SumTotal Systems Q3 2007 Earnings Call Transcript

SumTotal Systems, Inc. (SUMT)

Q3 2007 Earnings Call

October 30, 2007 5:00 pm ET

Executives

Don Fowler - CEO

Neil Laird - CFO

Analysts

Robert Breza - RBC

Eric Martinuzzi - Craig-Hallum

Nate Swanson - ThinkEquity Partners

Ariel Sokol - Wedbush

Presentation

Operator

Good afternoon, and welcome to the SumTotal Systems Third Quarter Earnings Conference Call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for questions following the presentation.

It is now my pleasure to turn the floor over to your host Neil Laird, CFO. Sir, you may begin.

Neil Laird

Thank you, Operator, and thank you for joining us for SumTotal Systems third quarter earnings conference call. Joining me on today's call is our Chief Executive Officer, Don Fowler. On this call we will discuss our results, our expected results and may refer to the press release that we issued today at approximately 1:10 pm Pacific Time. You can find a copy of the release on our website at sumtotalsystems.com under the Investor Relations section.

Before we review the quarter, I would like to share the following information. Certain comments made in the press release and during this conference call are forward-looking statements, including without limitation statements regarding future financial performance for the fourth quarter of 2007 and beyond, future business operations and products and execution of market conditions that include risks and uncertainties.

These forward looking statements are based on information that is available to us as of today and reflect management’s current expectations, estimates, beliefs, assumptions and goals and objectives and are subject to uncertainties that are difficult if not impossible to predict.

These statements are not guarantees of future results and involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from the results expressed or implied by these statements. Do not place any undue reliance on any forward-looking statement or statements.

Actual results may differ materially from those in the forward-looking statements included in the press release issued today or on this call. Review the Safe Harbor statement set forth in the press release we issued today, and our risk factors disclosed previously, including those in our SEC filings such as our Annual Report on Form 10-K for 2006 filed on March the 16th, 2007.

Our quarterly report on Form 10-Q filed on August of 7, 2007 and our Prospectus Supplement filed on Form 424B2 filed on May the 21, 2007 and our Form 8-Ks. We assume no obligation to update the information in either our press release or this call. A live webcast of today's call as well as a replay are available on SumTotal System's website until November the 6.

I will now turn the call over to Don Fowler.

Don Fowler

Thanks, Neil. Good afternoon, everyone. I want to discuss three topics, our third quarter results, our view of our business, and changes we are making at SumTotal. Our results for the third quarter were within our guidance. Revenue was within our range at $29.5 million and earnings per share were $0.05 at the midpoint of our range. As the third quarter is often a difficult one for the software companies, we believe these results are good.

Neil will go over the numbers in more detail later in the call. But first, I’d like to highlight a few key statistics. Our subscriptions and support revenue increased 26% year-over-year. Our deferred revenue balance increased 38% over last year. We have been profitable for nine straight quarters, and we generate cash from operations.

Additionally, during the quarter, we were able to cross sell our performance management solution into our existing LMS customers and sell our LMS into an existing performance management customer. We believe this is an indication that our strategy of selling new talent management solutions into our customer base is starting to show results.

All of these examples demonstrate a good business with lots of opportunities. However, we have seen some changes in our business that are of concern to us. Here is our current view of our business. In recent weeks, predicting the timing of some large deals has proved to be even more difficult than usual. And a few companies and some of the industries we serve, such as pharmaceutical, have announced business issues of their own.

While, none of these deals have been lost, some of the decisions have been pushed out into future quarters. For how long we do not know, because it’s dependent on their own business situations. And several of the other large perpetual deals that we do see will likely require more acceptance terms, which will affect the timing of the associated revenue. A real world example of timing issues is our experience with the large retail customer that we have signed earlier this year.

As you saw in our press release, we recently concluded that there are too many risks to confidently include revenue from this customer and our forecast for Q4. We think it is more likely to occur in the first and second quarters of 2008; this is disappointing. Although unfortunate, it reflects the compensated implementation and project dependencies not a service or support issue.

The customer, the third-party developers and our team are working together to ensure that the solution works in the customer's environment and that the end result meets their needs. We are committed to delighting this and every other SumTotal customer.

Additionally, during the last few quarters, we have had execution challenges in a few areas of our business. First, our performance management business is taken longer to ramp than we expected. Although, we believe it is a good business and we have made progress, we have recognized that we need to make some changes in that area to be more successful. But we still brought in 21 deals in the third quarter more than we had in the first half of the year.

Second, the changes that we have made to our international business are still in the early stages and only just beginning to show progress. We are confident that the changes we made were the right ones, but in the short-term we remain disappointed with our slower than expected ramp in international.

The end result of all of this is that our revenue is not growing as rapidly as we had forecast. Because of our increased uncertainty, we believe it is appropriate to set a more conservative view of our outlook for the fourth quarter than we have previously mentioned.

You may wonder why we didn't reduce our guidance further when we met for the earnings call three months ago. To be clear, when we started the quarter and through the vast majority of the quarter, there were enough deals in the pipeline to meet the forecast. Within the last few weeks, however, a number of these deals have been pushed out.

Now, let's talk about changes we are making in our business. We are taking the following three steps to help address our long-term opportunity. We believe these steps will increase the consistency and predictability of our results and our growth rate going forward.

First, as you saw in the press release, we planned to hire Ray Villareal, as Senior Vice President of Field Operations to lead our sales, marketing and support operations. Ray will bring a wealth of experience including several executive positions at WebEx, Compaq and some startups. We expect that the addition of Ray will further strengthen our management bench.

Second, we are creating two distinct business units to increase our strategic focus on those markets. Each team is responsible for focus on our product market and sales initiatives to address issues unique to each business unit. This structure is also designed to establish a profitability focus on each key market and to ensure continuing focus on best-in-breed products for our key market sectors.

The learning and talent management business will be run by Sanjay Dholakia, and the performance management business will be run by Jon Ciampi. Both talented executives have a long history with SumTotal, and I believe they have what it takes to make their businesses successful.

Third, we believe it is appropriate at this time to restructure our business, so that it better fits our projections. This restructuring will reduce expenses by approximately $4 million a year and will be fully implemented by the start of the first quarter.

We plan to continue to invest in our core markets, which are international mid market subscriptions and performance management as well as our core enterprise LMS market. Although we have near-term challenges to address, I believe that we have put measures in place so that when we get through them we will have a stronger company with a model that gives us the growth and visibility we all desire.

Now, let me turn it over to Neil for the details on the financials.

Neil Laird

Thank you, Don. In response to many requests to provide better visibility on the trends in our business, we recently provided you with some bookings data. And I am going to start by updating this through the end of the third quarter.

We are providing this data on an annualized basis, since individual quarterly numbers for bookings fluctuate greatly as a result of seasonality and the timing of the deals and do not necessarily reflect the underlying business trends.

Now, I am going to give you a lot of data here, but it should help you with the models, and it’s what people have asked for. So for the last 12 months, our bookings were $124 million, up from $104 million than the previous 12 months and up from about $121 million through the end of June, which we shared with you before.

This $124 million includes $117 million of LMS business and $7 million of performance management business. And this represents 19% year-on-year growth. Our revenue on the same basis was $120 million over the last 12 months, and this grew 11% from $107 million in the previous 12 months. So our bookings have grown by $20 million over the past 12 months, and revenue has grown by $13 million. That’s a $7 billion difference.

And if you look at the balance sheet you will see the deferred revenue increased by $10 million, which more than covers the difference. The rest of the difference is essentially due to the timing between bookings and billings. So, what’s the difference between a robust 19% growth in bookings and the more modest 11% increase in revenue?

So, let’s look into a little bit of detail at the components and bookings. Our perpetual licensed bookings over the past 12 months are $29 million. That’s up from $22 million the previous 12 months; that’s a 32% increase. However, one large deal that we have talked about before accounts for over $5 million of this perpetual license increase. So, if you take that out, it leaves us with about an 8% growth in the rest of the perpetual license spaces.

Services were also up $32 million up about 7%. Support bookings increased to $36 million up about 6%. So, we have an overall business excluding our subscriptions business this is growing about 7% to 8% annually. Our subscriptions business over the past 12 months was $27 million up from $19 million in the previous 12 months; that’s a 44% increase.

Additionally, as Don mentioned the increase in perpetual licenses is primarily at the high end, and these typically come with terms the delay of revenue recognition, and also, the move to subscriptions deals at the lower and middle end of the market also delays revenue recognition.

So, we have got a subscriptions business that’s growing at over 40% with the revenue increase at a much lower percent, and the rest of the business has been growing at about 8%, if you exclude the one large deal. And that’s what's reflected in our 11% overall growth rate in revenue.

At the end of the third quarter, our deferred revenue was $35 million, comprising $16 million in support, $9 million in subscriptions, and $5 million each for license and services. And support now represents 46% of our deferred revenue as apposed to a 64% number 12 months ago.

So, moving now onto the third quarter, the revenue was within our guidance range, but up only 9% on a GAAP basis and 7% on a non-GAAP basis compared to the third quarter of 2006. Subscriptions and support revenue grew 28%, GAAP and 26% non-GAAP, and this is what continues to drive the company’s growth.

However, services revenue was flat, and license revenue was down sequentially. At the same time, the deferred revenue for licenses and services was increased $6 million as a result of biddings for large contracts on which we can’t take revenue.

As Don mentioned, we had several new deals for licenses that did not close. For example, there were two large deals we expected to close in the third quarter but not take revenue in the third quarter that we moved out of the budget for the customer, and we will likely delay until sometime next year.

Additionally, for example, two other deals that within our third quarter revenue forecast that also delayed. Both of them are subject to further discussions this year and is difficult to know when that will close. So at this point, it’s difficult for us to know if there is a slowdown in our business or these are specific to the individual clients that our business has been impacted, and we have adjusted our revenue forecast and our expense levels accordingly.

Gross margin in the third quarter was 57% on the GAAP basis and 65% non-GAAP. These levels are unchanged from the second quarter, and each are up approximately 2% from the comparable margins of the third quarter of 2006. We've seen a good improvement in our service gross margin as a result of better utilization of resources given the number of large projects we are working on.

This margin was 42% in the quarter compared to 31% in the second quarter and 29% in the third quarter of last year. In the fourth quarter, I expect the margin again to be around 40%, but on a go-forward basis, it is more realistic to forecast this in the mid 30%.

Subscriptions and support gross margins were 67% in the third quarter, which was unchanged from the prior quarter, when compared to 70% a year ago. As we have discussed before, this margin has reduced, as we investing in our on-demand infrastructure. However, I believe, the level has stabilized, and as the revenue grows from this part of our business, then the margin should increase steadily back to the 70% level over time.

Operating expenses were well controlled in the quarter although up from $17.7 million in the second quarter to $18 million in the third quarter. This included a settlement accrual for $400,000 and without this one time charge expenses would have been lower. However, the expenses are 11% higher than the third quarter of 2006. And as I will discuss shortly, we are taking actions to bring these expenses more in line with our projected revenue growth.

Our non-operating items were slightly favorable, and the result of all of the above is a non-GAAP net income of $1.5 million right in the middle of our $1 million to $2 million range, and it’s up 36% from the third quarter of last year.

Our diluted earnings per share on a non-GAAP basis of $0.05 compared to $0.04 a year ago. On a GAAP basis, our net loss narrowed to $2 million or $0.06 per share compared to $2.7 million or $0.11 per share, both basic and diluted, which is the number a year ago. And you will find a reconciliation of these non-GAAP to GAAP measures in our press release.

Our cash flow continues to be very good. We generated $2.1 million in cash flow from operating activities, and that brings our nine month total to $11.1 million. Cash, cash equivalents and short-term investments decreased in the quarter by $1.5 million, as we use $2.1 million to buy back stock, $1 million for capital expenditures, and $1.4 million in debt repayments.

Our cash-and-cash on investment's position net of debt was $39 million, which is unchanged from the end of the second quarter. Receivables are lower by $1.2 million, and our DSO improved from 72 days to 70 days.

Deferred revenue declined slightly sequentially by about $1 million as the third quarter is a seasonally low quarter for maintenance renewals. However, a year ago the seasonal decline was $2.7 million, and the balance is up 38% from a year ago.

Now, I need to go onto the guidance for the fourth quarter. And I think the most significant thing is that we are not forecasting any revenue from the large retail deal until 2008. Don has already discussed the reasons for this change in forecast.

Additionally, the delays I talked about in other deals closing has caused us to forecast a flat to down quarter sequentially, on licenses and services. I expect that our services and support revenue will continue to grow and increase sequentially from $16 million to approximately $17 million in the fourth quarter.

However, I think services will be lower dropping from $8 million to $7 million, and the license revenue projection somewhere between $4 million and $6 million, essentially flat of the mid point of that number.

So, on a GAAP basis, revenue is forecast between $27.8 million and $29.8 million, with a net loss between $3.2 million or $0.10 per share and $2.2 million or $0.07 per share. On a non-GAAP basis, revenue will be a little higher at $28 million, between $28 million and $30 million with a net income of $0.5 million or $0.02 per share and $1.5 million or $0.05 per share on a diluted basis. And again, the reconciling presiding items between the GAAP and the non-GAAP measures are in the press release.

Given this outlook, we are also taking actions to reduce our cost structure by approximately $4 million per year. We will complete this by the end of the quarter, so there will be, it will take full effect from the start of 2008. We will take a one-time restructuring charge during the quarter and rollout is still be in worked out that will be in the region up to $1 million.

After the reductions take effect, R&D should be at about 16% of revenue, sales and marketing at 27% of revenue and G&A at 12%. The services margin of 35% and our subscriptions and support margin should improve to about 69% on their way to the 70% margin, I have talked about before.

So these actions will restructure our business to reflect a slower revenue growth rate and it showed that we were profitable with the change in revenue mix.

So, now I will pass the call back to Don, who will give you some more detail on the quarter.

Don Fowler

Thanks, Neil. During the quarter we had many successes in all areas of our business, which confirms the underlying strength of SumTotal. First, let me talk about performance management. As you know according to our Talent Management strategy, you see ability to leverage our relationships with our existing customer base to sell new product.

During the quarter, we had a number of examples of selling total performance to our LMS customers including a large US airline, a large Australian Bank, and we added our LMS offering at a leading drilling services company and existing performance management customer.

In the third quarter, we booked 21 performance management deals, more than we had in the first half of the year. Granted that number represents a small percentage of the opportunity that we have, but it shows, we are gaining momentum. And we are continuing to sell our integrated offering.

During the quarter, we added Jenny Craig International, a large automobile chain and a large financial services company. Now, let’s talk about our LMS business. In North America, we won several expansion deals including the American Management Association, The Defense Ammunition Center, a large pharmaceutical company and a large financial services company. And our international deals included Femsa, Toshiba Medical Systems, Vodafone, Jumeirah and a large European pharmaceutical company.

Finally, I would like to mention the progress that we made in our subscriptions business. As I mentioned at the start of this call, our subscriptions business grew 26% year-over-year. We saw wins both in our small and medium size sector, where our results on demand solution fits their needs and budgets as well as with large customers, who choose our solutions for discreet short-term projects.

While we acknowledge the operational issues that we have experienced, I want to make sure that we have communicated to you that we continue to win in the marketplace. I believe we have the right team, the right products, and the right structure to get us back on-track and build on our leadership position within Talent Management.

Operator, please poll for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Thank you. Our first question is coming from Robert Breza of RBC. Please go ahead.

Robert Breza - RBC

Hi, good afternoon. Thanks for taking my questions. One quick question as it relate to the $4 million restructuring benefit. You said about $1 million one-time charge, should we expect that to be non-cash or cash; can you kind of help us there? And then Don, as you look at the business you talked about, not sure of the slowdown or customer specifics.

What more investigation I guess, do you need to do to kind of get your arms around the issue. Obviously you are taking the prudent steps in reducing your cost. But what else, do you need to do from your perspective talking to your sales force, partner’s, etcetera, that kind of get your hands around the outlook as we go into '08?

Don Fowler

Neil will go first on the restructuring charge.

Neil Laird

All of the cost reductions were people related, and that will all involve cash, I think the timing of which will be most in the current quarter, a little bit probably going into the first quarter.

Don Fowler

And with respect to what we are doing to really get our arms around, is this a slowdown, or is this something unique to customers. We’ve examined the pipeline that we have very carefully. We have been doing that; we continue to do that, and with each and every situation we try to dig into it and take a hard look. I’ll just give you an example. We had a pharmaceutical situation that was going right to the 11th hour. I mean, they told us we had the business. We had exchanged all the red lines and contracts and because of a financial reversal that they are from experienced and announced, we had to defer out a year or so. And so that’s clearly reflective of some issues in the pharmaceutical industry that we all know exists. Healthcare has got some industry issues as well.

So, we rushed those things, but financial services and the rest, and we've had some deals that have carried over and cause us concern. We don’t see signs of economic weakness there, but we are watching very carefully and monitoring it. And between that and talking to the partners and sources out there, that’s what we are doing.

Robert Breza - RBC

And maybe just as a follow-up if I may. Neil, any guidance you can help us with as we look out into 2008. I know obviously, with the Wal-Mart, or the large retailer pushing out, then accounting for a large delta between the street revenues and where you are guiding.

Any guidance you can help us? I mean I know you said the first half is that should we think about it equally or little bit more backend loaded to the first half of '08 or any guidance will be helpful. Thanks.

Neil Laird

Well, most people know its public information, and that’s an $8 million deal. I would expect the first half of the year we will get all of that revenue most of it in the first quarter, but we will accept that was $2 million in the second quarter. So, it’s probably going to be 5 in Q1 and 3 in Q2, 6 and 2. At this stage, I don’t really know.

So, that some input beyond that what I try to do with that booking data is to show that in the last 12 months, outside of our subscriptions business, it’s been about an 8% bookings growth rate depending upon which category, and I’ve no reason to believe.

I have no information to say that it will be more than that next year. I have no information to say that it would be less, perhaps just giving you the historic run rate. The subscriptions business though has grown by over 40%, and as we go into next year, and we continue to see that ramp, we should start to see that part of the business getting revenue ramps similar to that bookings ramp. I think that should give you something on which you can build some models.

Robert Breza - RBC

Great, thank you.

Operator

Thank you. Our next question is coming from Eric Martinuzzi of Craig-Hallum. Please go ahead.

Eric Martinuzzi - Craig-Hallum

Thanks. I want to talk about the organizational changes that you’ve announced. Could you talk to me about how the sales organization; who do they report in to, Ray? And where did Sanjay and Jon, touch the sales organization.

Neil Laird

Okay. So, Ray Villareal is the Senior Vice President of Field Operations, which includes all sales activities, marketing activities and customer support activities. So, he manages the field facing activities. As he did at WebEx, where he ran field operations and at Compaq, where he ran the enterprise solutions, and he ran global alliances for them. He also ran the Asia organization at Tandem Computers many years ago.

So, the sales organization reports in that way. Sanjay and Jon are responsible for the strategy and the go-to-market plans and the profitability for each of their businesses, and they sit down on a quarterly basis with the sales organization and discuss the programs, the results and the tuning that needs to go on in order to achieve the results.

Eric Martinuzzi - Craig-Hallum

Do they have other sales people that are sort of allocated to them, or maybe a better question is within Ray's organization. How many salespeople do you have, and are they pointed towards the different business units?

Don Fowler

So, we have currently in the range of 50 quarters carrying salespeople. They are in Ray's organization. There are zero of the account executives, who work exclusively in one market sector or the other. They sell both product lines. On the other hand, we have small and mid market activities, and they principally work on the on-demand type of activities.

And then for both North America and International, what I just said is the way they approach it. So the account executives that cover large enterprises, so both products and then the small and medium size business are principally focused on. They sell both products, but they are focused on the on-demand type solutions.

Eric Martinuzzi - Craig-Hallum

Okay. And then a follow-up question, actually not a follow-up question. New topic here, the buyback you spend $2.1 million. How many shares does that equate to, and what is your projection for Q4 shares outstanding?

Neil Laird

That represents about $400,000 shares I believe. And if you can give me a projection for the stock price. I can tell you, how much we might buyback. I mean, I have no idea. It will depend upon the market conditions.

Eric Martinuzzi - Craig-Hallum

Okay. Thanks.

Operator

Thank you. (Operator Instructions). Our next question is coming from Nate Swanson of ThinkEquity Partners. Please go ahead.

Nate Swanson - ThinkEquity Partners

Hi, I have couple of questions. But I’ll start with one of the bright spots for the quarter. The performance management business sounds like you saw a nice rebound there. Can you talk about competitively, who you are receiving in the 21 deal that you closed and also just give us an overview of how many of those were large enterprise deals versus more aimed at the small and mid enterprise and also timing as to when you expect revenue contribution of those deals will start to flow in Q4, or should we look out to Q1 and Q2? Thanks.

Neil Laird

Okay. So, the lion share of performance management deals we compete on, we see success factors. We see selectively depending on the conditions of the account either other LMS vendors, who have performance management solutions. In particular, if it’s in the integrated situation, we will see Saba and Plateau. Besides success factors occasionally we will see Authoria and others, but almost every deal we see success factors. Most of the timing of these deals…

Don Fowler

Yeah. I think, as I indicated in the guidance, I think, our subscriptions and support revenue will grow from $16 million to $17 million in Q4, and that includes the start of these deals. Typically we close the deals in the third quarter. We got of about half a quarter or two months of revenue in the subsequent quarter and then the full impact in the next quarter.

Neil Laird

And as you can tell for my comments Nate, while there were a couple of large enterprise customers that bought the product. We see a lot of mid market customers in this area.

Nate Swanson - ThinkEquity Partners

Okay. And in terms of the large enterprise market, I guess specifically talked about the cross sales. What type of ASP’s are you seeing in large enterprise are they 100k deals or 500k or million dollar deals? I guess I am just wondering in terms of the size the opportunities that you are seeing in the pipeline.

Don Fowler

These tend to be smaller deals, than our LMS. That's just typical of it being mid market, but typically they are between 100,000 and 250,000 and perhaps towards the low end of that.

Nate Swanson - ThinkEquity Partners

Okay. That's helpful. Secondly, in terms of the Wal-Mart business, can you talk about what the delays are in terms of recognizing revenue and also, is that just license revenue or is that both impacting license and the services line?

Neil Laird

So, let me talk about the revenue recognition first and then Don can talk about the project. So, because this is a, we’ve discussed this before, but this is a deal, where we are delivering it in a different database than we normally sell, we have to demonstrate that we have a functional system before we can start taking revenue.

Once we have demonstrated that, we will be able to start taking revenue on a percentage of completion basis. But we’ve to get to that first milestone before we can start taking revenue. We will take license and services revenue basically proportionately. So, license and service revenue are delayed equally in terms of that deal.

Don Fowler

With respect to the project itself, you might recall, as Neil said, this involves a different database. So, there was a substantial amount of work to be done to interface to the new database that work has completed. And it now enters the phase that was the one that cause the risk that we became concerned about because it’s a very complex project, there was the issue of the quality assurance testing and doing that testing in an environment that’s acceptable to Wal-Mart, and they were having difficulty to the large retailer.

So, and they were having difficulties with the facility, and that has slowed down the project and ourselves. The third-party that’s involved and Wal-Mart are all working arm-and-arm on this project. But the QA issues pushed up; it’s all about getting the environment that matches their internal environment. So, that the test can be done to demonstrate the functionality. So, that’s where the complication arose.

Neil Laird

Yeah, I don’t think it’s a matter of not being -- it's a combination of - - it’s a complex product; its taking longer and everyone working to achieve it. But code is complete. It's now in QA, and just when we have evaluated the overall risks, and we felt that it was too risky to be sure of getting it accepted in December.

Nate Swanson - ThinkEquity Partners

Okay. That’s helpful. Then going to the bookings versus revenue, you gave us a lot of data, and that’s helpful. I am just wondering couple of things. First, in terms of bookings, how do you define bookings? Is that revenue to be recognized over the next 12 months or is that over the term of the contract?

Neil Laird

It's 12 months.

Nate Swanson - ThinkEquity Partners

It is 12 months. Okay. And then maybe I missed it, but did you breakout subscriptions revenues versus support from that line?

Don Fowler

Yes, I did. The subscriptions, yes, I did. And I am just going back to make sure you get the right numbers.

Nate Swanson - ThinkEquity Partners

Yeah.

Don Fowler

So, the support number was $36 million, and the subscriptions just $27 million.

Nate Swanson - ThinkEquity Partners

Okay. For what time period?

Don Fowler

For the total 12 months ending, the last 12 months. So it’s $124 million total, which the perpetual license is 29, services 32, support 36 and subscriptions 27. And the key point is the subscriptions fees is 44% higher than the year ago. So, that’s where the growth is coming.

Nate Swanson - ThinkEquity Partners

Okay. And then just last question. Going back to your performance management, are you still selling performance management on a perpetual license basis?

Don Fowler

We’re selling it on a perpetual license basis and on a subscriptions basis. I think that the bulk of our business is it's the subscription market, and that is most of the cases. But in some situations, particularly in an integrated solution, where the customer prefers the perpetual license for the LMS, they may also choose the perpetual license for the performance management system. That’s an advantage to us in some sales.

Nate Swanson - ThinkEquity Partners

Okay. And would those deals typically including on premise deployment as well?

Don Fowler

Typically yes.

Nate Swanson - ThinkEquity Partners

Okay, that's helpful. Thank you.

Operator

Thank you. (Operator Instructions). Thank you. Our final question is going to Michael Nemeroff of Wedbush. Please go ahead.

Ariel Sokol - Wedbush

Hi guys, this is Ariel Sokol speaking for Michael Nemeroff.

Don Fowler

Hi, Ariel, how are you doing?

Ariel Sokol - Wedbush

Doing very well. For the quarter, is it possible for you guys to break down the subscriptions and support revenue line?

Don Fowler

Yeah, it’s certainly possible. If you're just talking about the sales, I got it for you. Do you have any other questions, Ariel, while I am finding it.

Ariel Sokol - Wedbush

Sure. It is -- would you want me to get out I guess, of the bookings, subscriptions, how much is that related to LMS versus performance management?

Don Fowler

For the bookings, it was $170 million that was LMS and the $7 million that was performance management. I don’t have here the breakout of the subscriptions between the two different components. So, I can’t give you that, I am sorry at the moment.

In terms of the split between subscriptions, and I’d say that it’s about $9 million is support, and the rest is subscriptions so that would give you about $7 million on subscriptions.

Ariel Sokol - Wedbush

Perfect. And last question. Then in terms of the product roadmap taking out 2008, what kind of products will SumTotal have at the end? Would you say -- I know in the past you guys have talked about recruiting for example?

Don Fowler

So, we have two main focuses. The first is in LMS area, where we are coming out with a new version of the LMS to support the on-demand business. We will come out with enhancements in the learning LMS space, and then we also in performance management have both new functionality coming out and a focus on expanding the compensation capabilities that we already have in that product line.

Those are the main focus areas. We do not at this time anticipate any focus on things outside of our own core markets performance management learning. So recruitment would be something we will think about down the road.

Ariel Sokol - Wedbush

Perfect. Thank you so much for your time.

Operator

Thank you. I will now turn the floor back over to Mr. Fowler for any closing remarks.

Don Fowler

We thank everybody for your time and attention today. We look forward to continued dialogue as the quarter proceeds. Thank you very much.

Operator

Thank you. This concludes today's teleconference. Please disconnect your lines at this time.

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

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