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BEA Systems, Inc. (BEAS)

Q1 2008 Earnings Call

May 16, 2007 5:00 pm ET

Executives

Kevin Faulkner - VP of IR

Alfred Chuang - Founder, Chairman & CEO

Mark Dentinger - CFO

Analysts

Jon Stuart - UBS

Sarah Friar - Goldman Sachs

Bob Stimson - WR Hambrecht

Presentation

Operator

Good afternoon, ladies and gentlemen. My name is Tina and I will be your conference operator today. At this time, I would like to welcome everyone to the BEA First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session (Operator Instructions).

Thank you. Mr. Faulkner, you may begin your conference.

Kevin Faulkner

Thanks, Tina. Good afternoon, ladies and gentlemen, and thank you for joining us as we discuss BEA Systems, Inc. results for the first quarter ended April 30, 2007. Please note we have posted our earnings press release on our website at bea.com.

Statements made in the course of this conference call that are not of historical fact are forward-looking statements, including any statements regarding the plans, goals, strategies, opportunities and objectives for our business. In addition, statements that include the use of terminology such as may, will, expects, plans, estimates, continue, predict, growth or other comparable technology are forward-looking statements.

Forward-looking statements also include statements regarding our financial guidance, including expected revenues in our second quarter and any statements that could be construed as guidance regarding our future financial performance, potential effect of our stock option investigation, impact of changes in our field organization, momentum and future adoption of SOA, BEA's positioning in the SOA market, future customer results or implementations of our products, future product releases and any statement of assumptions underlying any of the foregoing.

Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. Such factors include those factors to be discussed by Mr. Dentinger today and those detailed in item 1A, Risk Factors, on pages 47 through 62 of BEA's report on Form 10-Q for the fiscal quarter ended April 30, 2006 and similar disclosures in subsequent SEC filings.

The forward-looking statements and risks stated in this conference call are based on information available to BEA today. BEA assumes no obligation to update them.

Now, I would like to introduce from BEA Alfred Chuang, who is Founder, Chairman and Chief Executive Officer and Mark Dentinger, Chief Financial Officer. Alfred and Mark will make some opening remarks, and then we will take your questions.

With that, I'm pleased to introduce and turn the call over to Alfred Chuang. Go ahead, Alfred.

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Alfred Chuang

Thanks, Kevin, and good afternoon, everyone. Although our first quarter license revenue was disappointing, we see several signs of strength in our business. Both our AquaLogic products and our SOA services continue to lead key customer opportunities. As SOA adoption continues to increase in scope, this resulted in excellent year-over-year growth for our AquaLogic brand, which represented 24% of license revenue in the first quarter.

AquaLogic and SOA continue to open doors into our competitors' installed base. We continue to invest in both product sets and the field to improve our alignment and execution capabilities around SOA. Throughout this call, we will talk more about how SOA is driving our business.

First, let me give you some details of our Q1 performance. Total revenue was $346 million, up 7% year-over-year. License revenue was $115 million, down 13% from a year ago. Services revenue was $231 million, including $183 million of debt in maintenance revenue, up 21% from a year ago. Some of the customers buying BEA technology in Q1 included Cablevision, Hilton Hotels, Oracle Corporation, Petrobras, Visanet and Warner Brothers Entertainment.

Deferred revenue stands at $435 million, up $70 million from a year ago. Operating cash flow was $95 million, and BEA ended the quarter with $1.3 billion in cash. In Q1, we saw a tough selling environment in the Americas. Even though some of our best division performed really well in the same region, we're disappointed with our Americas performance.

Recent economic news and results from our peers do not give us any reason to believe that the environment will be much different in the Americas in Q2. Based on current business conditions, we forecast Q2 total revenue to be in the range of $353 million to $367 million. Later on in this call, Mark Dentinger, our CFO, will give you more details of our financial performance and also our Q2 guidance. Now, let me give you my thoughts on our Q1 results.

As I mentioned, we saw a tough selling environment in the Americas. Our close rate in the first two months of the quarter was actually on track with plan, and then we were surprised when close rates weakened at the end of the quarter. Some large deals slipped out of the quarter. The slippage was generally due to poor execution on our part. A few of those deals have already closed in Q2.

During Q1, we made several changes in our organization alignment, mainly affecting the Americas organization itself. I believe these changes are imperative for BEA's success in the long run, but it is destructive to work through them. The changes will benefit us because they will improve our alignment with the SOA marketplace and its opportunity.

By definition, SOA is a different kind of sale; it's an architectural sale. We have to sell efficiency and flexibility that SOA will deliver across projects and overtime. We are finding that the lead-time for many of our initial SOA-led projects takes longer. They require more technical resources in both sales and implementation basis.

The move to AquaLogic is a transition to a new generation of BEA technology for a new set of customer use cases. This transition is very similar to what we saw in the transition from Tuxedo to WebLogic. And there are always some disruptions along the way.

The products and standards are still maturing, and the market is still in the process of adopting the new skills needed to implement SOA, but we are seeing the right signs from many players, customers, partners, market analysts, even competitors who are imitating our approach. Those are all good news.

Geographically, the Asia-Pacific region performed very well. We continue to see great performance out of China, Korea, and Asia. In Q1, China contributed more license revenue than any territory outside the United States, and we see no end to demand there. EMEA performed fairly well overall. We performed well in Italy, Northern EMEA and other places.

We're seeing improvement in the U.K., and our new team there is trying to drive better results and better pipeline. The Business Interaction division had an excellent quarter. Our BPM product continues to be very hot, and nearly tripled year-over-year. Some of the recent BPM customers include the Federal Home Loan Bank Board of Atlanta, Mercury General and Novartis Pharmaceutical.

We saw healthy results also from ALUI, which is our interaction product, mostly based on strength and demand in the marketplace. And once again, these largest deal were outside our typical WebLogic installed base and outside our traditional strong vertical markets, Hilton in the hotel industry and Quintiles in the pharmaceuticals industry.

Other Q1 BID customers included First Canadian Title, National Oceanic & Atmospheric Association, the U.S. Department of ATF and also the U.S. OSHA. Outside of BID, the Americas had a very difficult and disappointing quarter. Most of the organization changes made in Q1 were in the Americas, and that is where most of the disruption occurred. We aligned the organization correctly for our future. However, the changes impacted us in the short run even beyond our expectations.

So let me tell you how we are addressing these challenges, so four things that we are doing. First, we're focused on stabilizing the changes we have made. We're seeing the focus having a very positive effect already this quarter.

Second, we're being more disciplined in our execution. We have adopted a very thorough and frequent cadence for pipeline review, deal by deal, throughout the quarter. In fact, my personal focus for the quarter is catalyzing better execution at BEA. I am pursuing improved execution with a vengeance.

Third, BID has proved a success, and we are adding fuel to the fire. We're expanding BID's scope by adding additional AquaLogic products into the division that well align with ALUI and also with BPM.

Fourth, we are adding key hires and improving focus. We continue to hire people from our competitors into key positions in field organizations. We're increasing the focus and discipline on validating and working transactions in the pipeline. We believe that a focused approach, honing in on AquaLogic and customers' SOA use cases is the absolute right approach.

As we work through these changes in the field, we continue to be committed in providing and improving our operating efficiency. We will focus our investment on areas of the business that offer the best potential returns, and make necessary adjustments to invest appropriately in those areas, while improving our overall cost structure.

I am very optimistic about our future. As an expression to prove that optimism, our Board of Directors yesterday approved an additional $500 million in stock buyback plan, bringing the total authorization to now approximately $621 million, and our optimism stems from the opportunities that we see in the SOA marketplace and our leadership position in that market.

For 20 years, technology providers have been talking about empowering the end user, but nothing really happens. SOA provides a pathway to make this, finally, a reality. The next generation of applications will not be monolithic like most of today's package shops, but rather it will be composed from a federated network of shared services. These shared services will be deployed in a distributed yet federated environment that allows the services to better utilize available resources during times of high demand, and release the resources when the demand has passed.

All of this will happen without change to the source code of the application or the service. Our vision of the next-generation application features an infrastructure that facilitates the orchestration of business processes and services, incorporates quality of service metrics in run-time decisions and user-defined personalization and configurable templates that allow the end user to tailor the application to their task.

The flow of application logic will be automatically controlled through this infrastructure. It will be inherent in the service network, and any enhancements can be done without altering the existing code. This next-generation infrastructure will increase agility as user required by significantly decreasing the system development lifecycle.

As a result of all this, end user will have an application that's agile enough to meet their demand for today and tomorrow, and be able to get access to these applications almost instantaneously. The result is that critical application required for integrating and delivering vital information where and when it is needed remain up and running reliably all the time.

This is exactly what our customer needs -- innovation and a partnership forged between the IT providers and the users. We believe SOA itself is a case study of the sum of the parts being vastly greater than the whole. SOA will greatly impact the future on its own, but when you cover SOA with other key emerging technologies, it really is get exciting.

Combining with these new technologies, SOA is not just a software upgrade. It truly is an architectural shift -- a disruptive shift, certainly, but one with enormous economic benefits for our customers. BEA has been and continues to be committed to providing a way for our customer to do business better.

There are several significant SOA initiatives on the horizon. Let me highlight a few of those that top the list for BEA. One, social computing, especially as it's supplied to the enterprise, provides the power of real-time collaboration with the infrastructure and the security needed in the enterprise. In the consumer space, the energy and creativity, not to mention the millions of pieces of content that are being unleashed through Web 2.0 technology is simply astonishing.

Now, it's moving into the enterprise space, driven by end user needs for immediate real-time information. Demand is increasing for Web 2.0 technologies like event linking, social tagging and real-time collaboration to be incorporated as the standard product user's everyday environment, in every single enterprise application.

And our goal is to bring the collaborative power of Web 2.0 together with the agility of SOA to create the most flexible platform on which to build composite user-driven applications. BEA took a significant step towards that goal this quarter when we shipped our Runner, Builder and Grafiti products.

The combination of our virtualization, time and event-driven computing and edge computing technologies will all enable the new application and new platform to be built and deployed very, very close to the end user. The low cost of the hardware and ease of creating these kind of applications will open doors for all kinds of new creative applications of enterprise technology at the technical edge of our customer's environment, something exactly what the world needed right now.

Semantic technology and knowledge-based application will provide the next level needed to transform today's SOA interoperability into intelligence needed for tomorrow's mission-critical applications. So our Liquid service framework is SOA 4 telecommunications.

As you imagine, the telecom networks and IT converge, BEA is seeing an increased demand driven by the network side of our telco customers. The Liquid service framework bridges legacy and next-generation network and IT systems, quickly delivering service liquidity, and it unifies next-generation operational support systems, networks and service delivery platform standards, using SOA principles to create a framework for quickly orchestrating and delivering new services. And that all results into new revenue streams for our customers, as you can now see in new health and services.

Early projects have involved selling core WebLogic and also AquaLogic platforms to the network buyers and the telcos. These sales are increasing our presence on the network side of the buyer and set up our WebLogic communication platform products that are forecast to follow later on this year.

It seems like every month, as a new technology is introduced, it's getting more confusing. It is my belief that the ability to manage and tie together these technologies will determine how a customer evolves their IT environment, particularly under the line of SOA architecture.

And we are following architecture like SOA, this convergence is not only going to be possible but it's going to complete chaos. And until recently, the infrastructure required to support a community of interests around composite applications simply wasn't there. A fragmented environment of isolated tools, FR collaborations and servo chair sharing were used to attempt to form a community. Integration among various members always are customly done.

A more holistic approach clearly is needed, an approach that allows the creation of communities of interest for all players in the SOA ecosystem. Think of it as a unifying approach supported by a set of products built around a common architecture that's based on standard, open and extensible.

That's what we provide, an infrastructure for SOA that has the level of agility and flexibility needed to adapt as the needs of the business change, an infrastructure that can scale down as easily as it scales up, the ability to bring the power of SOA to the very technical edge of the user's environment.

That's how I see SOA in the future. Let me show you how BEA and SOA are helping our customers today. This past quarter, BEA expanded our presence in the British Telecom account. BT is one of the world's largest leading providers of communications solutions and services, operating now in 170 countries.

Principal current activities in the account include network IT services, local, national and international telecommunications services and very high-value broadband Internet products and also services.

Aeroplan, Canadian's premier loyalty marketing company, chose WebLogic integration as a backbone for revamped infrastructure and AquaLogic Commerce service for storefront end back office operations, all based on the SOA architecture.

Landmarks, electronic land registry, has streamlined registration of title to land and other property and improved in three areas; centralization, digitization and automation. The solution is based on open standards using SOA, and the infrastructure includes BEA's entire SOA stack, both WebLogic and also AquaLogic. The Danish registry expects the systems to save about $57 million for them.

The Spanish Ministry of Health, an existing WebLogic customer, recently had bought WebLogic server integration as well as AquaLogic BPM for a project they are developing to improve their medicine file process. This is a very keystone win for us that includes other Spanish government departments looking into similar solutions from BEA.

So, before I turn the call over to Mark, let me summarize. Here is what I see as the key themes for this quarter. First, in Q1, we saw a tough selling environment in the quarter, especially in the Americas.

Second, the move to AquaLogic is a transition to a new generation of BEA technologies. There are disruptions as you work through a transition like that, but the transition is similar to other transitions that BEA has experienced in the past and we are seeing all the right signs that this is going to the right correction.

Third, we are a leader in SOA market, and SOA continues to open doors for us into new customers and new vertical markets.

Now, let me turn the call over to Mark Dentinger, our CFO, for more details on the Q1 performance and also our guidance. Mark?

Mark Dentinger

Thank you, Alfred. Consistent with our last three quarters, the restatement work arising from our stock options review is not complete, and we will not be publishing full financial statements until the accounting impact on current and prior-period statements is fully quantified.

Thus, we are limiting today's discussion to financial measures, which are unlikely to change as a result of the restatement. Additionally, our forward-looking financial guidance will be limited mostly to revenue measures until the restatement is complete.

Revenue for the quarter was $345.8 million, which is up 7% year-over-year. License revenue was $114.6 million or 33% of total revenue, and services revenue was $231.2 million or 67% of total revenue. License revenue decreased by 13% from last year's Q1 and services revenue increased 21% from last year.

The largest component of services revenue, customer support, was $183.2 million, a 21% increase compared to last year's Q1. Consulting and education revenues were $48 million in Q1, up 20% from last year.

Geographically, the Americas region generated 51% of our Q1 revenue, and our international businesses contributed 49% of total revenue. The Americas contribution was down 3 percentage points from last year's Q1. Internationally, our EMEA business contributed 33% of total revenues, a 2-percentage point improvement from a year ago, and Asia-Pacific was 16% of revenues, a 1-point improvement from Q1 of a year ago.

From a product perspective, license revenue distribution approximated what we experienced late last year, with the AquaLogic products contributing 24% of our Q1 license revenue and the WebLogic and Tuxedo families contributing 76% of our license revenue.

Q1 total transaction count of 2,272 was down approximately 7% from last year. Our average transaction size decreased by approximately 7% compared to last year. For Q1, the industry vertical performance was as follows, services was 21% of license revenue; software was 17%; banking and finance was 14%; manufacturing, 14%; and telecommunications was 12%.

Other verticals were individually less than 10% of license revenues for the quarter. Our Q1 revenue would have been approximately 3% lower if we had translated this quarter's results at currency exchange rates in effect last year.

Now, let me address our balance sheet. We ended the quarter with total cash and short-term investments of $1.3 billion, net cash of about $1.1 billion, and we generated $95.1 million in cash flow from operations during Q1. DSO at the end of Q1 was 79 days, an increase of 11 days from last year. Deferred revenue increased by $70 million from last year and now stands at $435 million.

Consistent with our prior experience, the largest component of deferred revenue, deferred support, historically has tended to sequentially decline during the first three fiscal quarters and increase significantly during Q4, principally as a result of the timing of our support contract renewals. Changes in deferred license revenue and other deferred services are less predictable, and the balance fluctuates as a function of the timing in terms of transactions.

Without addressing our overall costs and expenses, I will discuss certain expense measures and other phenomenon from Q1 to assist in your modeling. Non-GAAP other income and expense, or OIE, increased to $13.4 million in Q1 versus $3.8 million in Q1 of last year and $10.4 million in Q4. The sequential and year-over-year improvement was largely the result of reduced interest expense on our lower average debt balances.

Total headcount increased by 43 during Q1, and we exited the quarter with 4,321 employees. We do not plan to add net headcount during Q2, but we will continue to shift resources towards the growth areas of the business.

There are also several phenomenon affecting our GAAP costs and expenses that I'll address, principally to allow you to model the business more accurately when our financials are filed. We incurred approximately $3 million in Q1 for external expenses associated with the options review.

We also absorbed an additional non-cash charge of about $7 million in Q1 associated with modifying stock option awards for departing employees and employees with expiring options. If the award modifications and external expenses would continue to be required until our restatement is complete, we expect additional charges in Q2.

On the separate, but related topic, in Q1, BEA agreed to participate in programs with both the IRS and the California Franchise Tax Board, which allow us to pay our employees federal 409A and state equivalent tax liability associated with certain stock-option transactions prior to January 1, 2007.

The $5 million estimated cost associated with participating in these programs will be recorded in our Q1 financial statements as an operating expense, and we anticipate making the associated payments in Q2. The company is also examining alternatives to remedy our employee’s future exposure to these taxes, and most alternatives will require the company to make additional payments in future quarters.

There were also two other unique transactions in Q1. As previously discussed, we sold the land next to our corporate headquarters for approximately $106 million net of expenses, and we purchased a building in downtown San Jose for approximately $135 million, which will become our headquarters sometime next year.

The loss on the land sale we recorded in two steps in our GAAP financials, an impairment charge of approximately $200 million in Q4 of fiscal 2007 and a gain on sale of approximately $1 million in Q1 of fiscal 2008.

Looking forward, as part of moving to a new location in San Francisco in early May, we will record a GAAP restructuring charge in Q2 of approximately $3 million associated with abandoning an un expired lease at the former headquarters of Plumtree.

I will now discuss our guidance for Q2. The following comments and guidance are forward-looking statements, as are any other comments about our future financial and product performance. You should review our Form 10-Q for the quarter ended April 30, 2006, which contains important risk factors that could cause actual results to differ from those contained in these forward-looking statements.

Additionally, product transitions, seasonality factors, uncertain customer buying patterns and concentration of large license transactions, especially towards the end of our quarter, add to our revenue volatility and make it hard to predict revenues in future quarters.

Our comments on guidance are based on current business conditions and information we have as of today's call, and we caution investors that numerous factors such as the risk factors discussed above could cause business conditions and customer buying patterns to change significantly. We assume no obligation, however, to update our guidance or comments on future performance.

If we do update our comments on guidance, it is BEA's policy to do so through appropriate public disclosure. In determining our guidance, we are not assuming any significant change in the global economic climate or IT spending levels in the near term.

Finally, our comments on guidance do not address any additional costs and expenses, which may be, reflected in future financial statements when prior-period results are restated following completion of the options review.

Based on these factors and current business conditions, we anticipate that revenues for the second quarter of our fiscal 2008 will be within a range of $353 million to $367 million, and that the license component of revenue will comprise 32% to 35% of total revenue.

As I previously mentioned, we also expect to incur additional expenses in Q2 for third-party fees associated with conducting our options review, non-cash charges resulting from modifying expiring stock option awards and possible payments associated with remedying our employees future exposure to the 409A tax.

As Alfred mentioned, our board of directors has authorized a $500 million increase to our share buyback program, which brings our overall repurchase authorization to about $620 million. Although, we are precluded from repurchasing our shares until our financial statements are current with the SEC, we are evaluating certain repurchase scenarios at this point.

Thank you for joining us today, and now let me turn it back to Alfred.

Alfred Chuang

Thanks, Mark. BEA continues to align ourselves for the SOA market opportunity and continue to work through the transition of our AquaLogic product. As we do so, we remain committed to improving our operating performance and efficiency and to a disciplined approach in making the needed investments.

We're the leader in SOA marketplace, and we are already seeing huge significant revenue contributions for our new product lines. We believe the growth markets addressed by these products will be drivers for IT spending over the next several years, but also remain optimistic -- as Mark said, the approved additional $500 million on the stock buyback program.

Now, let me turn the call open up for questions. Kevin?

Kevin Faulkner

Tina, you can open the call for questions now.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question will come from the line of Heather Bellini at UBS.

Jon Stuart - UBS

Hi, this is Jon Stuart for Heather. A couple questions on the deal size. First of all, average deal size is down this year. You've got to go back to 2006 to find one this low. What should we expect going forward with that?

And then also a question on AquaLogic growth. What should we expect going forward on the AquaLogic growth?

Alfred Chuang

Jon, hi, this is Alfred. I think we were surprised by how the quarter ended, really, towards the very end. As I said in my comments that we saw reasonably strong bookings performance in the first two months, and it really fell off very drastically towards the end.

Part of it, we believe, is the overall environment in the Americas that people are buying. Secondly, it's some of the changes we have made and caused some disruption in the way that we have executed in the quarter. So I think some of these large deals, which is a matter of the climate, and a lot of it has to do with the discipline, how we actually went after closing them.

So it is not something I would set as a benchmark for how we will be closing deals in the future. I don't think that will be the case, so I would not use that as an indication where every deal size is dropping drastically going to the new quarter.

Secondly, in terms of AquaLogic, AquaLogic growth continues to be strong, and we're going to be fueling more into the fire as we will be more focusing using our BID division to be more aligned with the AquaLogic stack sale.

We will be moving more components into it, as this clearly is the right vehicle, as we have seen in the past in the history of the company that works for us to get more focus into selling AquaLogic. So we are very optimistic in seeing the continued growth of the AquaLogic product in the marketplace.

Jon Stuart - UBS

Any thoughts on a growth rate that we should expect?

Alfred Chuang

It's hard to tell, because the thing that has grown so much, so far -- we saw the BPM sales, for example, triple from year to year. We saw, even in ALUI sale was extremely healthy for the quarter; it grew about 20% year to year.

So all signs are good for the new stuff, so I'm hoping that that will continue to accelerate. That will be the trend that I'll be looking to.

Jon Stuart - UBS

Okay. Thank you.

Alfred Chuang

Thank you. Thanks, Jon.

Operator

(Operator Instructions) And your next question will come from the line of Sarah Friar at Goldman Sachs.

Sarah Friar - Goldman Sachs

Good afternoon. Alfred, two questions fro you. Firstly, outside of AquaLogic, for WebLogic, just if we run some math -- and obviously you don't split out WebLogic and Tuxedo -- it does seem that WebLogic took a fairly big hit in the quarter.

I wondered if you could comment on what you're seeing in that particular area of the business, and whether or not you think it's a stumble that will quickly be recovered from, or if it's an ongoing issue for the WebLogic product line.

Then just secondarily, the telco vertical -- a little bit lower as a percentage of total revenues than we've seen for a long, long time. Again, is that just a pause in that vertical for this quarter, or is it something we should be looking at as something to be concerned about in general from that vertical over the next couple of quarters for software?

Alfred Chuang

Thanks, Sarah. Let me address the first question first. That's actually the very first question that we asked ourselves, as we saw the drop-off in deals at the end of last quarter. So, for sure one thing that this is a very isolated problem, and to narrow down the problem, we first looked at how do we perform outside the United States?

So we had a fairly good quarter in EMEA. WebLogic was the primary sale; so we're still early in the adoption cycle AquaLogic in that region. So majority of sales are surrounding WebLogic, so they had a very good WebLogic quarter.

Asia-Pacific, we almost are not selling anything yet in AquaLogic. We did a few deals, but it's really very little BPM and little service bus at this point.

So outside the United States, we had a strong WebLogic quarter, and our BID division did very well, obviously, on the two AquaLogic products that we have. So when you narrow it down to the Americas that's where almost all of the revenue falloff was, on the WebLogic-based product.

And I think we look at this, as there are two reasons. One is its execution issue. In the marketplace, we were hunting for some large deals. Some of the procedures we took were not as -- the cadence wasn't really quite enough to get the deals closed.

The second thing was we had a management structure that we changed for Q1 to allow our classic sales force to basically look at both the BID and also the other WebLogic and AquaLogic products number as a holistic number for themselves.

And I think they took their eye off the ball and they start chasing some of the BID deals and they are hoping to be able to sell more of what the BID product has, which they never had access before until this last quarter. And I think this distracted them. I think those distractions caused the drop-off in the WebLogic sales, specifically in the Americas.

So I don't think this is a trend. There's no reason to tell us that the competition, pricing, the product is being commoditized in the marketplace, none of those signs that we have discovered at this point. And we did a lot of inspection in the first two weeks in every region of the Americas, and I think that's the telcos sign of what we have seen is what's going on.

Sarah Friar - Goldman Sachs

Are you going to change compensation structure or anything to try and get that focus back to the…?

Alfred Chuang

Yes. Historically, we never really did have a quarterly compensation structure in the company. We changed that, so we will have focus and also we have, as my comments has alluded to, we now have a different way of managing the Americas deal, especially as we look at these larger deals coming into the company. And those deals are managing now on -- I get a report every single day, down to the details of whether we have checked on the buying cycle of the customer, the approval process, signature path and all of that stuff.

So I think we are going to a level of detailed cadence that we have not been doing for a while, and I think that would be good for transparency in terms of the deal as it progressed through the quarter. So that's something that's new, and I think both with the current plan and that -- I think will help clear the Americas to get back on this path quickly. And I think the people in the Americas felt terrible, and they are very committed in getting everything back on track.

To answer the second question, about telcos, actually it's not -- it's actually quite the contrary. We actually are expecting some strong telco business coming in this quarter, specifically in the Asia-Pacific region. We did close a seriously large deal already with a telco in APAC, so that clearly will skew the math immediately for the quarter. So I don't think you should read anything into the numbers dropping a little bit for the quarter itself, because somebody is going to change this quarter back to normal again.

Sarah Friar - Goldman Sachs

All right. Okay, great. Thanks a lot.

Alfred Chuang

Thank you.

Operator

(Operator Instructions) And your next question will come from the line of Bob Stimson at WR Hambrecht.

Bob Stimson - WR Hambrecht

Yes. Hi, Mark. Can you just give us a quick update just on the product roadmap a little bit, the timing of WebLogic 10.0 and Tuxedo 10.0? Also just maybe can you give us an update on the WebLogic communication platform? At the Analyst Day, you commented about having 300 employees dedicated to the program. Can we just get a little update on what's happening there, too, please? Thank you.

Alfred Chuang

Sure. HI, Bob. On the product roadmap side, we have a lot of exciting things coming down the line. In fact, practically every single one of our products you are going to be seeing released both in this quarter, in Q3 and also in Q4, both from -- there's going to be a new version of WebLogic Server coming out in the next six months in that timeframe, while we're going through a lot of the beta testing now. We have virtualization edition that is coming out. We also have sort of like a high-end edition of a -- we call it extreme transactional level of our product that's coming out at the WebLogic level.

There are a lot of updates in all the AquaLogic products. I'll be happy to off-line and give you specific -- each product, which one is coming out and what time. I don't have it on hand with me. But looking at our beta services product and the AquaLogic to the service plus, to the 3.0 AquaLogic line and high line, we're going to see an update that's coming out within the next six months, so lots and lots of new stuff coming out in the pipeline.

From a WebLogic communications product perspective, as we have said in the Analyst Day, we do expect in the second half of this year we will see revenue coming in. One of the deals that I'm talking about, similar to APAC telco deals, will include WLCP going into the future.

So I think clearly, the network side of these telcos adopting new technology, new stacks are coming out. We are starting to see some of those services available online, and I'm being very optimistic. I think if we look at the number of network equipment provider has signed up to OEM that product is practically -- it's the leading product in the marketplace, with every single NEP supporting the product. So I think we're still on track on exactly what we're planning for the second half of the year.

Bob Stimson - WR Hambrecht

Great. Thanks, Alfred.

Alfred Chuang

Thanks, Bob.

Operator

And we have no further questions at this time. Gentlemen, you may continue with your presentation or closing remarks.

Kevin Faulkner

Thanks for joining us, and that's the end of the call.

Alfred Chuang

Thank you very much for your time.

Operator

Ladies and gentlemen, thank you for participating in today's teleconference. This does conclude today's call. You may now disconnect.

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Source: BEA Systems F1Q08 (Qtr End 4/30/07) Earnings Call Transcript
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