Attunity's (ATTU) CEO Shimon Alon on Q2 2016 Results - Earnings Call Transcript

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Attunity Ltd (NASDAQ:ATTU)

Q2 2016 Earnings Conference Call

August 3, 2016 8:30 AM ET

Executives

Garth Russell - KCSA Strategic Communications

Shimon Alon - Chairman and Chief Executive Officer

Dror Elkayam - Chif Financial Officer

Analysts

John Rizzuto - SunTrust

Joe Fadgen - Craig Hallum

Glenn Mattson - Ladenburg Thalmann

Operator

Good day, everyone, and welcome to the Attunity Second Quarter 2016 Earnings Conference Call. Today's call is being recorded.

At this time, I would like to turn the conference over to Mr. Garth Russell of KCSA Strategic Communications. Please go ahead, sir.

Garth Russell

Thank you. Before we turn the call over to management, I would like to make the following remarks regarding forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate, believe, estimate, effects, intend, guidance, confidence, target, project and other similar expressions typically are used to identify forward-looking statements.

These forward-looking statements are not guarantees of future performances and may evolve and are subject to risks and uncertainties and other factors that may affect Attunity's business, financial condition, and other operating results which include, but are not limited to the risk factors and other qualifications contained in Attunity's Annual Report on Form 20-F, quarterly reports which are filed as well as other reports filed by Attunity with the SEC to which your attention is directed. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Attunity expressly disclaims any intent or obligation to update these forward-looking statements.

During this call, we may also present certain non-GAAP financial measures such as non-GAAP net income and certain ratios that are used with these measures. In our press release and on the financial tables issued earlier today which is located on our Web site at attunity.com, you will find a definitions of these non-GAAP financial measures, a reconciliation of these non-GAAP financial measures with the closest GAAP financial measures as well as the discussion about why we think these non-GAAP financial measures are relevant to our results. These financial measures are included for the benefit of investors and should not be considered instead of GAAP measures.

At this time, it is now my pleasure to turn the call over to Shimon Alon, Chairman and Chief Executive Officer of Attunity. Shimon, the floor is yours.

Shimon Alon

Thank you, Garth and thank you everyone for joining our call today. With me is Dror Elkayam, our Chief Financial Officer. We’ll begin by providing you with an overview of our performance during the first quarter, followed by the details of our financial results. After our prepared remarks, Dror and I will be happy to answer any of your questions. With that let’s get started.

We delivered solid growth in the second quarter of 2016. Our success was driven by the growing demand in the Big Data market where customers are recognizing the advantages of our innovative product suite. These advantages enable us to address global enterprise initiative that requires a loud scale heterogeneous and real-time data integration to Hadoop Data Lakes allowing us to further capitalize the fast-growing Hadoop market.

In the second quarter, we continue to align with Big Data market dynamics, especially in enabling loud scale Data Lake initiatives. In the quarter, we closed another large replicate agreement, which will generate fees for over $4 million over the next three years. This win was direct result of our strong competitive capabilities. Let’s take a minute to expand on the market needs we are responding to and why we win this.

The first market need is related to the Data Lake initiatives which require the ability to support many different data sources without the custom coding and without impact on IT environments. Our technology uniquely enabled these market requirements with its automation and zero footprint architecture. The second market need is for common unified solution. This need has become stronger with the Data Lake initiatives as it required interesting data for many different types of data sources. We align with these needs by providing a broad heterogeneous platform.

And finally, customer value flexibility from vendors in automating and accommodating dynamic requirements, this need is a result of the nature of Hadoop and other Big Data technology like Kafka, which customers often use in different ways. We accommodate these needs by being flexible to support such requirements and enable them to quickly leverage our agile development process.

An example of a Data Lake sales closed this quarter is for customer building a predicted analytic platform that brings together data from large network of distributors. This also will scale to ingest data from over 150 separate data centers, supporting many different types of databases and business systems. We were selected due to replicate heterogeneous and lower impact technology and its ability to ingest data efficiency. The agreement is for an initial deployment supporting few thousand slow systems with options to expand beyond.

To further capitalize of this market opportunity in our advantage, we are taking several steps. First, we leverage our customer success for branding a lead generation to include the potential opportunities we can take. Second, we leverage key partnerships in the Hadoop and the Big Data markets to reach relevant customers, as well as a line effort in delivering complete and competitive solutions.

These partners include technology partners like Hortonworks, Cloudera and Confluent, the largest contributor to Apache Kafka, as well as system integrators. For example, in the recent joint webinar, we’ve been with Confluent above data ingest to Kafka attracted over 900 registrations. And third, we are investing more in our sales team with the only technology designed to accommodate this market dynamic. As we continue to strengthen our brand awareness, our expanded products suite is being recognized for its innovation by Team India and analyst firms.

Further contributing to our leadership position, recently our products received several industry awards including 50 Innovative Companies to Watch by Silicon Review and '30 Coolest Data Management Vendors' in Big Data 100 list by CRN. In the second quarter, we introduced several new products and product updates for Attunity Replicate, Attunity Visibility, and Attunity Compose.

Attunity Replicate continues to be a strong most reliable [ph] benefiting from the fast-growing Hadoop Data Lake market to which Replicate is aligned well with its superior architecture and performance. We continue to invest in Replicate enhancing our ability to support loud scale deployment with optimization, security, and management capabilities. In addition, we continue to broaden the scope of supported sources and targets, strengthening our position as unified data replication and ingest platform.

The growing demand for analytics is a result of competitive pressure that required analytics to support the ability to respond fast to changing market conditions. This means put strain on IT in delivering and adopting data warehouses to accommodate the business. Attunity Compose is a data warehouse automation platform that replaces the labor-intensive data warehouse in process, enabling customers to become more agile, implement data warehouse in significantly less time and with fewer resources.

Compose is changing the rules in the market in the data warehouse market, reaching the gap between growing analytic demands, in reality ability to deliver this. By integrating Compose with Attunity Replicate, we deliver a robust and competitive offering and also leveraged opportunity to tap the large and growing Attunity Replicate customer base. During the second quarter, we successfully closed several additional customers for Compose. We are encouraged by the fast adaption following the commercial launch that occurred during the first quarter and we expect to see continued growth this year and beyond.

Moving on to Visibility, we observe the market dynamic as customers continue to invest in Big Data technologies like Hadoop to manage fast-growing volume of data. Hadoop has quickly advanced from being part of testing phase with the growing number of enterprises using this production to drive strategic analytics, managing and monitoring operational Hadoop Data Lake has become more challenging as these systems continue to increase in scale [ph].

As a result, customers need accurate and detailed information to support the data management practices and capacity plannings, which has become critical to meeting business needs while controlling costs. During the second quarter, we enhanced Attunity Visibility for the Hadoop market. Attunity Visibility is the unique data usage analytic platform that helps organizations optimize the performance and the cost of the largest analytic platform.

Now, expanding beyond its traditional data warehouse market, we enhanced Visibility to accommodate customer needs in managing loud scale and fast-growing Hadoop Data Lake environments. We believe that the market has reached the inflection point where the economic value and various benefits of optimizing enterprise data warehouse with Hadoop now [Indiscernible] out rate any concerns around the complex implementation. As such, we expect sales of Visibility to see increased flow as growing number of customers making progress with the Hadoop deployments, driving a growing pipeline to cross-sell and up-sell opportunities.

The Cloud continues to be an area of growth with analytics and migration being strong drivers for customer demand. Analytics in the Cloud is the fast-growing with customer adopting both data warehouses like Amazon Redshift or Microsoft Azure SQL data warehouse, as well as Hadoop in the Cloud. In those cases, customers need an efficient way to move data from their enterprise datacenters. In recent quarters, we have seen more and more customers deploying the Hadoop environment in the Cloud and we’re well positioned to tap this growth opportunity, leveraging our innovative products as well as our alliance with Amazon services, Microsoft and Google.

Database migration is another fast-growing area within the enterprise which made way to enable zero-downtime migration to ensure continuous operation as well as efficiency and security netting well to our product capabilities.

To summarize, we continue to invest across our expanded product lines and benefit from selling more solutions as well as loud scale initiatives as we focus on large and growing market needs.

These positive trends have allowed us to close major deals along with a steady stream of our tradition sized mix. I’m pleased to say that our license pipeline for the next four quarters has continued to grow during the second quarter and it’s currently estimated at over $100 million to position us for solid growth in the future.

I will now turn the call over to Dror Elkayam, our CFO to discuss details of our financials. Dror?

Dror Elkayam

Thank you, Shimon, and good morning everyone. We reported total revenue of $14.2 million for the quarter representing a 16% increase over the $12.2 million reported for the same period last year. Total revenue for the quarter includes license revenue of $8 million, a 17% increase compared with the same period last year and maintenance and service revenue of $6.3 million, a 15% increase compared with the same period last year.

The increase in maintenance revenue is primarily due to the growth in customer agreements we closed in 2015 and in the first quarter of 2016. The increase in service revenue is a result of large software license sales that require our consulting services to assist customers with implementation of their Big Data platforms utilizing our solutions.

Total non-GAAP revenue was $14.2 million, representing an increase of 14% compared with the same period last year. This quarter’s non-GAAP revenue includes immaterial acquired maintenance revenue from Confluent that was excluded from GAAP revenue due to previous combination accounting rules.

Gross margin on a GAAP basis was 84% this quarter, similar to the same period last year. Non-GAAP gross margin was 88% this quarter, which mainly excludes amortization costs associated with the acquisitions compared with 89% for the same period last year.

Total R&D expenses were $3.5 million, representing an increase of 29% compared with the same period last year. This increase was primarily due to the addition of new hires and salary increases for existing employees.

Sales and marketing expenses for the second quarter increased 32% to $9.4 million from $7.1 million in the same period last year. This increase is primarily due to increased headcounts in our sales and marketing teams including new hires of sales engineers and [indiscernible] personnel, increased commission expenses due to higher revenues, additional investment in marketing activities to support our global expansion, as well as higher equity-based compensation.

G&A expenses were $1.2 million, representing an increase of 9% compared with the same period last year. The increase is mainly due to higher equity-based compensation.

Total GAAP operating expenses for the quarter increased 44% to $18.5 million compared with $12.9 million for the second quarter of 2015. Our GAAP operating expenses for the 2016 period include $2.1 million associated with a partial impairment of acquired technology from Appfluent.

This accounting charge was taken in order to reflect a fair value of the acquired technology following delayed sales trends with longer than expected sell cycle opportunity visibility, which we believe is primarily due to the innovative nature of the solution.

Total non-GAAP operating expenses for the quarter increased to $14.4 million compared with $11.1 million for the second quarter of 2015. This excludes the $2.1 million impairment charge and $2 million in expenses and amortization associated with acquisitions and equity-based compensation expenses. This is compared with $2.1 million in adjustments, expenses and amortization associated with acquisition and equity-based compensation expenses for the second quarter of 2015.

As a result, net operating loss on a GAAP basis for the quarter was $4.3 million, compared with $0.7 million for the same period last year. Non-GAAP operating loss was $0.2 million, which excludes $4.1 million in expenses and amortization associated with acquisition, including the impairment expenses discussed before and equity-based compensation expenses. This is compared with a non-GAAP operating income of $1.4 million for the same period last year, which excludes $2.1 million in expenses and amortization associated with acquisitions and equity-based compensation expenses.

Our income tax benefit on a GAAP basis for the second quarter was $1.3 million compared with tax expenses of $0.2 million for the same period last year. This is primarily due to a decrease in deferred tax liabilities associated with Appfluent acquisition following the impairments we recorded this quarter and lower taxable income on Appfluent’s operations.

Our non-GAAP income tax benefit was $0.1 million which excludes a non-cash income tax benefit of $1.1 million mainly associated with business combination accounting rules. This is compared with non-GAAP tax expenses of $0.5 million for the same period last year, which excludes a non-cash income [ph] tax benefit of $0.3 million mainly associated with business combination accounting rules. The decrease in tax expenses is mainly attributable to lower taxable income for Appfluent’s operations.

Net loss on a GAAP basis was $2.9 million or a $0.17 per diluted share compared with net loss of $0.8 million or $0.05 per diluted share for the same quarter last year.

Non-GAPP net income was $0.1 million or $0.01 per diluted share, compared with a non-GAAP net income of $1.1 million or $0.06 per diluted share for the same period of last year. Non-GAAP net loss excludes a total of $3 million in expenses which are mostly attributable to impairment expenses and amortization costs associated with acquisitions, equity-based compensation expenses and tax benefits associated with impairment of acquired Appfluent technology.

Non-GAAP net income for the same period last year excludes $1.9 million of expenses and amortization cost associated with acquisitions, equity-based compensation expenses and tax benefits related non-GAAP adjustments.

Moving to the balance sheet, our cash and cash equivalent amounted to approximately $8.9 million as of June 30, 2016. This cash balance was impacted by the earn-out payment of $1.2 million for the acquisition of Hayes and 600,000 in milestone retention payments to certain Appfluent employees. Final earn-out payment for the Hayes acquisition of approximately 700,000 occurred in early Q3.

Also, we received several customer orders towards the end of the quarter which resulted in higher accounts receivable balance of $6.9 million, an increase of $2.4 million compared with the balance as of December 31, 2015. Accordingly, our DSO increased to 44 days from 32 days as of December 31, 2016.

Our shareholders equity decreased to $34.5 million as of June 30, 2016, compared with $38.3 million as of December 31, 2016. As of June 30, our total headcount was 242, compared with 233 as of the end of Q1, 2016 and compared with 202 as of the end of Q2, 2015. This includes addition of hires in sales and marketing.

Now, I’d like to turn the call back over to Shimon for some closing comments.

Shimon Alon

Thank you very much, Dror. Looking ahead, we expect to continue to benefit from our enhanced sales strategy. The growing pipeline of enterprise agreements, our ability to tap in to these opportunities is a testament to our vision. With the investment we have made in developing this strategy, we expect to grow to continuous form in the second half of the year and beyond.

Before we conclude our prepared remarks, I’d like to thank all of our investors, all of our customers, existing and new customers, our partners and dedicated members of our Attunity team for their firm support. And now I would like to open the call for questions. Operator, please.

Question-and-Answer Session

Operator

Thank you [Operator Instructions]. And we will take our first question from John Rizzuto from SunTrust.

John Rizzuto

Good morning, gentlemen. Good quarter. Dror, if you can just walk me through couple of things as we get more large deals. Just give me a sense from what you can and what you are willing to share on how you book them, how you collect the distance, where they show up deferred revenue, things like that, just the mechanics, when you get a large multi-year deal, how that might look?

Dror Elkayam

Thank you, thank you, John. First of all large deals, we are kind of in there in many different ways. A typical deal would be, will include license revenue such as you can delete their upfront or deliver overtime, in case we deliver the license upfront, you recognize it upfront. In the case, you deliver the licenses overtime, then it’s a subscription based if you like more of that that you recognize overtime. On top of such deals, you always have the support that we normally sell one year of the mandatory support in cases of large deals, we typically sell more than one year between three to five years of support. In special cases, we charge into five years of support upfront. In other cases, we charge the fifth month upfront and the recent commitment from the customer to apply for additional consecutive year as we grow. So - go ahead.

John Rizzuto

So it sounds like typically there each no two deals, as we learn in software world, no two deals are exactly alike, so you adjust on and you are depending on what the components are. So if we are going to see it on deferred revenue maybe, will - do you put things on deferred revenue when billed, when cash is collected, how do you distinguish between what - some companies will do it as billed, there are some companies who only do when cash is collected. How would you typically put your components of big deals on the balance sheet as deferred revenue, as billed or as collected?

Dror Elkayam

So first of all, the vast majority of our deferred revenue is the maintenance and support fees. This is the vast majority. Now the question is whether the customer is committed and to pay for maintenance for example. If the customer is committed to pay for maintenance, that’s for your maintenance, then you put it in the deferred as paid. If the customer just commit but did not say this is not part of your deferred, I mean I think this is obvious. But if I try to direct you to the - you try to understand the deferred balance. The deferred balance, the vast majority of it is not licensed, but rather maintenance.

John Rizzuto

Okay, so these large, okay. So these large deals have really had no effects thus far - could you say over several years, it’s not really licensed when you say it’s going to be recognized, it’s mostly main, I am trying to get some visibility into these large deals, as we start to see more of them, and they become higher impact on the business, as you talked about at the end of Q4, how I could see them move through the financials.

Shimon Alon

Very good question, John, let me again zoom into the large accounts. The large accounts of over $1 million, typically the multi-phase, multi-million type of the deal the same that we announced today. The first one, we always and we are committed to the use of - to announce these large deals, so the first one is the ability is when we announce that we are receiving them. It doesn’t mean that we are recognizing the revenue all in the same quarter, but we will receive the order. So if you have the visibility to our quarters with the large deals. The large deals are committing very much with the recurring revenue, that’s the important - because none of them recognize all the revenue at once. And always come with multi-phases, and as gross savings can come in as the term license, after years it can come as subscription license, it can come with the projects the customer does with his deployment. Typically, large deals come in what we call Data Lake. A Data Lake typically tend to 3P or 4P of petabytes that what we are seeing today. And customers don’t want to ingest or deploy all of them at once. So if you recall, we announced in Q1 a large $2.6 million and the customer went live with the first phase, and he is ready to move ahead with the second phase, and we expect this second phase to come in the second half of the year, third quarter or fourth quarter. So we will see revenue coming. Unfortunately, for investors besides the thing that we disclosed as much as we can, that you will not see it in the balance sheet most of the time. So we have to continue this discussion and disclose as much as we can with customer determinations and share with you the unstreamed revenue in the quarter is bigger than the streamed one, and that’s what I try to say all the time. We have recognized the deal flow on large accounts, we should expect in the second half to see a few more that we move from the pipeline to close and each one will be different but as I said we see more than what the investors can see, because there is no accounting way of disclosing it.

John Rizzuto

I got it. Thank you, Shimon that was very helpful. Now just a quick one, you do pay commissions at the time the contract is signed for these deals.

Shimon Alon

The entitlement of the commissions is once we recognize the revenue.

John Rizzuto

Okay good.

Shimon Alon

Payment is a different story, I mean we book the commissions as an expense once the revenue is recognized. Payment is done in the latter stage.

John Rizzuto

Okay, got you, got you. And with the increasing pipeline, Shimon, has it become more predictable, I mean one the problems when large deals have thus cost that bumpiness and lumps in performance, as your pipeline gets to 100 million, is it becoming more predictable on your closed rates when you can start to see or you expect deals to close, how is that?

Shimon Alon

We have to differentiate between four quarters of pipeline that definitely give us more confident, when we are in the early or six months ahead. On the quarterly basis, it’s little bit tough to predict. We have the statistics of closing rates, but the larger the deals are, you know it’s enough if one deal will move forward or backlog, and it can change your statistics. So I will not count that now on a quarterly basis, but we will definitely feel comfortable on a yearly basis.

John Rizzuto

Okay, thank you very much for taking my questions. Good quarter.

Shimon Alon

Thank you.

Operator

We will now take our next question from Joe Fadgen from Craig Hallum.

Joe Fadgen

Hey guys. [Indiscernible] thanks for taking the question. First, as you related to your sales team, as you signed or go after more and more large enterprise level of accounts and more and more big deals, when you think about hiring new sales reps going forward, is that a different sales hire than may be you have done in the past where you are looking for more enterprise level or enterprise experience sales reps, or do you think that like, even the makeup of the team that you have in place has the knowledge and the experience to continue to grow this.

Shimon Alon

Thank you for the question. It’s very important to understand the way we are selling. With those three layers of sales, we have the major accounts, enterprise deals sales people, we have people who are selling to a territory, and we have people who are selling what we call the insight sales or tele sales. Each one of them sell different scale and different size of the deal, and of course it’s very important and each one of them will be capable and experienced in doing what we do. We have a very good new insight sales that will take care of the orders from $0 to $150,000, $200,000. I know some investor has concerns that while we are selling to the large account we may giving up some of the ongoing traditional size account, and it’s not true we are just moving into a more effective directives. We have people in the territories that cover the United States or EMEA or APAC and they are focusing on the accounts that are in the territories, and we have the major accounts, those who close in this case, global accounts or very, very large accounts, I will say the top 100 accounts in the world. And they definitely have to have the experience, we are looking for these people, if you know any you can forward them to us, but we are looking for these people. Some people have lot of experience in selling software and hardware for the large enterprises to our benefit some of them are looking for to move companies. So we are focused on them. The more important things in this discussion is to understand that as of now we are more focusing on the performance and the productivity of the sales people rather than just the numbers of sales people. So for us increased productivity of sales guys and sales channels are very important and it’s our management focus.

Joe Fadgen

Okay. I guess and then another one kind of on the Data Lake, I mean, lot of discussion on that. Does the Data Lake opportunity, I mean I guess can you either size it out for us or give us what you think the growth rate of that opportunity I guess would be. And does it really change things for you from maybe what you thought about the business a couple of quarters ago?

Shimon Alon

Yes, Data Lake by definition is an environment or architecture where customers are leaving many different types of data into one location. So there are many sources going into one analytic environment, and it’s great for us. Actually the reason we are winning, and most of these large deals, it’s not all of them are from new accounts that we did not sell before that use other vendors to do their normal standard additional replication. And we have come Data Lake we sign, we are very competitive and we have lot of advantages, and the reason is that Data Lake customer is looking for what we call a unified platform, that doesn’t want to replicate IBM to IBM, and Oracle to Oracle or Oracle to Microsoft. They are looking for one platform, that’s what we hear from all CIOs, one platform that we will be able to read from different sources of what people would call structured and unstructured data, and being able to move it into the Data Lake.

The unified platform, our ability to be heterogeneous, our ability to read from so many different sources to targets, it’s very critical. The target can be Hadoop, which is now, if you talk about growth, Hadoop become one of the most critical infrastructure of Data Lake, and we are supporting the Hadoop very well. It can be one of the traditional data warehouses, and can be the cloud that works very well with Amazon and Microsoft for the exact same reason. So first of all, the Data Lake changed the life of the vendors, it requires vendors to be heterogeneous, it required them to be real time, it required them to have high performance, it required them to have being able to scale and due to the Hadoop Kafka environment also to be able to be very agile and flexible to accommodate customer needs. The growth rate of Data Lake per se I will defer to industry analysts like [indiscernible] and others that would give you a better information than I can give you.

Joe Fadgen

Okay and then one last one, just a housekeeping one, it looks like you recognized a little over $2 million in partial impairment, is there a potential for further impairment going forward and how much.

Shimon Alon

The impairment is the accounting process that we will take care in Q2, it’s about visibility. We do see visibility as a very important critical product for the Data Lakes and data warehouses. What happened is there is a major growth in data. Everybody know it, we don’t have to explain it. These growth in data caused people to invest more and more and more data warehouses and bigger Data Lakes. The first question that every customer had is can I better use what I already have rather than to buy more? It’s everybody can understand it, it’s not should they be pleased with what they have, it’s how they can better use what they have, and can I offload or use other inexpensive product for less important data that I have. So it’s become like a teeing approach and different team has the performance and cost, and this is what’s happening in the market. It’s happening slower than we expected because the less expensive, and the difficult area to use it is the deployment of the Hadoop platform, the faster they deploy the Hadoop the more important is for them to start to move data from traditional data warehouses to Hadoop. The announcement that we made on the deals that we just did, over $4 million, the sales call we did after we closed the deal was with a very senior person in the company, who said guys now as we are implementing the Hadoop, I need to talk with you about visibility because I need to plan ahead how to move the data, I said already in certain of my data centers into the Hadoop. And we see it as a process and the growing number of people that are interested. They move datas from data warehouse when we have many different users in the data warehouse, we are using the data into data warehouse to another platform is a complex environment, and so it will slow down a little bit the ability for us to sell more visibility, but the business benefit, the ROI, the cost saving is so critical that we start to see people moving forward, and the decision is being done right now. We see customers that we go there with replicate and ask us about visibility and we go to customers with visibility and ask us about replicate. So we do not expect right now further slowdown, and we expect to close more deals in the second half of the year, and next year. I would say the sales force has took longer than we expected.

Joe Fadgen

Okay that will be all for me, thank you.

Operator

[Operator Instructions] we will now take our next question from Glenn Mattson from Ladenburg Thalmann.

Glenn Mattson

Yeah, good morning, I’m not going to ask if you’re going to reiterate the guidance because I know that - as you make no comment regarding the guidance that’s in an area of reiteration. But I would be curious about the cadence of the business through the rest of the year, do you expect a slower period in the summer months into Q3 and then more of a flush in Q4, can you just maybe talk about the outlook for the next six months.

Shimon Alon

The first question about the Q3 and Q4, as traditionally seeing and as we did in the past, the Q3 is a slow quarter compared to Q4, Q4 is the strongest quarter of the year and happened almost every year. We have lot of business to close in Q3, but the question of Q4 would be the strongest of all and that’s what most of the analysts are guiding right now and that’s we’re expecting. In regards to the slowdown in general, the answer is we’re very much pleased with the introduction of Compose. Compose is - we basically positively enjoy the volumes and deals and the closing. We launched Compose in general with very little expectation of revenue and today we have already customers using the in production live have been generating the reports if they used to generate one or two report a year now they generating 12 to 16 report and those who are testing it right now it is very quick decision, so we will see additional revenue coming from Compose as no question that allows account if we close since the beginning of the yield, will contribute revenue this yield and next yield and replicate for Hadoop will generate additional revenue for us. We will continue to focus on additional sources and target definitely SAP was beyond next big move that will generate revenue in 2017. But the market is growing and generating lots of opportunities for us as you can see now in our pipeline.

Glenn Mattson

Okay, great that’s helpful. Dror, what was the amortization expense for you now for the rest of the year. I know that you have done the write down.

Dror Elkayam

It should be a bit smaller than expected few hundred thousand, something like 200,000 to 300,000 less than we used to do so far every quarter.

Glenn Mattson

Good, okay great. Thanks guys.

Operator

Thank you. Moving on, we’ll take our next question from [indiscernible].

Unidentified Analyst

Yes, hi Dror and Shimon, congratulations. Quick question, yeah last quarter you reported pipeline of $90 million and this quarter you are reporting a pipeline of $100 which is consistent with the growth that you indicated last quarter that exist in the pipeline, could you elaborate on what kind of deals make the pipeline, what stage do they became a pipeline deal and if you could also elaborate on how many percentage of these deals are large scale deals, they maybe up kind of deals?

Shimon Alon

Yes in account, make the pipeline once stock with their account, these people process every company does it, you have to lead somebody register or appoint themselves as they want it, as they need it. As spokesman needs to talk with them to identify few things, first of all what he is looking with qualified, if he is qualified the timing, the size of the deal and the probability to close once he takes that and close it. So nearly a pipeline is something identify itself as potential buyer with price timing and probability. The pipeline that we are talking right now, which is although $100 million is the pipeline for the next four quarter Q3, Q4, Q1 and Q2. So it’s for the next four quarter, those who are beyond Q3 next year, they will not be part of this pipeline, it is quarter only. They have different possibilities, different times, different drawback. In the pipeline, in the mix we have about 20-25 about strategic count which typically they are over a million dollar and mix of different drawback, different customer different in the space, different parts of the world. That’s what the pipeline is all about.

Unidentified Analyst

Thanks Shimon, thanks about and could you give us a sense in terms of composed versus replicate, as composer have a chance to become a replicate in terms of revenue?

Shimon Alon

If you ask me the answer is absolutely yes. We exchange the rule of replication with replicate. Replicate were the manual process done by large companies who requires lots of drifting called professional service. We automated this role and we guessed where we are today, thanks to that. You will see lots of industry analyst are highly recognizing our value of changing this market. While we talk about composer, we do exactly the same, what we decided to do is ultimate and manual intensive market and market that dominated by EPL companies who need gripping coding, exactly the same, manually intensive, high cost [ph] and one of the reason we are seeing the immediate acceptance of this product is it changed the world, it is exactly what we do. Now we still have to make sure that we penetrate to the market right, we are not going to replace all the investment people did in their large account over the last 10-15 years replacing in [indiscernible] But every new project, every new account, everybody who is looking to do something faster, better, quicker will use us and being more recognized and selling more, we definitely can convert compose to be the size of replicate.

Unidentified Analyst

All right, that sounds good and last question. In the past you reported the average size of your sales on a whole about 250k if I was not mistaken. Have you seen any increase on that, with the multi larger deals?

Shimon Alon

[Indiscernible] changing it but typically what we try to do is, it works to combine one long deal and one small deal in size right think [ph] from the calculation. So we are basically very good in keeping the numbers though.

Unidentified Analyst

Okay, appreciate it. Thanks guys, thanks a lot.

Shimon Alon

Thank you.

Operator

And that will conclude our Q&A session for today. I'd like to turn it back over to our speakers for any additional or closing remarks.

Shimon Alon

Okay, thank you very much everybody for participating our call. We are very pleased with our goals, we are very pleased with our results and we will be available for all of you when you can KCSA or see us in one of the upcoming conferences in the US. Thank you again and have a great day.

Operator

And that will conclude today's conference. We thank you all for your participation.

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