Chordiant Software Incorporated Q4 2007 Earnings Call Transcript

Chordiant Software Inc. (CHRD)

Q4 2007 Earnings Call

November 15, 2007, 05:00 pm ET

Executives

Kelly Hicks - Vice President, Corporate Business Planning

Steve Springsteel - Chairman, President and CEO

Pete Norman - Vice President and CFO

Analysts

Derrick Wood - Pacific Growth Equities

Brian Denue - CIBC World Markets

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Chordiant Software Fourth Quarter 2007 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions)

As a reminder, this conference is being recorded today, Thursday, November 15th, 2007. I would now like to turn the conference over to Kelly Hicks, Vice President of Corporate Business Planning. Please go ahead, sir.

Kelly Hicks

Thank you for joining us today as we present the financial results of our fiscal year ended September 30th, 2007. With me on the call today are Steve Springsteel, our Chairman and CEO and Peter Norman, our CFO. We'll begin with prepared comments from management and then we'll open the call for questions.

The information in today's conference call will include historical information and forward-looking statements, including guidance about our business that involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Chordiant's actual results could differ materially from past results and forward projections.

Forward-looking statements are generally identified by words such as believe, anticipate, expect, will, plan, ensure, would, guidance, projects, projection and similar expressions. Further information on potential factors that could affect the financial results is included in Chordiant's most recent SEC filings. We assume no obligation to update guidance or other forward-looking statements.

In addition, non-GAAP financial measures and the most directly comparable GAAP financial measures maybe discussed on this webcast. Our fiscal 2007 earnings release dated November 15, 2007, which was issued after the close of the market today contains non-GAAP financial measures.

Table C in that press release reconciles the non-GAAP measures and defines the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles or GAAP.

Chordiant continues to provide all information in accordance with GAAP and does not suggest or believe non-GAAP financial measures should be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP.

Chordiant believes that these non-GAAP financial measures provide meaningful supplemental information regarding its operating results, primarily because they exclude amounts the company does not consider part of ongoing operation results when assessing the performance of certain functions, certain geographies or certain members of senior management.

We believe that our non-GAAP financial measures also facilitate the comparison of results for current periods and guidance for future periods with results for past periods. Please visit the Investor Relations section of Chordiant's website at www.chordiant.com for information regarding the non-GAAP financial measures discussed on this webcast.

And now, I'll turn over the call to Steve Springsteel.

Steve Springsteel

Great. Thank you and welcome to Chordiant Software's fourth quarter and full fiscal year conference call. Fiscal 2007 was a record year for Chordiant. For the full year we had record revenue, profitability, deferred revenue, backlog and booking. We now enter 2008 in the strongest financial and operational position in the company's history and expect to build on the momentum we gained in 2007.

I will provide you with a brief highlight on some of the high level metrics for the quarter and the year and then I'll turn it over to Pete Norman who will go into more detail on the financials.

Revenue for the fourth quarter was $32.1 million up 48% year-over-year. For the full year revenue was $124.5 million up 28% year-over-year and was at the highest level in the company's history.

GAAP net income for the fourth quarter was $5.3 million or $0.16 per share and non-GAAP net income was $6.3 million or $0.18 per share. GAAP net income for the full year of 2007 was $6 million or $0.18 per share and non-GAAP net income was $17.1 million or $0.51 per share. Our full year results for both GAAP and non-GAAP net income were at record levels.

Bookings for the fourth quarter were approximately $20 million. For fiscal year 2007, bookings were a record $164 million up 62% year-over-year. Our bookings for fiscal 2007 included 15 transactions greater than $1 million of which three were greater than $10 million.

As we discussed in the past due to the size of our transaction and the timing of transaction closings, customer orders can fluctuate significantly from quarter-to-quarter. As an example, at the end of our fourth quarter approximately $10.3 million of customer orders were slightly delayed and were closed during the first week of October.

These orders had been approved at the customer business year level but due to the size of the transaction they still required a signature at the corporate level. Accordingly, these bookings will be included in our first quarter bookings numbers and kick off fiscal year 2008 with a strong start.

Deferred revenue ended the year at $68 million and backlog was $75.4 million at the end of Q4. Deferred revenue and backlog are key metrics in that they lead to greater long-term predictability in our business.

On a year-over-year basis, deferred revenue and backlog have increased 130% and 107% respectively. We ended the fiscal year with a record cash balance of $90.5 million, which is up over 98% from the prior year and is at a record level for the company.

Let's now spend a little time covering some of the key events in the quarter. During the fourth quarter we signed four transactions greater than $1 million with both new and existing customers spanning all of our three core vertical markets.

These new and existing customers recognized the unmatched value that our solutions bring toward greatly improving their customer's experience. The first transaction over $1 million was with the AIG marketing group which is the direct consumer insurer for AIG.

AIG, the world's largest insurance firm chose our foundation server, Call Center Advisor, decision management and predictive modeling products. AIG will utilize our products to be their core selling and servicing platform for their contact center and web self service channels.

This was a significant win for Chordiant since our solution was adopted as a corporate standard and therefore was subject to rigorous analysis and review of both our software and implementation capabilities.

The second large transaction during the quarter was with a new customer Raiffeisen Bank and was through our partner IBM. Raiffeisen Bank headquartered in Warsaw, Poland is part of the RZB group, a leading bank group in Central Eastern Europe and Austria.

Raiffeisen Bank is using Chordiant's foundation and decisioning solutions to orchestrate and automate customer service processes and consistently capital and cross an up-selling opportunities across the different customer contact channel.

The four main goals of this project are to initially include simplifying user desktops with a 360-degree view of the customer. Making the front line teams more effective by automating processes across different systems. Transforming customer interactions in the profitable selling opportunities. And finally, building closer relationships to increase customer lifetime value.

Our third win greater than $1 million was with Time Warner Cable an existing customer of Chordiant. Time Warner Cable expanded relationship with Chordiant by purchasing additional licenses for our Call Center Advisor browser product.

Time Warner purchase more seats from Chordiant to meet their growth needs as they continue to provide exceptional call center service to their customers using Chordiant's platform its final solution. Time Warner has been a customer of Chordiant since 2004.

Finally, our fourth transaction greater than $1 million was with Isbank an existing customer and the largest bank in Turkey. Isbank entered into an agreement with Chordiant in the second quarter of this year and purchased our foundation server, Call Center Advisor browser, predictive analytics and decisioning products.

Working closely with both Chordiant and IBM, Isbank completed the initial phase of their internal project and is now servicing their customers using the Chordiant solution in accordance with the terms of the initial license agreement, Chordiant received a milestone payment within our fourth quarter.

We are pleased with the closing of these four transactions in the quarter. We continue to see a robust pipeline of opportunities at each of the vertical markets we serve, financial services, insurance plus healthcare and telecommunications. We are seeing increased activity in the insurance and communications verticals in both the US and international carrying forward the momentum from fiscal 2007.

We are launching the financial services sector and more specifically the subprime market and taking a conservative approach through this market. But to-date we have not seen a material change in sales cycle time of project ramp and our value proposition continues to resonate well within the marketplace.

With that said, we believe having a vertically and geographically diverse customer base is key to our ongoing success and are pleased with the increased activity in our insurance and communications vertical.

In addition to our vertical diversity, I just mentioned above our pipeline growth and strength is being driven by our expansion into new geographies, specifically Eastern Europe, as well as, the increased number of opportunities from our system integration partner.

As you know, the system integrator channel is one we have been cultivating for a long time and we are now at the point with key SI partners where Chordiant is recognized as the leading customer experience solution.

In order to maintain our leadership position Chordiant must continue to innovate. During the fourth quarter our development teams were busy and completed a major release of marketing director, a release of the new enterprise case management module, a release of our recommendation adviser and began work with a new development partner in Eastern Europe as we expand our development capabilities on a global basis.

Now, I'd like to take time to update you on a few exciting events that have happened since the end of our fiscal year. At the beginning of this quarter, we held our executive customer advisory board meeting in Europe. In attendance, we are 22 CSO level executives from our major customers across all of our verticals.

These high level meetings validated the breadth and depth of our product offerings, the continued demand for these products and the high level ongoing commitment our customers are making in Chordiant. This is just one example of many ongoing strategic and tactical discussions that we have with our customers as we continue to grow our business.

In October, the Citibank card implementation went live and we are extremely pleased to have met this major milestone. This is a significant achievement for Chordiant as it is one of the largest projects that Chordiant has undertaken. The implementation went well and Citibank is now servicing customers in both the call center and on the web.

Now, that we are in production with the initial roll out, we do see additional revenue opportunities within Citibank and expect them to expand their use of our system and products going forward.

For example, we are currently engaged in multiple implementations of our applications in other Citi business units with funding and scheduled go live dates in fiscal 2008.

As these incremental business units go into production they will require additional fee purchases to become fully operational and we expect these orders to be placed in fiscal year 2008. Our collections application is also being implemented at Citi and is expected to go live this fiscal year.

Overall, our relationship with Citi remains strong and we are a key piece of their customer service strategy across multiple business units. We also are pleased to announce that in October, we heard a new VP of worldwide sales, David Cunningham to strengthen our sales organization.

This position was created in response to the increased customer demand for our products on a global basis. David has over 25 years of sales experience with such companies as Symantec, IBM and ANDO Corporation. Most recently, David was the VP in charge of the vertical and large accounts for Symantec, which is the world's fourth largest software company.

During his time at Symantec he was responsible for defining and expanding the America sales capabilities with a focus on telecommunications and financial services vertical markets. We are very pleased to have David joining our team and believe that he has the expertise that we require as we scale our business and expand the new geography.

David will held each of our 3G graphical sales Vice President to reports directly to him and will also be responsible for directing our alliances organization. David's first day on the job at Chordiant was November 5th and he now joins the 23-quota carrying sales personal that we have today.

Fiscal year 2007 was a phenomenal year for Chordiant. I believe that the company is in a great position to capitalize on our recent accomplishments and expect that 2008 will be another terrific year for Chordiant.

With that, I will now turn the call over to Pete Norman, our CFO for a deeper dive into the financials, as well as, provide an update on the guidance.

Pete Norman

Thanks, Steve. Let's take a more detailed look at our final results for the most recent quarter, as well as, the results for our fiscal year ended September 30, 2007. As Steve discussed, revenues for the fourth quarter of our 2007 fiscal year were $32.1 million up 48% from the $21.7 million we reported for the same three months in 2006.

Sequentially, revenues were down 13% from the record $36.8 million, we reported in the June 30th quarter. As discussed in our last call our previous quarter ended June 30 was favorably impacted by the cumulative catch-up of revenues associated with the Citibank transaction.

For the fiscal year ended September 30, 2007, total revenue was a record $124.5 million up 28% from the $97.5 million we reported in fiscal 2006. Our aggregate $68 million deferred revenue balance at September 30, 2007 decreased by approximately $8.6 million from the record $76.6 million balance at June 30th, 2007. But increased $38.5 million from the $29.5 million ending balance for fiscal 2006.

Our deferred revenue balance varies from quarter-to-quarter depending on the timing of license transactions and the renewal of support and maintenance agreements. We are very pleased that we are able to increase total deferred revenues in excess of 130% year-over-year.

A significant portion of our deferred revenue balance continues to relate to license fees, including the fees associated with the large transaction we have discussed in our last few earnings calls. As of September 30, 2007, we continue to have seven accounts with more than $1 million in deferred license revenue, which will be recognized in future periods.

Of the $68 million in total deferred revenue at September 30, 2007 approximately $27.4 million or 40% of the balance relates to license fees and the remaining 60% is primarily associated with support and maintenance agreements.

It is the significant and diversified license balance that continues to give us visibility into our near-term results and confidence in providing our 2008 guidance. Bookings for the quarter were $20 million while the Q4 bookings were below the levels we saw in Q2 and Q3 of this year.

Our total bookings for fiscal year 2007 were $163.8 million up 62% year-over-year. Our license bookings for the fiscal year 2007 included 15 transactions each in excess of $1 million.

As we have discussed in the past, due to the size of our transactions and the timing of deal closings, customer orders can fluctuate significantly from quarter-to-quarter. At the end of our Q4 a total of $10.3 million of customer orders were slightly delayed and were obtained during the first week of October.

These orders had been approved at the customer's business unit level but due to the magnitude of the individual transactions had not been signed at the corporate level in time to be included in our fourth quarter booking. Accordingly, these bookings will be included in our 2008 results.

As of September 30, 2007, backlog, which includes the deferred revenue balances was $75.4 million, compared to the record level of 87.6 million achieved last quarter. $10.3 million of this $12.2 million sequential decrease is due to the slight delay in receiving the orders just discussed.

On a year-over-year basis, backlog was up $39 million or 107%. Chordiant defines backlog as contractual commitments received from our customers through purchase orders or contract that have yet to be delivered.

Looking at the geographic distribution of our revenue for the fourth quarter, North American revenue of $19.9 million represented approximately 62% of our total revenue with the remaining $12.2 million or 38% being generated in Europe.

For the year, North American revenues were $65.7 million or 53% of total revenue and international revenues were $58.8 million or 47% of total revenue. Our international results continue to be strong due to our expansion into emerging markets and the strength of the insurance vertical.

Now, let's take a more detailed look at the income statement. License revenues were $13.9 million or 43% of total revenues and service revenues were $18.2 million or 57% of total revenues for the quarter ended September 30, 2007.

Our license revenues will fluctuate from quarter-to-quarter to the extent that we sign large book ship deals and account for prior transactions based on the percentage of completion method of accounting. This is why we provide you with metrics such as bookings and backlog so that you can better assess the strength of our business.

For the full 2007 fiscal year, license and services revenues were $54.1 million and $70.5 million respectively. License revenue grew 33% while services increased 24% year-over-year with the ending composition of total revenues being 43% licensed and 57% service.

As you may remember, our targeted license revenue as a percentage of total revenue is 45% to 55%. Looking ahead, we expect license revenue to gradually increase as a percentage of our total revenue since consulting service revenue will grow at more modest rates.

The slower growth in consulting services will be due to the continued success of our partner enablement model whereby Chordiant's involvement on customer projects is limited to providing higher end technical architect and business analyst services.

The growth in the total services area is expected to be at our targeted operating model margins as the maintenance revenues are expected to become an increasingly larger percentage of services revenue.

With respect to margins, our overall fourth quarter non-GAAP gross margins including licenses and services were 74% at the low end of our targeted range of 74% to 76% and consistent with the June quarter's results.

For fiscal 2007, non-GAAP gross margins were also at 74% significantly higher than the 67% reported in fiscal 2006. Non-GAAP service margins, which include support and maintenance were 57%, down 2%, as compared to last quarter but in the middle of our targeted model of 55% to 60%. For the year, non-GAAP service margins were also 57%, a significant improvement compared to the 47% we recorded in 2006.

Overall, we believe the shift towards increasing licenses as a percentage of revenue and the layering in of higher margin maintenance agreements that are associated with new license transactions will be the ongoing drivers for expanding gross profit.

During 2007, we began to achieve our targeted range for service margins and expect them to remain at this level going forward. Now, let's review operating expenses by category.

Sales and marketing expenses, excluding stock based compensation for the quarter ended September 30, 2007, were approximately $7.8 million, decreasing from the $9.1 million we reported last quarter. This decrease is primarily due to the timing of marketing events, as well as, lower sales commissions in the current quarter.

For the year, sales and marketing expenses increased from $31.3 million in fiscal 2006 to $31.9 million in fiscal 2007. We expect sales and marketing expenses to fluctuate in future quarters with the timing of periodic sales and marketing events.

Sales expenses will also increase as we execute to our plan to grow the number of quota carrying sales reps from 23 today to 30 at the end of fiscal 2008.

Research and Development expenses, excluding stock based compensation decreased to $6.5 million for the quarter, compared to the $7.2 million we reported last quarter. This decline coincides with the delivery of the collections product, which was completed in the June quarter.

For the year, R&D expenses increased from $25.5 million to $27 million. We expect R&D expenses to increase as planned headcount increases are added over the next several quarters.

General and administrative expenses, excluding stock based compensation and non-recurring costs were $4 million for September 30, 2007, down from the $4.4 million last quarter.

For the year, G&A increased from $17.7 million in 2006 to $18.2 million in 2007. This increase included the one-time costs associated with the stock option review that was concluded in February 2007.

In future quarters, we expect G&A costs to return to the quarterly average levels of 2006, within our targeted range. Sales and marketing, R&D and G&A expenses are expected to fluctuate or increase over time.

On an annual basis, we expect operating expenses to achieve the percentage ranges previously disclosed in our targeted business model. The details of this model are available for your review on the investor relation page of our website.

Non-GAAP operating income as a percentage of revenue for the quarter was 17.3% consistent with the 17.6% for last quarter. These results are within our targeted operating model range.

For the year, non-GAAP operating income as a percentage of revenue was 12.6% a significant improvement over the 9.3% loss we incurred last year. This achievement is at the high-end of the guidance we provided for the second half of 2007.

Other income and expense combined with interest income was $1.2 million for the quarter, an increase of $300,000 from last quarter. For the year other income and expense combined with interest income was $3 million, as compared to $500,000 for 2006.

These increases are associated with the interest income on our continually rising cash balances, as well as, realized foreign currency gain. During the year we also transferred a portion of our cash balances to higher yielding marketable securities.

Income tax expense was $500,000 in the quarter and $1.6 million for the year. As previously discussed our provision for income taxes in 2007 includes the following. Approximately $800,000 of withholding taxes associated with specific transactions in Turkey and Poland.

The limited tax expense relating to international locations and the provision for the alternative minimum tax in the United States now that the company has achieved ongoing profitability.

In the near-term, the majority of our taxable income will continue to be offset by the roughly $147 million in federal net operating loss carry-forwards. Our non-GAAP net income excluding amortization, adjustments to restructuring reserves and stock based compensation for the quarter ended September 30, 2007 was $6.3 million or $0.18 per share, compared to $7.1 million or $0.21 per share in the quarter ended June 30, 2007.

Our non-GAAP net income for fiscal 2007 was $17.1 million or $0.51 per share, compared to a loss of $9.2 million or a loss of $0.30 per share. Both our GAAP and non-GAAP annual net income and earnings per share results were records for the company.

The non-GAAP $0.51 per share exceeded the high-end of our previously published guidance. Under Generally Accepted Accounting Principles or GAAP net income for the quarter ended September 30, 2007 was $5.4 million or $0.16 per share on a fully diluted basis, compared to the $6.5 million or $0.19 per share last quarter.

For the fiscal year end September 30, 2007, GAAP net income was $6 million or $0.18 per share on a fully diluted basis, compared to a loss of $16 million or a loss of $0.51 per share in 2006.

Now, let's take a look at cash and accounts receivable. The operating results of the company for the quarter and the full year ended September 30, 2007 have each generated positive cash flows from operations. Cash flows from operations in the quarter were $2.6 million and were $38.9 million for the full year.

Aggregate cash, cash equivalents, marketable securities and restricted cash have grown to a record balance of $90.5 million up $5.1 million sequentially and $44.7 million from the end of last year. During the quarter our days sales outstanding or DSO relating to accounts receivable were 81 days up slightly from the 77 days we reported last quarter.

Now, let's turn to our guidance. With regard to our 2008 guidance primarily due to the orders received during the first week of October we are revising our previously discussed 2008 guidance.

Our 2008 guidance is now as follows. Chordiant's total bookings for fiscal year 2008 are now expected to range between $160 million and $170 million an upward revision of $10 million from the previous guidance.

Chordiant's total revenues for fiscal year 2008 are expected to range from $140 million to $150 million, unchanged from our previous guidance. Chordiant expects to increase its deferred revenue balances during fiscal 2008.

Chordiant also expect to report GAAP fully diluted EPS of between $0.46 and $0.61 and non-GAAP fully diluted EPS up between $0.60 and $0.76 for fiscal 2008. Based on approximately $36.5 million diluted shares outstanding unchanged from our previous guidance.

Finally, Chordiant expect to generate positive cash flows in excess of $20 million for fiscal 2008. While we continue to provide annual and not quarterly guidance on our last call we discussed the seasonality associated with our planned Q1 discretionary spending including our sales kickoff and President's club events.

Our Executive Customer Advisory Board or ECAB event, as well as, a significant portion of our normal year-end audit fee.

In addition, we want to remind you of some seasonality associated with our Q1 revenues. In our first quarter ended December 31st as much as two weeks of productive time may be lost with customer holiday, closure and travel schedules.

The holidays reduce the number of consulting hours performed resulting in lower utilization of our professional services organization and due to the lower number of hours worked projects accounted for on a percentage of completion basis progress more slowly than in other quarters affecting our license revenues.

While our Q1 will be impacted by these planned items we remain confident with our 2008 guidance, including the upward revisions just discussed.

Now, let me turn the call back over to Steve for a brief summary. Steve?

Steve Springsteel

Thanks, Pete. In summary, fiscal year 2007 was an excellent year for Chordiant. We outperformed across the board on the metrics we use to evaluate our business. This year we had more customers make larger and longer-term commitments to us than at any time in our company's history.

We made tremendous progress on the turnaround of our business and are well positioned to be a long-term leader. While fiscal year 2000 was a great year we see continued opportunity in 2008 and beyond.

Our pipelines keep getting larger and are the strongest ever. We have expanded and strengthened our sales organization and our robust product offerings should position us well.

Before, I turn the call over to Q&A. I would also like to thank the dedicated employees of Chordiant for all of their hard work and ongoing effort. Fiscal 2007 was the great year but it was only the beginning of the many peaks for us to climb.

That concludes our remarks for today. I will now open the call up for question. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Derrick Wood, Pacific Growth Equities. Please go ahead.

Derrick Wood - Pacific Growth Equities

Hi. Thanks. If you could give us some color, you talked about one of your big deals was the AIG deal. Given the big deals that you've closed with WellPoint and DAK and some other healthcare insurance companies, Cigna, was.

I mean, can you give us any color as to how big this deal was and what it was relative to original expectations and was that in the backlog number that you reported in the quarter?

Steve Springsteel

Well, I'll let Pete hand it Derrick. I let Pete go through the financial part of that and I'll answer the…

Derrick Wood - Pacific Growth Equities

Yes.

Pete Norman

Historically, we disclose deals over $1 million in the calls and deals that are over $10 million we would file an 8-K. So that implies it was between 1 and 10. And yes, the AIG deal would be in backlog as its part of deferred revenue at the balance sheet date.

Steve Springsteel

Do you have any other question with respect to the insurance vertical. Derrick, we seem to be getting a lot of strength in that insurance or healthcare, depending upon who you are vertical, with don't forget last year, not even in 2007 but the end of 2006, that's when we did the big Cigna deal and we've been getting a lot of momentum on the tail end of that.

Derrick Wood - Pacific Growth Equities

Okay. In terms of the slippage in the bookings of approximately $10 million, was that due to one deal or are there multiple deals in that number?

Steve Springsteel

No. That was multiple deals across multiple geographies.

Derrick Wood - Pacific Growth Equities

Okay. You know, if look in your pipeline you mentioned that you kind of qualified some of the growth opportunities that you're seeing. Clearly, you're going to get a question around financial services and a lot of them headline negative news that we've seen.

You know, as you look at your pipeline now versus three months ago, has there been any change in terms of your outlook in growth in financial services and yes, of course, rates and pipeline activity and all that?

Steve Springsteel

No, I tell you Derrick, we still see financial services being pretty strong for us. Having said that, insurance/healthcare, as well as, telecommunications is coming on pretty strong so there was any slowdown of financial services. We feel more than confident that we could make that up in the other verticals that we're in right now.

And then if you look within financial services, kind of double click within that by geography if the US is having a little bit of toughness based on what I read in the paper but you give into more like Germany or some of the other countries pretty strong in and you don't hear problems coming outs of those specific geographies.

Derrick Wood - Pacific Growth Equities

Right. Okay. And I think your guidance does not include any assumptions around closing mega deals, is that right? And do you continue to have some in your pipeline?

Steve Springsteel

Yes. It does not include mega deal, the effect of mega deals and yes, we do always have some in the pipeline.

Derrick Wood - Pacific Growth Equities

And in terms of Citibank, you've press conference that being able to close additional transactions trying to cross selling into other divisions in fiscal year '08. So I guess, this would mean that they're not changing their spending patterns, at least as it relates to you. Can you just given some of the turmoil that they're going through, can you give us reasons why that it hasn't been disrupted?

Steve Springsteel

Yes. Derrick, that's actually a very good question. So keep in mind when we closed the Citibank transaction the initial transaction that was at the time when Citibank was in the process of a $1 billion cost cutting exercise.

So when Citibank purchased our technology, they purchased it not only for the cross-selling and up-selling opportunity but they purchased it for the ability to standardize on a platform across multiple business units, thereby enabling them to reduce the number of legacy systems that they're operating on to get into a more cost effective environment.

You know, we went live with a North American credit card services very recently here and we expect to go live in another one of the business units within Citi and then there's other multiple business units beyond that that we're in the process of implementing.

The way that the transaction was set up they purchased a small number of seats upfront and as these business units become live, they're going to obviously need to acquire more seats to bring those additional people on live in their various production environments. So we feel pretty good about the Citi transaction in light of some of the financial difficulties that they're facing right now.

Derrick Wood - Pacific Growth Equities

Okay. And you hired five reps in the quarter I think it looks like that's a pretty good number from 18 to 23. What are your assumptions in terms of ramp to productivity? Are they going to be covered into the pipeline for fiscal year '08?

And then on the follow-up, I'd be interested to hear about the new head of sales, I don't think you had a head of sales position why don’t you feel like you, you needed to hire somebody and is there going to be any change in the go to market positioning as he ramps up?

Steve Springsteel

Yes. First, let Kelly answer your questions about productivity based into the guidance and then I'll talk about the head of sales position. Good. Kelly?

Kelly Hicks

Yes. So in the guidance in the productivity, we have embedded in that a ramp time. I won't you give the specific number but there is a ramp time for these reps to get up to speed and we feel on the history that we're comfortable with that ramp time and the forecasts that we have embed that into it. And with regard to why we need a head of sales, I'll turn that back to Steve.

Steve Springsteel

Yes. For the head of sales position if you were to go back a couple of years prior to my joining the company there was a head of sales and we eliminated that position so that I could get close to the sales environment, get close to our customers and that helped facilitate a number of changes that have allowed us to grow significantly.

We're now at a point where the volume has skyrocketed. We're expanding into multiple geographies throughout the world and just from a scalability perspective it doesn't make sense to have all of those geography report to me. And so that's why we made the position, went on a search and we brought David Cunningham on board and David fits the profile of what we need in that role very well.

David has over 25 years of experience he's a big deal guy. He's done transactions within our respective verticals he knows the space. He's lived both domestically and abroad. He's done two assignments overseas. So he knows the international market very well. David fit not only the job spec but also the culture of the company and we're really glad to have David on board.

Derrick Wood - Pacific Growth Equities

Okay. I guess that's it for me. I'll get back in the queue. Thanks.

Steve Springsteel

Thanks, Derrick.

Operator

Our next question comes from the line of Brian Denue with CIBC World Markets. Please go ahead.

Brian Denue - CIBC World Markets

Hi, guys. It’s Brian for Brett. How are you?

Steve Springsteel

Hi, good. Brian, what's up?

Brian Denue - CIBC World Markets

Good. Thanks. So I have quick question for you. You added five sales reps here in the quarter. Any sort of color on the, are you guys break down your sales force I believe by vertical. You know, with a lot of those in insurance and healthcare and healthcare versus financial services, are you putting more wood behind that area than you used to?

Steve Springsteel

Well. I mean our plan, as we discussed our plan was to aggressively ramp the sales force. You can assume that that ramp is going to include both North American geographies and EMEA.

EMEA we run the business a little bit differently, that tends to be more of a territory or country, you know, market and the way that we approach it over the sales. And in the US, the way we align around verticals, so it's pretty evenly disbursed, as far as, the headcount adds in the sales force.

Pete Norman

You know, then as we go from 23 to a target of 30 by the end of our new fiscal year, fiscal 2008. You're going to see more heads being added in the alliance area as our alliance relations just gets more and more intense, we see a lot of fruit there for us to go after and so we're going to be hiring folks that will be focused on that area.

Brian Denue - CIBC World Markets

Okay. And then I don't know if you guys have ever really broken this out but can you give us kind of a feel for relatively speaking what the breakdown is between and financial services and insurance in terms of the size of the bookings composition?

Steve Springsteel

Yes. We historically, we said that financial services represented kind of a major portion of our business. Depending upon the quarter it could go anywhere from say 70% in some quarters up to 90%.

What we have seen actually over the last year is insurance or healthcare has grown significantly and if you were to look at our bookings by vertical for last year, you know, insurance and healthcare is probably right around 40% of our business.

Brian Denue - CIBC World Markets

Okay.

Steve Springsteel

So it's grown dramatically and if you were to put kind of Cigna on top of that, now you're getting closer to almost on par with where financial services were. So our dependency on financial services has been lessened significantly over the last year.

Brian Denue - CIBC World Markets

Great. That's pretty much for me. Thanks, guys.

Steve Springsteel

Great. Thanks, Brian.

Operator

(Operator Instructions) That does conclude our question-and-answer session for today. Back to you for any closing remarks.

Steve Springsteel

Great. I would just like to thank everybody for the support over this last fiscal year. It was just an incredible year by just about any metric that you look at. As we look out to 2008, we're just as excited that 2008 is going to be another incredibly great year for us. And thank you to all those folks that support us, not only our investors and the analysts but even more so our employees and customers. Thanks again.

Operator

Ladies and gentlemen, that does conclude our conference for today and this conference will be available for replay starting at 7:00 pm Eastern Time today and going until midnight on November 22nd. You may access the replay by dialing 800-405-2236 or 303-590-3000 and entering the access code of 11098835 and the pound sign.

Thank you for your participation. You may now disconnect.

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