Saba Software F2Q08 (Qtr End 11/30/07) Earnings Call Transcript

Saba Software (SABA)

F2Q08 Earnings Call

January 8, 2008 5:00 pm

Executives

David Lebedeff – IR

Bobby Yazdani - Chairman and CEO

Mike Martini – CFO

Analysts

Michael Nemeroff – Wedbush Morgan

Eric Martinuzzi - Craig-Hallum

Andrey Glukhov - Brean Murray

Nate Swanson - Think Equity

Presentation

Operator

Welcome to the Saba second quarter fiscal year 2008 financial results. (Operator Instructions) I would now like to turn the conference over to your host, Mr. David Lebedeff, Vice President of Investor Relations. Please go ahead, sir.

David Lebedeff

Good afternoon and welcome to the Saba Software second quarter 2008 conference call. I’m David Lebedeff, Saba’s Vice President of Investor Relations. Today we will discuss our financial results for the second quarter ended November 30, 2007. With me today is Chairman and Chief Executive Officer Bobby Yazdani and Chief Financial Officer Mike Martini.

Before we begin, I would like to point out that certain remarks made in the course of this conference call are forward-looking statements. These statements include, but are not limited to, Saba’s future performance and financial projections; Saba’s ability to record it in the fourth quarter; revenue and profit from the $1.4 million transaction completed in our first quarter; savings expected from expense reduction in our second quarter; expected availability of Saba’s new product offerings and blueprint; our ability to cross-sell Saba Solutions into our customer base; our ability to grow our business and generate profits, drive revenues through indirect channels, including our newly expanded relationship with a large BPO company; and generate cash from operations.

These statements are based fully on information available to us today and reflect management’s current expectations and beliefs and are subject to numerous risks and uncertainties. It is important to note that our actual results could differ materially from those contained in such forward-looking statements.

Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in our annual report on Form 10-K for the year ended May 31, 2007 and similar disclosures in subsequent Saba periodic SEC reports. Copies of these reports may be obtained from the SEC. We disclaim any duty to update such statements.

In addition, we intend to discuss today both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP results is included with the financial statement accompanying our earnings release and is available on our website at www.Saba.com.

Saba’s management believes that non-GAAP information is an additional, meaningful measure of operating performance because it measures the principal operating results that can be directly influenced by management and provides more consistent comparability to our financial results against historical results and the reported results of other software companies.

Let me now turn the call over to Mike Martini, Chief Financial Officer of Saba.

Mike Martini

Thanks, David. I will report today on second quarter 2008 results and I will give guidance for the third quarter and full year 2008. We added 26 net new customers in the second quarter 2008, up from the 22 customers in the second quarter 2007. We completed 89 license deals and 116 OnDemand deals in the quarter.

Total revenues in the second quarter of fiscal 2008 were $26.7 million. This was within our guidance for total revenues of $26 million to $27 million. This is up about 2% from the second quarter of 2007 on a GAAP basis.

US revenue was 70% of total revenues and international revenue was 30% in the second quarter. License revenue in the second quarter was $5.7 million. This is down from the prior year second quarter of $6.9 million but is 21% higher than last quarter.

In the second quarter, OnDemand revenue was $4.5 million, up slightly from $4.4 million in the prior quarter, but 19% higher than in the same quarter of the prior fiscal year. Product revenue from the sale of licenses and OnDemand solutions represent 38% of revenue. The breakdown of new product sales in the first half of fiscal 2008 were 46% learning, 43% Centra collaboration and 11% performance and talent.

Our license update and product support revenue in the second quarter of fiscal 2008 was nearly $9 million, which was an increase of 16% compared to the same quarter last year. As indicated on our calls in prior quarters, our business strategy includes continued focus on growing our recurring revenue base. In the quarter, OnDemand revenue and license update and product support combined to represent 50% of total revenues.

Professional services revenue was $7.6 million, which was down slightly compared to second quarter of fiscal 2007 but an increase of 1% compared to the first quarter of fiscal 2008. Overall gross margin was 65% in the second quarter, which was slightly better than our guidance and an increase from the 62% we recorded in the first quarter of fiscal 2008.

Included in gross margin is approximately $300,000 of intangible amortization and stock-based compensation of $100,000. As you may recall, in the first quarter we booked a license deal along with receiving product development funding for a combined $1.4 million contract which did not get recognized in the first or second quarters. Looking forward, we would expect to record all of this revenue and the associated profits in the fourth quarter of fiscal 2008.

In summary, our margins for the second quarter are: license gross margin was 96%; license update and product support was 76%; OnDemand gross margin was 65%; professional services gross margin was 32%.

Total operating expenses were $18.4 million in the second quarter of fiscal 2008 compared to $17.8 million in the second quarter of fiscal 2007. Total operating expenses in the second quarter of fiscal 2008 included amortization of total purchased intangible assets of $634,000 and stock-based compensation of $500,000. Depreciation expense for the quarter was approximately $450,000.

As discussed in our last quarter call, I laid out what I would expect each component of operating costs to be going forward as a percent of revenue. R&D costs should run about 14% to 16% and we achieved 15% for the quarter. G&A should run between 11% to 12% and we achieved 12% for the quarter.

We also described our long-term goal of having sales and marketing expense targets at about 30% by the end of fiscal 2008 with the longer term at about 27% of revenue. I also mentioned that fiscal second quarter of 2008 would be higher due to one-time severance costs associated with our cost reduction efforts, as well as our annual users conference.

Our second quarter sales and marketing costs were $10.4 million or 39% of revenue. Included in this amount were one-time severance costs not fully covered by cost savings of $800,000 and in that cost for our users conference of about $500,000. Additionally, we have taken out another $1.1 million in costs, giving us a normalized run rate of about $8 million, or 30% of revenue for the quarter.

Other items being equal, we expect this reduction to translate to an EPS savings of approximately $0.05 to $0.06 per quarter going forward. We believe that puts us on track to meet our year-end sales and marketing target of at most 30% of revenue exiting the fourth quarter.

On a GAAP basis, our net loss for the quarter was $1 billion, or $0.04 per share compared to the net loss of $1 million, or $0.04 per share in the second quarter of fiscal 2007. This was within the range of our guidance of last quarter for a loss of $0.03 to $0.06 on a GAAP basis.

Non-GAAP net income and earnings per share were about $600,000 or $0.02 per share on a basic and diluted basis in the quarter, compared to non-GAAP net income of $2 million, or $0.07 per share on basic and diluted in the second quarter of fiscal 2007. The results were within a range of our guidance last quarter for breakeven to net income of $0.03 per share.

We ended the second quarter with $28.7 million of deferred revenue, down from deferred revenue of $29.7 million at the end of the last quarter. The breakdown of our deferred revenue by revenue category is as follows: for the second quarter 2008, 4% of deferred revenue was from license, 59% from license updates and product support, 26% from OnDemand and 11% from professional services. These percentages are nearly identical to the first quarter 2008.

The current breakdown of our revenue on the income statement is approximately 80% license and license-related and 20% OnDemand. New business being booked in the second quarter is about 60% license and license-related and 40% OnDemand.

We generated cash from operating activities of about $1.9 million and we ended the second quarter with $12.4 million in cash, up from $11.8 million in prior quarter. We anticipate being operating cash flow positive over the balance of the year.

Now let me turn the call over to Bobby for his comments before I return with our outlook for the third quarter and the rest of the year.

Bobby Yazdani

Thanks, Mike. I would like to discuss three topics with you today. First, I would like to provide you with an update on new product introductions. Second, I would like to discuss our opportunity for growth through cross-selling our solution into our customer base; and finally, I would like to give you an update on our indirect sales channel strategy.

Before I begin, let me take a moment to summarize our top priorities for Saba. Our primary goal is profitable growth. In addition, we are focused on generating cash and building our recurring revenues streams. We are making progress towards all of these objectives. During the first half of fiscal 2008 we have met our financial milestones and confirmed our expectations for GAAP earnings during the second half of fiscal 2008. We believe we can generate initial EBITDA net margins of 10% to 15% and possibly higher net margins as we continue to scale and grow the business.

We grew cash during the quarter and we project we will be cash flow positive for the balance of the year.

Finally, our recurring revenues are forecasted to grow by over 15% year over year and now make up 50% of our revenue base. 1. Sustained profitable growth; 2. Growing our cash; 3. Building recurring revenue. Those are our corporate objectives for 2008 and beyond.

Now let me update you on our new product introductions. In early November, we held our annual Saba’s users conference. The conference was well attended with over 600 customers and partners, up from about 400 last year. Year over year we are pleased to see how our customers have expanded their use of the Saba platform and the positive impact these implementations are having on their organizations.

At the conference, we introduced Saba Compensation. Saba Compensation will enable organizations to move beyond simple pay-for-performance practices to drive compensation decisions that are linked to talent and workforce planning strategies. In a balanced compensation strategy that considers a full people management life cycle, organizations can more effectively engage, retain and increase the performance of individuals across the entire organization. With Saba Compensation, customers will be able to make accurate and balanced compensation decisions that are directly aligned with organizational objectives. Saba Compensation is scheduled for general availability in the third quarter of calendar 2008.

My conversations with hundreds of customers at the conference reinforced that our industry is facing a transformation towards unifying all aspects of people management processes into a single people management platform. This is what our customers are telling us they want from their ACM partner: more solutions from the same vendor that are integrated and unified on the same technology platform.

Saba Compensation will be part of our unified people management platform, Saba Enterprise Suite, which bundles together our learning, collaboration, performance and talent management modules. Our common unified platform provides a seamless user experience, simplifies reporting and a common repository of people information, organizational information and competencies.

In fact, we sell our solution in any manner a customer wants to purchase them. We sell them bundled together on a unified platform as an integrated suite or we sell them individually. We can sell them on a license basis and let the customer run the software behind their firewall or we can also offer our solutions on our OnDemand multi-tenant Software as a Service basis.

Also at the conference we unveiled Saba Centra 7.6, our next generation real-time collaboration platform. Saba Centra enables real-time collaboration by incorporating virtual classes, web seminars, self-service web meetings and content management into everyday business practice.

For my final product comment, we unveiled Saba Workforce Planning earlier in the second quarter. Saba Workforce Planning enables organizations to model future human capital needs based on unique employee attributes and position requirements. Saba Workforce Planning will be available as a part of our unified people management platform, Saba Enterprise Suite, and will be available in limited release later this month.

For my second topic, let me discuss our opportunity for growth through a cross-selling our solution into our customer base. During the ten years Saba has been in business, we have worked hard to build a world-class customer base. We have been very successful in doing this. Saba Solutions are used by more than 1,200 organizations globally, including 51 of the Fortune Global 100.

Two years ago, we purchased Centra, extending Saba’s learning management platform to include real-time training and collaborative sessions. Since then, we have added performance management and talent management and coming soon, Workforce Planning and Compensation Management. So we have dramatically expanded our HCM product offerings during the last two years.

Over the next six months, we will have four products in generally accepted HCM segments: learning, performance, compensation and workforce planning. At this time, we have no plans to expand into the last HCM segment, recruitment. Our strategy is to focus on HCM categories after the recruitment process, once a candidate has become an employee.

We believe that learning management is the best market segment to start from in the human capital management space. Learning management solutions have a large footprint within an organization. They tend to be adopted across an entire organization. Now that we have expanded our product offering across HCM segments, we have a significant opportunity to cross-sell our solutions into our customer base.

Currently, only about 10% of our 1,200 customers use multiple Saba Solutions. If we can successfully sell our new HCM solutions into our current customer base it could substantially increase our revenue run rate.

So in addition to seeking new customers for our HCM solutions, we plan to concentrate on selling more to our current customers. We believe this could help to drive revenue growth in fiscal 2009 and beyond.

For my third topic, let me spend some time discussing our indirect sales efforts. Last quarter we disclosed our agreement with a very large business process outsource company. The intent of our agreement was to replace the BPO’s in-house product and standardize Saba as best practice platform with the intent to sell into the BPO’s 1,000 plus customer base.

Currently, about one-third of our sales comes through indirect channel partners. We would like to increase this percentage coming from indirect channels to at least one-half over the next several years. We are actively pursuing other relationships in an effort to leverage indirect sales channels.

At our annual users conference, we announced that we will work with IBM to develop and go to market with a unified people management blueprint. Through this collaboration, IBM and Saba will develop a new model that incorporates IBM HCM workforce transformation methodology and Saba’s unified people management platform. This offering will enable organizations to assess their current people management strategy, leverage a roadmap to move to a more integrated effort for talent management and adopt best practices methods and technology to support this model on an ongoing basis.

In summary, our objective is to speed market adoption and accelerate customer growth in the market for our HCM solutions. We believe that our indirect leverage sales strategy allows us to accomplish these goals in a cost effective, yet timely manner. This could be a major source of revenue growth for Saba in 2009 and beyond.

Now I would like to turn the call to Mike for his comments on our financial expectations.

Mike Martini

Thank you, Bobby. As Bobby discussed, our financial goals are to produce earnings for shareholders, generate cash and grow revenues. Our performance in the first half of 2008 has placed us in a position to deliver on these objectives by year end 2008. While there is more work to do, we are making positive progress towards obtaining our goals of growth and profitability.

Presently, our analysts are expecting Saba’s full year revenue to be between $110 million and $111 million. We continue to feel good about our previous guidance as we have been tracking to our plan for the first half of the year and are engaged in strong sales activities.

However, we continue to hear early warnings coming from a number of companies and economists suggesting a worsening market for technology companies over the next two quarters. Since this creates another layer of uncertainty we are not, at this time, increasing our view of Saba’s full year revenue beyond our analysts’ expectations, which calls for revenues to be between $110 million and $111 million for fiscal 2008.

We expect license and license-related revenues to represent between 80% to 85% and OnDemand revenues ranging 15% to 20%. As previously discussed, we are deferring all revenue, cost and associated profits from the $1.4 million BPO deal signed in the first quarter until the project is complete, which is expected in our fiscal fourth quarter. We are on track with this project and at this time are not expecting there to be an issue with fully recognizing this contract in our fiscal 2008 year.

We expect gross margins to increase during 2008 with fourth quarter gross margins of about 67%, with an average of about 65% for the full year. Included in this amount is the amortization of acquired developed technology of about $1.2 million and stock-based compensation of $500,000. We would expect to receive 68% gross margin over a longer period of time.

We are targeting a declining operating cost structure for the balance of 2008. As previously forecasted, we have now taken out about $2 million a quarter on a run rate basis for the last quarters of our year from our operating costs, largely in marketing and sales. This effort, coupled with our projected revenue growth, will enable Saba to be profitable on a GAAP basis over the last two quarters.

Achieving GAAP profitability in the last half of the fiscal year is one of our financial milestone goals. We also expect non-cash amortization of purchase intangibles expense to continue at approximately $900,000 per quarter and charges related to stock-based compensation expense of about $750,000 per quarter and amortization of acquired backlog of approximately $100,000 per quarter.

For the full year, on a GAAP basis we expect earnings to show a net loss of between $3.5 million and a net loss of about $2 million for 2008 and net earnings per share for fiscal 2008 to range from a loss of $0.12 to a loss of $0.07 on a base of approximately 29.2 million shares.

We expect to achieve non-GAAP earnings between $4.5 million and $5.5 million and we would expect non-GAAP earnings per diluted share between $0.15 and $0.18 for 2008 on the base of about 30.2 million shares.

We expect capital expenditures to run about $800,000 per quarter and we expect full year cash from operations to be positive.

The guidance for the third quarter 2008 is as follows: we believe total revenues for the period will be between $27 million and $28 million. We expect the split between license and OnDemand revenues to be about 80% to 85% license and 15% to 20% OnDemand. This revenue projection still does not include any revenue recognized from the $1.4 million deal we signed in the first quarter.

Total gross margins are expected to range from 63% to 66%, which includes the impact of amortization of acquired developed technology of $300,000 and stock based compensation of $100,000.

Operating expenses are expected to decrease significantly from the second quarter 2008. This is due to the cost savings from our recent sales and marketing restructuring activities, which we will start to see in the third quarter.

On a GAAP basis, we are confirming the analyst views and are expecting net income to be between a loss of $500,000 and net income of $200,000 for the third quarter and earnings per share between a loss of $0.02 and earnings of $0.01 per share on a base of approximately 30 million shares.

Again, in line with Street expectations, our guidance for non-GAAP earnings per diluted share for the third quarter is expected to be between $0.04 and $0.06 per share on the base of approximately 30 million shares.

Our overall cash balance is expected to be slightly up from the end of the second quarter and total capital expenditures will be in the range of about $800,000. We also anticipate that our depreciation expense will be about $500,000 for the quarter.

Now let me turn the call back to Dave.

David Lebedeff

Thanks, Mike. I want to mention that we will be presenting at the 10th Annual Needham Growth Stock Conference January 10th in New York and at the B. Riley 9th Annual Small Cap Conference in Las Vegas on April 4th.

We will now take your questions. As a part of our ongoing communication with all of you, we provide forward-looking financial guidance on our quarterly conference calls. You all are aware that Reg FD lays down rules that we must adhere to in our communications with investors. Therefore, I would encourage you to ask any questions you have during the question-and-answer session which you believe are necessary to developing your models and estimates. We will be limited in our future conversations by what is discussed on today’s conference call.

Let me now turn the call back to the conference call operator.

Question-and-Answer Session

Operator

Your first question comes from Michael Nemeroff – Wedbush Morgan.

Michael Nemeroff – Wedbush Morgan

Bobby, big picture, I know you mentioned that you’re reading the same newspapers we are and listening to the same economists, but could you give us may be more specifics around the pipeline? Whether its growing, whether there are some concerns by customers and what you’re seeing in relation to both the OnDemand pipeline as well as the perpetual license pipeline?

Mike, I’ve got a question on the OnDemand deferred revenue. By my calculation it seems to have declined a little bit from Q1 into Q2. Can comment on that? Thanks.

Bobby Yazdani

Michael, in terms of the pipeline, by no stretch of the imagination is it discouraging. We are being very cautious. We have, of course, the pipeline has exposure to financial services because that is necessarily a decent segment for us and we just are simply being very cautious at the beginning of 2008. Q3 year over year is up. Q4 pipeline over Q3 is it’s very nicely up.

The mix of the pipeline from existing to new customers is pretty good; we like also the exposure we are getting from the performance and talent, so the mix of products is also pretty good.

In a nutshell, I can’t say that we are seeing by any stretch of imagination deterioration of the pipeline; we’re just being very cautious looking at the same news you’re looking at and asking ourselves whether there would be an impact.

Michael Nemeroff – Wedbush Morgan

Where there any perpetual license deals in the quarter towards the end of the quarter that pushed out, or where there any trends that you could see with respect to perpetual license deals at the end of the quarter?

I know the end of the quarter was a little bit before what’s been happening recently, but were you seeing any signs of any deterioration back at the end of your quarter?

Bobby Yazdani

No, it was essentially what we call the conversion rate of the pipeline was very normal. There was no variation from what we expected; and also December is what we expected.

Michael Nemeroff – Wedbush Morgan

Is your tempered outlook for the rest of the year, does that assume the same level of closure rates or are you looking for better coverage for the rest of the year or about the same?

Bobby Yazdani

Of course in an environment like this, we direct our team –

Operator

Ladies and gentlemen please stay on the line, the host line has been inadvertently dropped, one moment please.

Bobby Yazdani

We have a winter storm here, so our apologies for the interruption. Again, we are just being cautious. We are wondering what headline is actually going to have an impact on the pipeline. But we like the mix of the new versus existing customer base. We have a lot of expansion projects where we have very good visibility because we are in the middle of the project, essentially executing them. And of course we have the international exposure which is very nice.

Michael Nemeroff – Wedbush Morgan

Sure. Mike on the OnDemand deferred revenue question that I asked earlier?

Mike Martini

I think if you were to have the numbers year over year for the quarter you would see that we are up. The second quarter generally is our lower renewal quarter. I think you will see this turnaround next quarter where we typically have most of our renewals come up. Don’t think of it as a trend.

Michael Nemeroff – Wedbush Morgan

One final one. Bobby, on the level of cash that the company currently has on the balance sheet, on a net cash basis it is a little bit under $10 million. I know that you said that the company is planning on being cash flow positive for the rest of the year. At what level is -- or may be this question is for Mike as well -- is that an uncomfortable level of cash to have and what are you thinking about that?

Bobby Yazdani

First of all, we essentially have no debt. We have access to a variety of credit facilities which we’ve never used and we don’t pay interest. As you’ve noticed, we have paid down, we had the borrowing when we bought Centra. We paid that down. I am a big believer that the company needs to generate cash and as we forecasted the remainder of the year, we are going to be generating cash and as a company we have no debt, essentially, and have access to a variety of facilities if we choose to use them.

Mike Martini

I think its more the direction you are going than the absolute amount. We don’t have issues at all with the level of cash we have with respect to selling, because we also sell against companies that are private so we have a lot of transparencies that they don’t. But in addition, I’m getting a lot more comfortable with the business direction that we have provided for cash, we have called out that the next two quarters and the balance of the year will be cash flow positive.

I think you’ll see this and if you were to look at our numbers behind the numbers you would see the cash balance we will be having for the remainder of the year. The debt will be whatever residual debt that we have, will be taken care of by the end of the year. We’ll be in good shape as we enter our fiscal 2009.

Operator

Your next question comes from Eric Martinuzzi - Craig-Hallum.

Eric Martinuzzi - Craig-Hallum

Thanks. I understand the guidance is in line with where The Street already is, but it is a step down from your prior guidance. You had been at about $110 million to $115 million for the full year and now we are going $110 million to $111 million. What is the primary driver there? I know you talked about headlines and caution, but between now and roughly 90 days ago, what’s gotten you more cautious most of all?

Mike Martini

Well, just look at the overall market. You can’t pick up a newspaper. go online or practically get an analyst report that doesn’t come back to us and say, you guys ought to be cautious. Again, Bobby has already talked about and I’ll say the same thing, that it’s not so obvious in our sales activities looking forward as all the doom and gloom that’s written, but its the analogy of an airline pilot that’s in smooth air but the people in front of them are saying you have got a little bit of turbulence. We would be pretty silly not to consider a little bit of turbulence ahead. So, we are not anxious to get out in front of you guys. We looked at your numbers, we looked at our business situation and we said, well you guys must have it right.

Eric Martinuzzi - Craig-Hallum

Fair enough. Just the seasonality between Q3 and Q4, my next question has to go to the implied guidance of Q4. A year ago we were up less than $1 million between Q3 and Q4 and here now, based on the math for that Q3 guidance netted against the full year, it looks like we would be stepping up from roughly $27.5 million at the midpoint to about $31 million in Q4. If we back out the $1.4 million from the large deal that you’ve already talked about, it is still roughly a $2 million step up Q3 to Q4. is that what your pipeline conversion is telling you?

Mike Martini

Yes. The outcome of that question is about where you start that question. You picked the mid range. Certainly it’s a little less of a step up if we come in at the high end of that range, but yes I guess to answer to your question, we certainly could confirm those numbers by looking at our sales activities.

Eric Martinuzzi - Craig-Hallum

Real nice year-on-year traction there with the OnDemand. Has there been any change in attitude as far as the mix? Because historically it’s been kind of an SME pull for the OnDemand and the big guys still want it behind the firewall. Has that changed at all, the overall pull?

Bobby Yazdani

Mike mentioned the bookings were 40% OnDemand, 50%. We had a quite a few contracts that came in that are an expansion of existing customers. So from time to time when you look at a given quarter, you could get a pipeline that’s a move from existing customers, expansion of existing installations. But going forward, I think we are still at the high end of the mid-market. We truly are not in the small/medium-sized companies; they are buying the OnDemand solution.

Operator

Your next question comes from Andrey Glukhov - Brean Murray.

Andrey Glukhov - Brean Murray

Bob, if I could go back to the guidance discussion for a second. If you look at your learning management revenue, what would you say, what percentage of that revenue is related to sales around more of compliance as the primary driver versus sales that had training as the primary driver?

Bobby Yazdani

I would characterize that a year ago, basically half of the industries that we’re selling to are using the system for compliance purposes, even life sciences, manufacturers in life sciences, medical devices companies, pharmaceutical industries, healthcare. Government, also there are compliance-related issues in the government. I would say probably more than half of the projects are compliance-related.

Andrey Glukhov - Brean Murray

On a similar note, as far as the Centra writing that you’re getting, how much of a tail of legacy collaboration business is still in those numbers?

Bobby Yazdani

It is very difficult, I mean it’s a lot of good add ons; we have a lot of customers who have adapted both the learning management as well as the Centra collaboration tool.

As you know, Centra had substantial enterprise customers who have used the technology for virtual classroom collaboration. You have seen good expansion also within the existing Centra customer base. The people are coming back and adding more users to their current Centra installations.

Andrey Glukhov - Brean Murray

Can you give us a year-on-year comparison between learning performance and collaboration revenue breakdown? What would be the same percentages in November ‘06 quarter?

Mike Martini

I don’t have that in front of me and we haven’t talked about that. So it is something I just don’t have.

Bobby Yazdani

Let me just comment on that, Andrey. I think we have had some very important wins last quarter in the performance and talent management. I would say that we had two really important Fortune 100 who have essentially chosen to use our solution and abilities in both of those cases, they are existing customers.

Andrey Glukhov - Brean Murray

Do you have the most recent number of quota sales reps?

Bobby Yazdani

It’s north of 40 people.

Andrey Glukhov - Brean Murray

I think it was about 45?

Bobby Yazdani

They came down by I would say maybe two or three reps as we’ve looked at the sales and marketing, but as Mike mentioned, we’ve done a bit of restructuring in terms of territory management, program management and the non-quota carrying reps headcount in the sales and marketing function.

Andrey Glukhov - Brean Murray

Mike, as far as the license updates and product support revenue, I think the sequential growth was on the lower end of what you guys historically accomplish and at the same time, it sounds like you had a pretty solid license booking quarter. Can you comment on the renewal rate of the maintenance?

Mike Martini

For license update product support is very high. I mean it’s 95%, solid. It’s one area of the business that just rolls on high margin, high renewability.

Operator

Your next question comes from Nate Swanson - Think Equity.

Nate Swanson - Think Equity

Bobby, going back to your comments around recruiting and the decision not to get into the recruiting space, which I would agree with, I am wondering what your thoughts are as to integrating with the existing recruiting system and potentially even partnering or what kind of demand you are seeing from customers in terms of integration and working with those vendors?

Bobby Yazdani

Because of the nature of the data that the recruiting systems carry, there is nothing, no mission critical reason for us to integrate to the recruiting systems. We really need to integrate to the Oracle or SAP or the directory servers because they need the employee ID being the core data. That is, once the employee record is created is where is that source of data for our system?

We have had of course a mission critical need to always integrates to Oracle HR, SAP HR, PeopleSoft HR and other ERP systems. We’ve done that all but we’ve not had a requirement within the RFP process or during the sell cycles where we have to necessarily integrate with a given recruiting system. Of course we have an operating system and you can use XML to extract data out of our systems to integrate with other systems, but I haven’t seen the need or the RFPs have not surfaced requiring such a need.

Nate Swanson - Think Equity

Do you think that’ll change as you dig deeper into performance and succession and compensation?

Bobby Yazdani

I don’t see that. I think that we are, for the nature of what we do which is essentially the processes, business processes after an employee decision is made around an employee hire, we are much, much closer to the ERP systems than recruiting systems and the recruiting processes from what we have seen have not gone enterprise wide or global. They are a very low priority function that they recruit for.

Nate Swanson - Think Equity

Can you talk about, I mean obviously there were some unknowns domestically. What are you seeing in terms of growth internationally, specifically in the Asia-Pac Rim?

Bobby Yazdani

I would say that in China, we are seeing a lot of inbound activity. We are working, of course, with our partners including IBM to address that market. Japan is in the middle of the road, I would say I’m pretty excited about that, but I am more excited about China than Japan. The audience is actually pretty good; we are seeing good activities within Singapore, a lot of government and energy companies.

Australia, it is again good activities, India good activities. Canada is surprisingly very strong and very positive, very positive in the Canadian market.

Nate Swanson - Think Equity

Are those businesses or those markets developed enough to offset any weakness that you might see domestically over the next three quarters?

Bobby Yazdani

The business that we have in Asia and Australia is a solid business. India is a developing business. China is an upside, that’s how we see it. We don’t have a direct presence in China, we work through partners. Europe is a solid business for us. We have more than 300 customers in Europe and roughly 60%, 70% of a given quarter’s bookings typically come from existing customers there. Very good expansion, they don’t buy as large upfront, but they are solid and they run their project over a long period of time.

Operator

Gentlemen, there are no further questions in queue. I’ll turn it back to you for closing comments.

Mike Martini

Thank you for joining us today for our second quarter conference call. We look forward to discussing our third quarter 2008 results that we expect to report in early April. Thank you.

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