m sure you’ll recall, we have a number of legacy platforms within Sprint and we also have our newest platform, the Integra platform which we finished deploying last to last year. We’re making good progress there in terms of taking the next steps on other service enablers on that all-IP platform that’s in front of us. And so, in terms of both legacy and new opportunities Sprint remains and we believe we will continue to be an important customer for Openwave.

Unidentified Analyst

Great. And just one more on that if I may, are you able to share in terms of whatever comprised Sprint bookings during the quarter like if they took on any additional enablers or like what percentage of their bookings that made up this quarter?

Ken Denman

We never break out bookings by customers. Sprint was a customer in our bookings number in the quarter.

Unidentified Analyst

They were, okay.

Ken Denman

They were.

Operator

Thank you. And our next question comes from the line of Matthew Hoffman with Cowen and Company. Please go ahead.

Matthew Hoffman - Cowen and Company

Hi, Ken and Ann. Let’s talk first about the bookings; you have some nice color there. But as we look at the split versus wireless and the old wireline or the mail products, can you break down that all-IP. I assume the all-IP encompasses both segments. Can you look at the trends, wireless versus the mail. Thanks.

Ken Denman

Yes. In general, if I just give you a broad general statement there, we are seeing both from the bookings standpoint. Good solid progress across the year in messaging as well. So I don’t want to give the impression that we are only chasing new bookings in the mediation space. In fact, we had two new wins in our mediation space in the quarter and the pipeline for, excuse me, two new wins for the messaging space in the quarter. And the pipeline for the messaging space continues to look solid. That’s a space that is more of a replacement space because most players can have something so the rift to replace is a little tougher challenge having said that our new platform is grading out really, really well. And this is the Email Mx distributed storage architecture as architecture that supports distributed storage with an open interface for third-party user interfaces. So we are seeing nice progress there. In general, in the quarter, we saw a good solid split between messaging and mediation from a booking standpoint. More heavily on the mediation side for the full-year of FY ‘11 but as I look forward I’m expecting more balanced approach in 2012.

Matthew Hoffman - Cowen and Company

Okay. So let’s go on to a bigger picture question trying to build on your comments there on the wireless and on the messaging side. So you highlighted the all IT products obviously on the wireless side, you are going to see some network flattening with LTE Advanced and SAE on the way so apps like voice-over-IP that are all going to go move to an all-IP setting. So is there something as you are going to sell your solutions, how do you talk about changes in the core network that will make Passport Smart Policy, Media Optimizer more attractive to operators as they move from say Verizon, this first generation LTE into a true voice-over-LTE, SAE system? Can you fit it in that within that framework?

Ken Denman

Yes. I can. You know, one of the things that we had done with Juniper is identify a methodology where we can deploy our technology within the confines of an LTE architecture where we sit within a defined part of the architecture and we use their processing power really as the engine, the work flow engine. We don’t have a separate workflow engine such as Integra is not required. And in doing so, we are also have a path now to deliver the other service enablers, so you can think of us actually as sort of an application, almost an application player delivering applications sort of from a TDF perspective, delivering applications and putting them on a router or solution, but integrated with a common operating system that we are tightly innovated with. And in this case the Mx router solution, the operating solution that drives the operating system that drives the Juniper Mx router.

So right now we are bringing ourselves together as a application player who can sit and effectively within a blade architecture in a defined architecture, put LTE and then in this case with this particular partner as part of that routing infrastructure. There may be other partners and other elements that we can sit with them, but we are very focused on our current partner Juniper as a way forward. So it’s an interesting period of time. What we see actually and you really have asked a good question. A number of customers who we start down the path talking about a 3G solution for media optimization have gotten down the road and become then more interested in what the 4G solution looks like, so they’re hesitating a little bit to understand how we would deliver our capability that is media optimizer, how would we do the interfaces, the XY interfaces or for instance, for our GY interfaces for price plan innovation, and how we would implement a tool bar capability for fuel gauge and for topping up across this same solution. And those set of use cases that I had just defined are real focal point for our customers who are talking about 4G and LTE implementations right now. And so, working with a DPI player, for instance, we can now see a path forward with our partners or working with our partners DPI solution. We now see path forward to deliver all of that capability. I hope that help.

Matthew Hoffman - Cowen and Company

Yes, one follow-up for you just to make sure I understand and then one quick one for Ann. If you are coming to market as part of the Juniper solution, it sound like you said you were in application, but in reality you are in the rack with them as an application, so you are doing some integration on the hardware side, between your blade and their router, but then you are coming to market as a cohesive unit or one face to the customer?

Ken Denman

Exactly.

Matthew Hoffman - Cowen and Company

So what does that do to your income statement, does this, is it good for margins, bad for margins? Is it highly scalable? Talk to me about the business model behind the Juniper relationship and whether you think this is where the majority of your sales in two years come from? Thanks.

Ken Denman

So it’s good for margins, is the first thing. And it’s good for margins because it’s an OEM play, this begins to look more and more like a licensed sale. There is certainly some services in the near term in the front-end, but over time I expect Juniper to carry more of their services themselves. So overtime this really looks more like a licensed software play for us from our perspective in an OEM situation. So good for margins and two years from now on this trajectory, we would expect to see a significantly greater portion of our revenues of our bookings and revenues coming from this indirect model, that’s certainly our goal.

Anne Brennan

And I think the only thing to add is that the range that you shared earlier in terms of our target in the mid 50s to the high 50s contemplates the Juniper opportunity in the back half of this fiscal year. So that’s already baked into that margin range for this year.

Matthew Hoffman - Cowen and Company

Yes okay, good enough. And then a quick one for you Anne and you may have said this in your prepared remarks, but I was scribbling things down elsewhere, the payables number looks like it went up a bit relative to the DSOs which were flattish, did you say what was behind that spike in payables and what was the impact on cash flow there for working capital?

Anne Brennan

So two questions I think there, the first one was on payables. We saw an increase in payables to just over 7 million. Q4 tends to be one of our higher quarters. And that’s reflected in the balance sheet, so we saw a slight increase there. With regards to DSOs, DSOs are being hovering around the in the mid to the high 50s, so really no change there. This quarter we saw an absolute dollar value drop from about 25 down to 22, so not a significant change either in DSOs but a 3 million drop in terms of the ER balance.

Operator

Thank you. And our next question comes from the line of Scott Sutherland with Wedbush Securities. Please go ahead.

Scott Sutherland - Wedbush Securities

Thank you. Good afternoon. First question I had is a 30 to $32 million cost reduction in addition to the previous restructuring is going to take down your OpEx to 25 million.

Anne Brennan

Yes. Again the one that we announced in February has been the benefit of that is reflected in Q4 and we saw movement from about 27 to 28 down to just over 26 that you saw this quarter. So we saw that it reflected in the Q4 numbers. What is included in the 30 to 32 that we announced today is the balance of that. So overall, it will take us down to about $18 million in terms of OpEx on a full-year saving basis.

Scott Sutherland - Wedbush Securities

Okay. Looking at that in your margin guidance, I mean looks like in the back half of the year your guidance in mid to high single digit operating margin, we would assume that we maintain kind of relatively stable revenue base from these levels. What’s going to give you the confidence or investor’s confidence that revenue could stabilize at these levels if I’m doing the math right?

Anne Brennan

The primary driver for bookings in the immediate quarter and in the back half of the year is bookings. So, as we seen over the last couple of quarters there’s a variability to bookings to an extent that we can see bookings right now. We can take a view by what profitability looks like in the back half but as with all plans subject to variability that where we sit right now that’s what we can see.

Ken Denman

Yes. Then given the lumpiness in the bookings, the reason to mitigate the risk by taking this action now and that’s exactly what we are doing.

Scott Sutherland - Wedbush Securities

Okay. Ken, over fiscal ‘11, you are a little bullish on the bookings and a very strong book-to-bill ratio even last quarter. There wasn’t felt changes but what changed from last (inaudible) bookings?

Ken Denman

In the last earnings call we definitely were feeling and felt that we had reached an inflection point in Q3. We felt good about our pipeline. The deal that’s we had in front of us. The thing that changed as you know, we continue to be a bit back end loaded in terms of actually the way we consummate deals. It’s just the nature of the business. We can do 80% or more of our quarter typically in the last three weeks actually even in the last typically the last two weeks of the quarter. We saw deals get pushed and delayed and we had a couple of losses and we had a few wins. The bottom line was we saw some of the larger deals that we expected to get done that were as I think it was first caller said was some of the legacy deals did not close. That was a surprise. And then we saw several of the new deals not get done in the quarter as well. So the book-to-bill for all of FY ‘11 was about 1-to-1, but still lower, at a lower level than I would have liked. To your point, we didn’t get it done in the back half of this fiscal year in the Q4 in a particular. Relative to our expectations that’s what changed.

Scott Sutherland - Wedbush Securities

So can I confirm wasn’t so much the size of the pipeline, it was core, you saw in the pipeline?

Ken Denman

It wasn’t what we saw in the pipeline per se. It was really the close rate and the variability that we saw in the close rate, the variability and decision making, those were the things that led me to step back and say, you know what? I have to deal with the reality of what I’m seeing. We are not going to keep moving down the road waiting for a strong signal. We need to make a significant move now and derisk and mitigate. So that’s what it came down to. We still like the business, the business opportunity. We both still believe there is a market there. But we have to deal with the reality of what we saw come out of this quarter.

Scott Sutherland - Wedbush Securities

Last question on your product is, can you update on implicitly obviously there is some excitement when you first launched Sprint, but we haven’t seen any more tier 1 customers there and did you win any kind of Media Optimizer wins in the quarter?

Ken Denman

So yes. There were a couple of Media Optimizer wins in the quarter. We do have other customers on the implicitly, and we are actually wrapping, taking some of the core elements out of that thought particularly around the fuel gauge and around the top-up capability and as I’ve said, we’re really focusing those capabilities more into the congestion, control and price plan innovation area. So what we’re trying to do is take the complexity out of those solutions, focus on those use cases that are getting the highest take rate based on the early sales that we’ve made.

Operator

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

Charlie Anderson - Dougherty and Company

Good afternoon. Thanks for taking my questions. Just a zero back in on the bookings, Ken, wonder if you could talk to about what was sort of Openwave specific versus what was kind of macro on operator specific. I just wonder if there are some things that are happening that are going to last a few quarters versus things that are sustainable and kind of what that tells us about the bookings moving forward, and if so the legacy products have take this big, but downdraft and does that last for awhile now? If you look out the next fiscal year are you expecting that your book-to-bill results are going to be below one as you go through this transition period?

Ken Denman

So, first of all, market adoption has been slower than we expected. From the perspective of Openwave specific, I think that, because the product is newer and capability is newer, while there have been some folks that are been in the optimization space, that’s a little more tried and hard space. The video optimization space is absolutely newer and customers and prospects and everyone is looking for the right solutions going forward. All that is to say that, having more data, traction reference-ability it’s key. And we are just finishing our early deployment so that referencability and as we get it will be very, very important to accelerating decisions I believe. So that’s definitely one I would say it’s on the, those couple of things are on the Openwave side. Both the kicking the door into a position on an optimization and getting our references established and more hardened with data.

Sales performance has been even and we own that. We’ve had solid performances in some areas of the world and then less the market has been less rapidly evolving in other parts of the world. At the end of the day, again, we still see an opportunity and a market here. We are preparing for 4G with our partners. And we’re well situated I believe for late next year on what will be the new platform for a lot of customers. So a combination of things that say to me that we’re going to have to run hard and we will, but we need to take risk out of the business and that’s why we are making the change with restructuring and then getting lower our cost to more align ourselves, better align ourselves with the opportunity that we see in front of us. In terms of the length of the transition period, I think that 2012 we’ll see a lot of decisions get taken, over what time to what quarter difficult to forecast. Things will remain lumpy. And I do think this is a market that is industrialized in this fiscal year.

Charlie Anderson - Dougherty and Company

Two other questions, do you expect the book-to-bill to be at, above or below one, do you think, in your fiscal ‘12?

Ken Denman

For the fiscal year, for the whole fiscal ‘12 we would expect our book-to-bill to be at or above one.

Charlie Anderson - Dougherty and Company

Got it. Good. And then question for Anne on expenses. I think I read that some of the stuff doesn’t take hold until after your Q2, so are we going to see a pretty rapid sort of ramped down on expenses? I think what I’m looking at here is you’ll sort of start enter the mid to high 20s and then end somewhere in the teens on a quarterly basis on expenses. If you could just give us little color there it’d be helpful.

Anne Brennan

Sure, yes. We are above 26 this quarter. So over the next several quarters we will reduce that number. So we will initiate the plan in Q1 with immediate effect, effectively from today. You’ll see benefits of the plan in Q2 and still benefiting Q3, and the numbers are those which you highlighted earlier. So those are the numbers that we are aiming for.

Charlie Anderson - Dougherty and Company

And then when you do turn a profit, what kind of a tax rate should we apply, Anne because I know you got some NOLs, but there is also obviously some foreign revenue.

Anne Brennan

Yes. Relatively small. If you look at the P&L, our charge each quarter is somewhere between $0.5 million and about 7, 800K, so it’s about a penny each quarter. We wouldn’t expect that to change significantly moving forward.

Charlie Anderson - Dougherty and Company

Got it. And then just one quick one for me on the patents. You mentioned that again which obviously been a lot of activity around patents lately as they relate to devices that I think you guys feel like you have some patents that apply there. I wonder kind of what the strategy is from here. Do we see litigation from you? Do we see you guys work with a third-party that’s sort of skilled in the art of prosecuting this type of stuff? Just if you could help us there that would be great.

Ken Denman

Well, I think firstly we would say all options are on the table. But candidly, we would obviously like to avoid litigation if we can. And to that end, we are having appropriate compensations with appropriate folks and we have been. And we continue to believe that there is an opportunity there. Its complex space and we are doing all the right things to reach agreements and to protect the company and its valuable asset.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Scott Zeller with Needham & Company. Please go ahead.

Scott Zeller - Needham & Company

Hi. Thanks. I wanted to get back to the commentary about moving the development for some of the legacy products into, I’m not sure what the language was but maintenance mode, more or less was the commentary. How do we think about the maintenance revenue line going forward when some of your more important customers may sense that those products that they are using right now are going to be put into maintenance mode? And when do we expect the maintenance line to degrade further?

Ken Denman

Scott, those two thoughts are unrelated. One has to do with how we support certain legacy products. And that’s fundamentally different thought than sort of ongoing maintenance and support agreements that we would negotiate. We will continue to meet our contractual commitments and be all over our customers from a quality of service perspective, but we have a strategy and a methodology to do it on a lot smaller cost structure. Simultaneously we will be looking for the right things, looking to end the sale and/or end of life, certain products that make sense from a P&L perspective. But fundamentally how we manage our support function as one cost element and then again, sell and manage maintenance support contract, they are somewhat different.

Anne Brennan

I think the only thing to add is we have seen is a decline over the last several quarters in terms of our maintenance support line on the P&L. But as we come off the back of a renew cycle, we are pretty close to the end of that. So we wouldn’t expect our maintenance and support revenue to decline significantly from the levels that we saw this quarter.

Ken Denman

Right. So I think Scott, the punch line there is I think we are focused on how do we support our customers at a high level on a fundamentally different cost structure, so that we can recapture and support our margins. That’s an operational and structural strategy. It does not imply a differentiated level of service per se. And so I think that’s a distinction I like to derive.

Scott Zeller - Needham & Company

Okay. That’s fair enough. I understand the point about maintaining high level of service, but there is also the added functionality overtime for the legacy products and it sounds like that effort to maybe add new additional functionality would not be and is that a significant change today from what we’ve heard before about the new development let’s call it for the legacy products?

Ken Denman

I don’t think. I think, typically what we’ve done with legacy products is it’s really a matter of the ongoing roadmap, what that ongoing roadmap looks like? And are we successful in convincing customers rather than sort of chasing an ongoing roadmap on a legacy product and do they move to a new product. And typically, we have newer capability and it’s really our job that moved them over to the newer stuff. That’s really the point.

Scott Zeller - Needham & Company

Okay. So the expectation of say Sprint, for instance, what they have right now and new functionality being added to those legacy products on a roadmap, there is no change today from what they or other customers should be expecting?

Ken Denman

No. And to the extent that a customer wants something specifically for electric, that’s typically a custom thought. And we will take care of that on a custom basis, treat it as such. But not incur that as part of our main line. We’ll price that and charge it out there but it won’t be part of the main line cost basis.

Scott Zeller - Needham & Company

Okay. And I think I just want to make sure I caught the commentary correctly earlier about the new products booking contribution. I understand 75% of the fiscal fourth quarter bookings were the next generation IP products?

Ken Denman

That’s right.

Scott Zeller - Needham & Company

And I thought I saw in my notes from the previous quarter that less than 10% of the previous quarter’s bookings were new products?

Ken Denman

Actually, when we put out, we put out the 8-K in May, so I just really address three issue and if you looked at the new products associated with the first three quarters of, new product bookings associated with first three quarters, this is under the all-IP mediation and all-IP messaging, was actually 31% for Q1 through Q3 FY ‘11. The full-year FY ‘11 number was 39%, this is bookings, and the Q4 number was obviously 75% and that’s how you move from 31% for the first three quarters to 39% for the full-year.

Scott Zeller - Needham & Company

Okay. Are you willing to talk about recognized revenue from the next-gen products at this point, have you, do you have any show up in the fiscal fourth?

Anne Brennan

So the answer is, we did have some show up in Q4. That’s not something that we (inaudible) indicators that which we are reporting right now, and what we brought you up to Speed with the investment that supports that go forward bookings on both platforms.

Operator

Now I’d like to turn the call back over to Mr. Denman for any closing comments.

Ken Denman

All right, thank you, operator. So I’d like to thank you all for participating on the call. We appreciate your continued support as we pivot to a more focused company. Thanks again and we look forward to updating you soon. Have a good day and good evening.

Operator

And ladies and gentlemen that concludes our call for today. If you’d like to listen to a replay of today’s conference, you may dial 1800-406-7325 and enter the access code of 444-9904. Thank you for your participation. You may now disconnect.

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