Omniture Q4 2007 Earnings Call Transcript


Omniture (OMTR) Q4 2007 Earnings Call February 7, 2008 5:00 PM ET


Michael Look - Vice President of Investor Relations

Josh James - Chief Executive Officer and Co-Founder

Mike Herring - Chief Financial Officer.


Tom Ernst - Deutsche Bank

Imran Khan - JP Morgan

Jason Maynard - Credit Suisse

Brian Fitzgerald - Banc of America Securities

Michael Huang – ThinkEquity

Robert Breza - RBC Capital

Keith Weiss - Morgan Stanley

Vic Churamani - Lehman Brothers

Brent Thill – Citi

Pat Walravens - JMP Securities

Steve Ashley - Robert W. Baird

Brad Witt – Broadpoint Capital

Analyst for Youssef Squali - Jefferies


Good day, ladies and gentlemen, and welcome to the Omniture fourth quarter 2007 quarterly results conference call. (Operator Instructions) I would now like to turn the presentation over to the host for today, Mr. Michael Look, Vice President of Investor Relations. Please proceed, sir.

Michael Look

Thank you very much. Good afternoon and thanks for joining us today. Joining me on today's are Mr. Josh James, our Chief Executive Officer and Co-Founder; and Mr. Mike Herring our Chief Financial Officer.

During the call today, we will discuss Omniture's financial results for the fourth quarter and fiscal year ended December 31, 2007. By now you should have a copy of our press release, which crossed the wire approximately 45 minutes ago. If you'd like a copy of the press release please visit our website at

Please note that we will be referencing both GAAP and non-GAAP financial measures and wish to note that GAAP reconciliation information is provided in the press release and on our website.

Also, we wish to emphasize that some of the information discussed during this call, particularly information regarding our revenue and operating profit margins or profit targets, including expectations concerning GAAP and non-GAAP revenue and revenue growth; GAAP and non-GAAP net income and loss and adjusted EBITDA; business strategy; customer demand; market observations and future product plans are based on information available as of today, February 7, 2008.

We believe that some of the statements we will make on today's call including statements about the expectations I just mentioned may constitute forward-looking statements within the meaning of Section 21(e) of the Securities Exchange Act of 1934 and Section 27(a) of the Securities Act of 1933. Accordingly, we wish to caution you that such statements are just predictions based upon current expectations and assumptions regarding future events and business performance and involve risks and uncertainties that could cause actual results to differ materially.

We refer you to the reports that the company files from time to time with the Securities and Exchange Commission, which are available on our website and contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or other forward-looking statements.

Omniture undertakes no duty to update any forward-looking statements to conform the statements to actual results or changes in the company's expectations. Following prepared remarks from Mr. James and Mr. Herring we will open the call up for Q&A.

Let me now turn the call to our CEO, Mr. Josh James.

Josh James

Thank you, Adam. Good afternoon, everyone. 2007 was an incredible year for Omniture and we are excited about the opportunity in front of us. As you can see from our press release issued earlier today, we exited the fiscal year with record results for revenue and operating margins for both the fourth quarter and the full year.

On today's call, I am going to focus on three key aspects of our 2007 results that I believe highlight both our financial performance as well as our position for continued growth in this market. These highlights include:

The multibillion dollar opportunity facing us.

The accelerating growth we are experiencing as Omniture expands its portfolio and in international presence.

The leadership Omniture is demonstrating with our disciplined financial performance, market position and unmatched solutions set.

Let me describe what we believe is a multibillion dollar opportunity ahead of us. 2007 represents the sixth consecutive year in which Omniture revenues have grown in excess of 79%; an amazing thing when you are consider that we are now fighting the law of large numbers. While it's true that some of this revenue growth came as a result of acquisitions, when you look at our most recent quarter our organic growth rates for Q4 on a year-over-year basis was still an outstanding 76%, demonstrating that our core business remains very healthy.

Our next goal is to reach $1 billion in revenue and when you do the simple math based on reasonable growth and retention rates it's easy to understand our excitement and achievability is goal.

One thing we believe is significant this year is the stature we expect to achieve in terms of the amount revenue we are going to derive from online marketers in 2008. When you look at the companies that we've always admired, companies like aQuantive and DoubleClick, it's interesting to note that based on the guidance we've given today for 2008, we expect to achieve more revenue in a quarter than DoubleClick ever did from technology; and when you take out aQuantive’s agency business, we will achieve more revenue than they ever did. Layering on top of that, it's easy to see why we are incredibly excited about the opportunities to become a more relevant company than DoubleClick, aQuantive and many other companies that have gone before us. To be clear in 2008, we believe we will have as much or more revenue derived from selling technology to online marketers than any other company in history.

Customer growth continues to be the primary driver behind our increased revenues. In 2007, Omniture continued to lead the industry in this category ending the year with over 3,000 customers. That translates to a 70% increase over last year's 1,800 customers and an addition of more than 350 new customers in just the fourth quarter alone.

Plus if you include the customer base from our recently completed acquisition of Visual Sciences three weeks ago we now have over 4,000 customers, by far the largest customer base in the online business optimization industry. This leading market position will enable us once again to receive a disproportionate share of the market’s significant growth in 2008.

Equally significant in 2007 was the quality of accounts we signed. Major accounts like Disney, [inaudible], Neiman Marcus, Delta, H&R Block,, The Weather Channel, Barclays Bank, Spiegel Brands,, NHL and many others. We also continue to take away a number of key competitor accounts, including accounts like Alaska Air, Borders, Honda, Hickory Farms and dozens of others. These customer trends validate our belief that we truly have the most compelling comprehensive set of online business optimization solutions in the market today.

To leverage the opportunity we built a management team of executives who have been on the frontlines of this type of growth and scale in previous companies Allow me to give a few examples. Our GM of EMEA ran the 2,000-person organization in EMEA for Seibel, our SVP of Marketing was the VP of Marketing for BEA on their rise from $250 million to over $1 billion in revenue; our VP of FP&A ran FP&A for Macromedia; our SVP of Services held similar positions at Oracle, Seibel and SAP.

Our legal team includes veterans from Wilson Sonsini Goodrich & Roseti and our corporate development team includes ex-venture capitalists, bankers and bankers including one seven-year veteran from Morgan Stanley. Our Head of Education was Head of Education with MicroStrategy. Our VP of Engineering was VP of Engineering at Cognos. Our VP of Product Management was the VP of Product Management at Sybase. Our VP of Mid-Market Sales was the VP of Mid-Market sale at Siebel. Our Head of Field Marketing ran field marketing at Oracle, BEA and Arriba. Our VP of EMEA Marketing ran EMEA marketing for Siebel.

When you augment that experienced team with others including six VPs that have grown up in online marketing here at Omniture for the last three to five years and three other executives including myself that have been here for eight to 12 years, you can see that we have a team that is highly attuned to this space with the experience to manage the growth in front of us.

We continue to add to the team and in 2007 we doubled our total headcount and most importantly nearly doubled the number of quota-bearing sales reps over the same timeframe. We ended the year with 713 employees and 109 QBSRs. That is up significantly from last year's 353 employees and 60 QBSRs. If you include the impact of our recently completed acquisition of Visual Sciences, we now have more than 1,000 employees and more than 130 QBSRs in 14 offices across the globe.

In addition to the revenue growth, our team is equally proud of the consistent improvements in profitability that we were able to deliver while also continuing to aggressively invest in our infrastructure and long-term growth.

We exited the fiscal year with Q4 non-GAAP operating margins of 7%, completing an impressive four quarter operating margin progression from 1% in Q4 2006 to 2%, 4%, 6% and 7% in Q4 2007. That is nearly a 600 basis points improvement in non-GAAP operating margins in just one year. Clearly our largest scale is generating increased leverage in our financial model. From an adjusted EBITDA margin perspective, we saw a similar progression as quarterly EBITDA margins increased from 13% to 16% in 2007.

The second highlight I would like to focus on is our accelerating growth. To give you some inside into why we are so enthusiastic about our growth, let me share a little bit of color regarding our annual contract bookings in the fourth quarter. As you know, we don't report our bookings specifically, but we thought there were some trends in Q4 that would be insightful to our investors.

During that quarter, we achieved record annual contract value bookings that were 30% greater than any other quarter in our history. As you know, these bookings have a minimal impact on our Q4 revenue numbers but what is particularly exciting about this is that the record annual contract value bookings quarter was not only driven by sales of core web analytics products, but included substantial cross sales into our customer base, particularly into our domestic enterprise customers.

The products we were successful in cross-selling were Discover to SearchCenter and our optimization products. In fact, over one-third of the contract value of our new contracts in Q4 were for products other than SiteCatalyst. To highlight where our business is going, you have to look no further than our early adopters. Of our top 50 customers, the average product penetration is now over two products per customer. This correlates well with the early days of SiteCatalyst in 2001 and 2002. Back then our demand procedures came first from our biggest top tier customers and we are seeing that same behavior now with regards to the new products I mentioned above.

In addition to consuming the products that we have, they are also asking us for more products and more services. Some specifics around the notable cross sales in Q4 include:

a top 20 customer in the financial services market that signed a $1.9 million annual contract for our optimization products;

a top 20 customer in the media market that signed a $1.6 million annual contract for our Discover products;

a top 20 international customer that signed over $300,000 annual contract for our SearchCenter products.

By using overlayed sales teams for the various products, we were able to bring expertise into the sales process that demonstrates high customer ROI and therefore increased revenue to Omniture for these incremental purchases. This comes from upsells of products such as Discover, SearchCenter and Optimization. What's interesting is that unlike SiteCatalyst, where the initial sale typically blankets the entire site and growth only comes from increased traffic, these additional products we sell grow gradually over time, building a growing revenue stream as the client increases usage.

For example, the SearchCenter we charge based on the percentage of ad spend that SearchCenter manages for a customer. For Discover, there is a usage component but we also charge based on the number of seats that a customer licenses. For Optimization, our customer will start off testing and optimizing on one or two significant pages on a site and then this usage grows over time.

In other words, there is a lot of room for growth within these accounts not only with the products we just sold to them but with the incremental products they didn't buy because we have several additional offerings and they are also asking us for products we don't even own and haven't built yet.

When you start layering additional products onto our growing customer base, it is hard to quantify the upper limit of where revenues can possibly reach. To be clear we are not going to take our eye off of our core business which is why we have chosen to sell the additional products via overlay sales teams. However, it is very interesting to see how these additional products are acting as accelerants to our growth.

The third and final highlight I would like to cover is our product and market leadership. Omniture continues to lead the market in terms of the depth and breadth of its offering including the extension of this offering to a worldwide audience. The impact of our international investments has been quite apparent in our 2007 financial results as revenues from our international operations have steadily increased throughout the year.

In Q4, international revenues accounted for 26% of total revenues. This is up significantly from 18% in Q4 2006.

As we hoped, our Instadia acquisition has turned out to be a great investment for our shareholders. Partly from acquisitions and mostly of our sales team executing, we now have close to 1,000 customers and over 120 employees in EMEA.

Our EMEA and Asia Pac geographies continue to offer tremendous opportunities for growth and therefore remain a key investment area for us. We are very pleased with our progress to date and look forward to continuing to grow international revenues and hope to see them become a much greater percentage of overall revenue, while at the same time domestic revenues continue to grow.

Turning to our product leadership, I want to highlight that with the acquisitions of Offermatica and Visual Sciences completed, we believe that we have substantially added to the broadest, fastest growing and most comprehensive suite of online business optimization solutions in the industry.

With regard to the integration of these two product lines into the Omniture's suite of products, we have delivered a product and market messaging strategy that shows a cohesive group of products that will be integrated into one single technology platform and data set.

All of our products are backed by an infrastructure that continues to prove its ability to scale with our customers. Whether it's a new customer initiating its service or an existing customer expanding its relationship with Omniture, they both require additional network resources. With customer growth running at over 70% year over year, we have had to continually build out our network infrastructure to support the data needs of our customers.

Today our network is made up of approximately 11,000 servers and 13,000 network devices in seven different data centers around the globe, providing enterprise class uptime and security and one of the largest on-demand service installations. This infrastructure provide scalability to meet the demands of many of the largest online businesses on the web, measuring and optimizing over 600 billion transactions during the fourth quarter alone. It wasn’t that long ago -- in fact just two years ago – when it would take a full year to capture more than 600 billion transactions. For the full year in 2007, Omniture systems capture nearly 2.2 trillion transactions.

Before I wrap up my comments, I want to give you an update on the integration of the Visual Sciences acquisition. As you can see above and on our website, we've brought the former Visual Sciences products fully into the Omniture product suite from a branding standpoint as well as from the user experience standpoint. The aggressive customer outreach program put together by our integration team has begun and I want to share some of those early results with you.

On the Friday after the deal’s announcement there was a worldwide conference call where I welcomed the entire team and discussed the overall strategy of why and how we are working together. Immediately following that conference call, Omniture's executives on-site at four worldwide offices conducted in-depth presentations of the product, marketing and sales plans. That same day we announced efficiencies that led to the immediate transitioning of 42 people from Visual Sciences who will be moving onto other opportunities. Incrementally, there are 31 additional employees who we have asked to work with us only over a transition period and they have agreed to help us.

We executed on a customer outreach program and communicated to 100% of all the former Visual Sciences customers describing the resources available to understand more about this acquisition.

Additionally, 100% of the Discover OnPremise customers -- formerly the VisualSite product -- have been contacted via a personal phone call. 100% of the SiteCatalyst HBX enterprise customers – formerly the HBX product – have also been contacted via a personal phone call of which approximately 40% are already expressing interest in migrating to SiteCatalyst immediately.

We have also launched online tools for customers to understand the differences between SiteCatalyst and HBX including a webinar series that started this week highlighting features, benefits and the migration process so that customers understand the opportunities ahead of them. In the first webinar we had 210 attendees representing 149 HBX customers. We look forward to working with each of them and the other SiteCatalyst HBX customers to transition them over to SiteCatalyst as it makes sense for them.

In addition, several former Visual Sciences executives have assumed senior level leadership positions at Omniture, including Aaron Bird who is the GM of our Discover OnPremise team -- once again, that's the former VisualSite product -- Jonathan [Done], VP of Sales for Discover OnPremise; Ray Rauch, VP of HBX Customer Migration and David Rosenthal, VP of Engineering Discover OnPremise; and lastly Brian Sullivan, GM of Omniture SiteSearch and Publish.

Former Visual Sciences CEO Jim McIntyre will continue to work with us through the transition period to assist with integration and product roadmap but then will be leaving to pursue other opportunities and will remain a great friend of the company.

Based on our experiences with our three previous acquisitions of analytics customer bases -- DoubleClick, Overture’s Keylime and Instadia -- we feel like we are set up well for success in this fourth analytics customer base acquisition. In addition, to the two acquisitions that we have done as a private company, we have done three acquisitions as a public company prior to this Visual Sciences transaction. We have also learned from those acquisitions about the importance of swift, precise decisions, clear communication, and a tremendous amount of integration planning and interaction with customers.

Accordingly, last quarter we built out an integration team that consist of 12 people who are leaders in their individual departments at Omniture and are now devoted full time to developing the systems and processes to allow us to integrate the acquired assets, people, products and customers. With all of this focus and effort, we feel like we are well positioned to leverage the Visual Sciences acquisition for our shareholders.

We have worked hard over the last several years to become the obvious choice for customers when they are choosing a long-term partner with whom they can grow and evolve while trying to optimize their online business. In our mind there is no question that Omniture has become that company. We believe the consolidation acquisitions we have made like Instadia and Visual Sciences emphasize that there is a clear leader and we feel good about our market presence there.

Importantly, those acquisitions reiterate our commitment to our core business. Analytics is the foundation for online marketing. Growing our footprint in analytics will continue to be critical to our long-term success. Continuing to develop technologies in that analytics space is also critical to our long-term success. We will keep our eye on that ball.

The strategy behind increasing that footprint and strengthening that core business enables us to capture a much broader market. Analytics customers continually ask us for additional products that leverage the data or capturing and managing for them. To that end, we built products like SearchCenter, Discover and Genesis and we have acquired products like the testing and targeting solutions.

In 2007 we demonstrated consistent execution in the financial metrics that we report to our shareholders. We also proved our ability to cross-sell into our customer base and we ended 2007 with a giant sales quarter in Q4.

As I stated in the beginning of this call, there are three items I want to emphasize:

There is a large opportunity that we are poised to take advantage of in our core business.

There are additional products and geographies that are going to serve as accelerants to that initial opportunity.

Our company has a leadership and disciplined financial performance to capture that opportunity.

With that I'd like to turn the call over to Mike Herring.

Mike Herring

Thank you, Josh and good afternoon, everyone. As Josh mentioned, 2007 was an incredible year. Allow me to highlight some of our key achievements. First we delivered very strong revenue growth as Q4 non-GAAP revenue grew 86% versus the same quarter a year ago and 15% sequentially over Q3. Fiscal year 2007 non-GAAP revenue grew 82% versus our fiscal year 2006 and 70% organically.

Second, we extended our market share leadership by adding more than 1,300 new customers during the year with more than 350 in just the fourth quarter alone, bring the total customer base over 3,000.

Third, we successfully completed our acquisitions of Instadia, Touch Clarity and Offermatica and just completed our acquisitions of Visual Sciences three weeks ago.

Fourth, we expanded our sales capacity by nearly doubling the number of quota bearing sales reps, or QBSRs, worldwide from 60 to 109.

Fifth, we significantly improved our profitability most importantly exceeding the operating margin targets we set for ourselves in early 2007 by exiting the year with non-GAAP operating margins above 7%.

Clearly in 2007 we made significant progress towards capturing a good portion of online business optimization’s multibillion dollar market opportunity and with our increased scale, we are now able to accelerate our investment and expand our opportunities for growth while continuing to deliver meaningful improvements in profitability. By any measure, 2007 was a tremendous success.

Before I review our financial results in detail I want to point out that the results we are reporting today reflect our acquisition of Offermatica which was completed on December 13. Any year-over-year comparisons we are using today are based upon prior periods before our acquisition of Instadia, Touch Clarity and Offermatica and quarter-to-quarter comparisons are based on prior periods before the acquisition of Offermatica.

With that said, let me begin.

As we have been saying during each of our quarterly conference calls in 2007, momentum within our business is accelerating and our fourth quarter was no exception. We ended the year with fourth quarter revenues of $43.1 million on a GAAP basis and $43.7 million on a non-GAAP basis. This translates to an 84% and 86% year-over-year increase over our 2006 fourth quarter GAAP and non-GAAP revenues respectively as customer demand remained very strong.

Included in our fourth quarter results were GAAP revenues of $503,000 and non-GAAP revenues of $642,000 from Offermatica.

For the full year, GAAP revenues were $143.1 million, up 79% from the prior year and above our guidance range of $140 million to $141 million. Non-GAAP revenues for 2007 were $145 million, which translates to 82% year-over-year growth.

Professional services revenues for the fourth quarter were $3.4 million, up 118% from the same quarter a year ago and 12% sequentially. For the full year, professional services revenues were $11.1 million, up 115% from 2006 as our continued investments in this area clearly are driving professional services revenue growth.

Geographically, our international operations continued to be a source of strong growth as revenues from outside the U.S. accounted for 26% of company revenues for the fourth quarter and for the fiscal year 2007. This is up sharply from 18% in the fourth quarter of 2006 and 17% for the full year 2006. We are very pleased with the progress we are seeing internationally and as Josh said, we plan to continue to invest in growing our business there.

As we all know, retention is fundamental to maintaining growth and stability in a subscription business. We are proud to say that we continue to see 95% plus nominal retention among our existing customer base and revenue retention greater than 110%.

Turning now to margins, gross margins for the fourth quarter remained essentially flat at 63% and 67% on a GAAP and non-GAAP basis respectively despite professional services gross margins declining roughly 700 basis points due to significant hiring in the quarter. We ended the year with 244 employees in our professional services organization, up significantly from the 100 employees we had in that organization at the start of the year.

Operating expenses as a percentage of revenue for the fourth quarter were 71% on a GAAP basis and 60% on a non-GAAP basis. For the full year, operating expenses as a percentage of revenue were 72% on a GAAP basis and 62% on a non-GAAP basis.

Sales and marketing expense for the fourth quarter was 35% of total revenues on a non-GAAP basis as strong revenue growth offset our significant hiring in this area of the business. R&D expenses were 11% of total revenues and in line with our long-term business model. G&A expenses in the fourth quarter were 14% of total revenue as we continue to build out our infrastructure and fulfill our requirements as a public company. A recent example of which being our successful efforts towards becoming SOX 404 compliant.

As Josh mentioned earlier, non-GAAP operating margins for the fourth quarter improved once again coming in at 7%. This materially up from the 1% in the fourth quarter of 2006 and up from 6% in the prior quarter. In fact, this represents the tenth consecutive quarter sequential operating margin improvement.

For the full year, non-GAAP operating margin was 5% up from 1% for fiscal year 2006. GAAP net loss per diluted share for the fourth quarter was $0.02 versus guidance of $0.01 to $0.02. The guidance range did not include any projected impact associated with our acquisition of Offermatica due to the uncertainty surrounding the timing of the close. Without the inclusion of Offermatica, GAAP net loss was approximately $580,000 and a non-GAAP net loss of approximately $260,000. Our GAAP net loss per diluted share would have been within our previously guided range.

Non-GAAP net income per diluted share was $0.07 and within our guidance range of $0.07 to $0.08.

Adjusted EBITDA which we define as loss from operations less depreciation and amortization, stock-based compensation and the acquisition of related adjustments to deferred revenue was $7.2 million up from $6.1 million in the third quarter.

Turning now to the balance sheet, cash and cash equivalents as of December 31, 2007 were $134.7 million up from $68.3 million at the end of 2006. Operating cash flow for the quarter was $94,000 as accounts receivables increased $12.2 million to $52 million following a record quarter in bookings.

DSO at the end of December was 109 days.

I received several questions about our DSOs and we would like to talk about this for a minute. Our mix of customer billings is allocated approximately one-third monthly, one-third quarterly and one-third annually, although annual prepayments are becoming a larger portion of overall billings over time.

Regardless of frequency, however, all but a handful of our customers are billed in advance. As a result of these factors, it is a bit misleading to use DSO as a measure of the quality of our AR. The two primary factors that make it misleading are the following:

First, DSO is usually calculated based on historical revenues while the billings are related to future revenues, since customers are all billed in advance. Since our revenues have grown quickly and we have added a number of new customers each period, the amount of our billings have been consistently larger than historical revenue.

As a result, our DSO is artificially inflated relative to slower growing peer companies. Because we bill in advance, the timing and mix of customer billings will impact second, RAR. For any customers billed annually in advance with balances in AR which are not yet paid at the end of the period, AR will reflect a full year’s worth of service fees. This too artificially inflates DSO by a significant amount.

Lastly, due to the timing of when customers sign up for our services, we tend to bill a larger percentage of our quarterly billings in the last month of the quarter, which increases DSO as well.

We believe a better way of looking at DSO would be to exclude the portion of receivables related to our deferred revenues and then redo the calculation. Using this adjusted DSO approach we ended the fourth quarter with a DSO of 54.

With that said, I would like to now turn the call back over to Josh who will go over our outlook for 2008.

Josh James

Thanks, Mike. So at this time we are providing guidance for the first quarter and full year 2008. We are excited that entering into 2008 our core business continues to perform exceptionally well, allowing us to grow at high rates while still investing aggressively in additional sales reps, marketing efforts and engineers.

Once again the first quarter includes some seasonal expenses designed to kick off 2008 performance including the sales kick off event, or annual customer summit in Salt Lake City with over 1,800 customers attending; an additional 1,000 customers at our international summits and the seasonal employee FICA tax anomaly.

For the first quarter of 2008 we expect revenues to be in the range of $66 million to $68 million on a GAAP basis and $68 million to $70 million on a non-GAAP basis. GAAP net loss is expected to be in the range of $0.14 to $0.13 per share based upon an estimated weighted average share count of 69.5 million shares in the first quarter of 2008.

Non-GAAP net income is expected to be between $0.08 and $0.09 per diluted share based upon an estimated weighted average fully diluted share count of 76.2 million in the first quarter of 2008.

Omniture expects to record positive adjusted EBITDA in the range of $11.8 million to $12.2 million.

Now as I mentioned in 2008 we are making aggressive investments in sales and marketing; That, coupled with the integration of Visual Sciences acquisition allows us to guide to higher revenues and more profitability in the first quarter versus the fourth quarter of 2007. We expect these efforts will pay off over the next few quarters and we are continuing to target a non-GAAP operating margin of 11% for the fourth quarter of 2008.

For full year 2008 we expect revenues for the company to be in the range of $295 million to $300 million on a GAAP basis and $305 million to $310 million on a non-GAAP basis. GAAP net loss is expected to be in the range of $0.49 to $0.45 per diluted share. Non-GAAP net income for the year is expected to be in the range $0.40 to $0.44 per diluted share.

Omniture expects to record positive adjusted EBITDA in the range of $59 million to $62 million for the full year.

With that I'll conclude our prepared remarks regarding our Q4 and full year 2007 results. We look forward to seeing many of you next week at the Credit Suisse Conference, at Deutsche Bank's Mid-Cap Growth Conference, or our analyst meeting in Salt Lake City in March.

Thank you very much for your time and with that we will open it up to questions.

Question-and-Answer Session


Your first question comes from Tom Ernst - Deutsche Bank.

Tom Ernst - Deutsche Bank

So, a lot to talk about this quarter. Could you help us with what the revenue run rate is of your subscription and maintenance revenue that you have acquired in the acquisitions here as you look into Q1?

Also, how stable do you see those businesses? You mentioned on the call the early cross-selling anecdotes you are getting in terms of potential to cross-sell, but how stable do you view the existing bases, particularly of the [HitBox] stream?

Josh James

I will address some of that and then let Mike talk about the revenue piece. But before that, Tom, I want to apologize. I want to add one more thing to the guidance section.

I talked about Q4 non-GAAP operating margin of 11%, I didn't point out that was an increase. Up until now, we have always talked about 10% and we are increasing that as of this call to 11% non-GAAP operating margins for Q4. So that was something that we were pretty excited about to see in the model.

For a long time, we have talked about every time we get incremental profits based on what we are hearing collectively from the investors we are going to go and reinvest that into our business to continue on the same growth patterns that we have had. That being said, once we hit new levels, we are not going to go dip that down lower in order to hit it a long-term number that we’ve been talking about. Once we hit a new level of profitability, we are going to grow from that level.

So you saw a little bit of that in Q3 last year, we hit 6% when we were targeting 6% for the end of the year. It wasn’t our intention; like I say, we want to reinvest that but once we do hit that level then we are going to stay there. Hitting 7% non-GAAP operating margins in Q4, we just felt like it was appropriate given the rate of, the capability of us to invest those dollars efficiently and effectively that it made sense to let additional profits drop to the bottom line, hitting about 11% there in Q4.

So with that, onto your questions, Tom.

We're really excited about a couple of things in this call. Obviously one of those was our ability to cross-sell into our business. It has been something that has been really important for us to prove to ourselves to give us the confidence to go out and do the transactions that we have been undertaking, and more that we look at in the future. To be able to say, okay, if we are going to go out and acquire companies if we are going to build new products we need to know if we can sell these products into our customer base.

Seeing that of the new sales that were booked in Q4, that 30% of those were into our current customer base of additional product that we have either bought or that we’ve built, that is a very encouraging number.

That color was directly tied to these additional products that we’ve bought and the ones that we’ve built, not so much color on the Visual Sciences acquisition, as that didn’t close here until in the middle of January.

So that color is just really around our customer base, they are the ones that have been asking for the additional products and services; we’ve talked about that with every acquisition that we’ve done, we’ve said that the reason we are doing this is because we learned about this from customers, and that has always been the case.

That’s half the story. The other half of the story is okay, they want it. Are they willing to pay for it? We clearly saw in Q4 in a very, very large sales quarter for us that they were willing to step up to the plate and with the substantial contracts that we highlighted also, contracts that – a couple contracts over $1 million, several contracts were over a couple hundred thousand dollars that we were going back into our customer base.

Those sales cycles are much quicker than a brand new product or a brand new set of solutions to a new customer, to a new logo that is not currently in our stable of customers.

So as for how – I think it is mostly unrelated to the Visual Sciences customer base except that once those customers are on our platform, we have the ability to go and sell to those customers also. And, Discover OnPremise is something that we feel like there is an opportunity there to go and sell that into our customers also. So the Discover OnPremise team, is definitely out there looking at our customer base and feeling like there is a lot of opportunities.

As for the health of the revenue base that is there, we felt like I think we might have talked about this when we announced the transaction in the first place. When we started doing due diligence it felt like that customer base and the account managers that manage those customers, those relationships, were much healthier than we thought, which was a great sign.

That still remains to be the case. We went at lightening speed to get the transaction closed and want to thank the legal and accounting team and all of the partners that we have externally that helped us get that transaction closed, and all of the folks that were – all of the new employees, as we are referring to them, all of the new Omniture employees i.e. the former Visual Sciences employees and how hard they worked in helping us all get this transaction closed in very rapid order.

That went to great lengths to make sure that those customers felt comfortable that we were going to be there for them; we could get out there and talk to them. There are a lot of things that we can’t do when that transaction was announced but not closed, and that’s the reason that we really pushed to get that thing closed as quickly as possible.

Now that it is closed we have been out, we have been in touch with these people, we have been contacting them, the folks that have relationships are now already all trained on our products and on SiteCatalyst in particular so they can transition those customers over. We are feeling pretty good about it. Like I mentioned in the call, we have done this three times before, we have had three other customer bases. Now clearly they weren’t the same size, but a lot of the same things apply.

When you take that and then couple that with the integration team that we have devoted and making sure that this transaction and any other transactions work, we feel like we are in a pretty good place to leverage the asset that is there.

And then as to the health of the asset that you are talking about, it feels like it is pretty good. I mean, look at Disney. It took us five years to win Disney over to our platform and there was a lot of frustration that they were having because there were some things that they couldn’t get out of HBX that they can get out SiteCatalyst. So even with all of those pinpoints, it took us so many years to get them over, there are very high transition costs in this market. That is something that plays to our benefit, certainly when it comes to helping these customers.

The fact that we are building integration tools that they can get over to a platform that then leverages all of the other products and services that we have, that is something that is very appealing to those HBX customers. Which is why I said already we have had interest from 40% of the customers that have said this is something that we think we want to do.

So things are moving very rapidly and things feel very healthy. I will let Mike talk about the revenue piece.

Mike Herring

I think I understood your question. I think the better way of putting it is about 15% of the revenue in the revenue run rate are businesses or business models that we essentially began to shutdown as soon as the acquisition was closed. Primary among them would have been the sale of the Discover OnPremise product as a perpetual license. Moving that from a perpetual license into a term license or on demand only on delivery.

Tom Ernst - Deutsche Bank

I don't think you said it earlier 00 if you did, I apologize – what do you see in your guidance here for the year as the split between the organic Omniture versus what you have acquired as you think about the 305 to 310 non-GAAP?

Josh James

When we put together our guidance, we still as we had said all through 2007 believed the core Omniture revenue is still going to grow in excess of 50% and we built our organization to drive it that way and saw great sales in the fourth quarter that are really going to give us a headstart momentum getting to that.

Then we layered on top of that our expectations around retaining the revenue at the Visual Sciences acquisition to get to 305 to 310.

Tom Ernst - Deutsche Bank

This has been your approach in the past, you've been growing 70%, 80% and guiding a little bit more conservative as you look out. It seems the same approach to me. Is there any shifting you're seeing in demand or hold-up in the customers that gives you pause or makes you think you have less cushion than you have had in the past?

Josh James

We haven’t seen anything from our customer base or potential customer base yet. Like I mentioned, we had a giant Q4 in terms of new sales. The way the pipelines are building, there are more moving parts so we have tried to be careful in the way we have built our model and the way we have motivated and incented the sales team. We haven’t increased quotas the way we have historically, trying to make sure there is a little bit of a buffer in there for us to deal with things that we know are going to come up in terms of transitioning these companies and these people.

So we’ve tried to be appropriately conservative given the extra moving parts but that being said, just purely from a demand perspective, for instance with our Optimization product we closed Offermatica there a few weeks before the end of the year and the combination of that product with the Touch Clarity product that Optimization product, we sold a bunch of that just in the last two weeks of business. A lot of it was the Offermatica products. So, we are feeling really good about the demand that is there, Tom, we are just trying to make sure that we are being appropriately cautious with all the moving parts.


Your next question comes from Imran Khan - JP Morgan.

Imran Khan - JP Morgan

Josh, you talked about how you're talking to customers and they are taking two products and you're seeing more demand from customers taking more products. Can you give us some sense as your customers take new products, how should we think about revenue per customer growth rate for your enterprise customers in 2008 and maybe in 2009?

A second question is headcount related, obviously you are growing your headcount. How should we think about your headcount productivity revenue per headcount going forward? Thank you.

Josh James

On the revenue per customer, we've started to see revenue per customer increase in anyway you can measure and that definitely is a product of continued stable pricing across our product base and then selling additional products into those same customers. I think we will see that continue to move in an upward direction through 2008.

In terms of revenue per employee, that depends on how we're investing. That has been relatively consistent because we've been investing aggressively as we have gotten capacity in our model. A lot of those investments are to drive revenue not in the current period obviously but in future periods; if you hire sales people today particularly in new markets they are not going to perform for six to 12 months and so that keeps the depression on that revenue per employee number until you hit more of a steady state growth level.


Your next question comes from the line of Jason Maynard - Credit Suisse.

Jason Maynard - Credit Suisse

First, maybe at a big picture level Josh, can you talk about a little bit of the cross currents that are going on in the media space? One being just what you think is happening in terms of shift from traditional online media and how that might be impacted in an economic slowdown?

Second, what's your handicap on what happens in the space if Microsoft is successful in acquiring Yahoo?

Josh James

Great questions Jason. I think, first of all, it comes to how we're continuing to see, I mean everyone knows offline is definitely moving more and more to online and how that plays out in terms of economic downturn this is once again the place where they have, when you look everywhere that our customers are spending their dollars, this is the one place where they have quantifiable returns, where they can measure the results, they can measure the effectiveness.

We saw this in 2001 and 2002. Everyone is always able to find dollars to actually understand what is going on, number one. That is what drives our business. It is not the advertising that drives your business although there is some upside for us when advertising goes up. But there is a kind of baseline of people just wanting to understand what is taking place.

As things get tougher in the online world. basically in the offline world first of all the dollars are going to come online; as things get tougher in the online world, then our customers what they want to do is figure out how to convert those customers more effectively. Once they get them to the site they want to understand where they are coming from and can they cater the experience based on what they know about those customers? That drives the usage of the other products that we have, whether it is SearchCenter or whether it is our testing and targeting solutions or our search and publishing solutions.

So that is something that we feel pretty good about in terms of if there is a slowdown but if that continues or if it gets worse, we still feel a little insulated from that. We will just have to keep our eye on things.

As for Microsoft, the Microsoft-Yahoo! deal we think it is certainly good for Omniture. It is something that highlights the need and the desire of customers to be able to have more than one place that they can advertise. Historically we have heard from customers, here is my Google strategy. What that has meant is, here is my online strategy.

And when the customers start to say Google versus Microsoft and it is not just about search but it is about everything else then they really want to understand and they want an independent measuring capability to help them understand should they spend more dollars to Google or should they spend more dollars with Microsoft-Yahoo!.

So as that comes about that is something that whether it happens or not, it has highlighted the importance of having someone that is providing independent data and the importance of someone that is helping those customers covert on the various different audiences they get from each source. If it does actually happen which I think everyone thinks it will, then it is something that just once again highlights how important it is for customers to be able to measure the difference between the two of them so they can shift their dollars appropriately.

That doesn't necessarily mean that Google is going to get more or Microsoft is going to get more. It probably means they will both get more and that our customers will spend their dollars more wisely and more effectively and that is what the customers that are doing that first are the ones that have a competitive advantage over their competitors. So that is a big positive for Omniture.

Jason Maynard - Credit Suisse

Mike on the guidance, from an EPS and maybe an adjusted EBITDA perspective, I don’t want to go too far and say it is super conservative, but it does look like you’ve given yourself a bit of a buffer here. I am curious from your end as you look at more of your bottom line guidance, how are you thinking about the trade-offs if you do perhaps do better than your 50% organic growth rate? Is the 11% still a fixed target level and then you spend more aggressively on headcount if it looks like you are going to be generating better than expected bookings and revenue?

Mike Herring

That is exactly right. That's why we put the 11% out, so people could understand our EPS guidance in the context of that. Even if we had upside in our revenue numbers, our strategy to date all through the last few years and into 2008 has been to take that revenue upside and we did this last year and reinvest that into sales and engineering primarily to continue driving the company forward, while still targeting certain operating margin targets that we think are appropriate. Last year we started out at 6%, moved it to 7% and achieve that in Q4 this year. We are targeting 11% in Q4.

Jason Maynard - Credit Suisse

What are some of the puts and takes that I should use to go from your adjusted EBITDA to a straight operating cash flow number for fiscal ’08? Changes in working capital, things like that.

Mike Herring

Like we saw in last quarter, we said actually working capital to be a drain on operating cash flow because we are growing so fast, we have been growing at 80% year over year, we tend to have just step functions in billing activity and we certainly saw that in Q4 with significant billing activity in the quarter. So that's probably one factor of it. We will also see depreciation and -- well that doesn’t comes from adjusted EBITDA but if you're going from a net income number to that, you would also add that pretty significant amortization and depreciation.

I think that's probably the biggest difference between operating cash and EBITDA is going to be the negative drain driving from the growth in receivables as the company gets bigger.

Jason Maynard - Credit Suisse

So I just work back on that and still get an operating cash flow number, maybe something in the low 50s then?

Mike Herring

I can’t confirm that, but that is the direction that it would work.


Your next question comes from Brian Fitzgerald - Banc of America Securities.

Brian Fitzgerald - Banc of America Securities

Prior to the Visual Sciences acquisition, you guys were guiding to 100 bips of improvements in organic Omniture margins each quarter. The current guidance implies that remains unchanged. Can you talk to any revenue or cost synergies that are embedded in ’08 guidance from the Visual Sciences acquisition?

Mike Herring

That's generally true although we did because we overachieved in going from 6% to 7% in Q4, we sort of moved the target up across the board for 2008 and so originally if you did the math you got to 10% in Q4 '08; we are now talking about 11% in Q4 '08.

We definitely have synergies included in that from the Visual Sciences acquisition. Josh mentioned, we had 40 some employees that we rationalized on day one. We have another slug about the same size that have agreed to transition periods during this year that will gradually move off.

The reality is there are a lot of non-headcount expenses, public company expenses and such that we obviously won’t have to duplicate in bringing the two companies together. So there are definitely some synergies. Those synergies, we have the choice of driving higher operating margin which we think is appropriate to the 11% level, or investing more which we think has been our modus operandi and that is what we plan to do going forward.

That means hiring sales people, hiring engineers, making sure we are staffed appropriately in professional services to make sure that we are capitalizing on our opportunity.

Brian Fitzgerald - Banc of America Securities

A derivative of the Microsoft-Yahoo! question. Do you have any color or comments on the likelihood of Yahoo switching to using Omniture if this closes?

Josh James

In terms of using us to help them manage and track the pages on their site? Yahoo! is someone that we've been targeting for a long time so we will continue to target them and I would suspect that an acquisition by Microsoft -- actually, I saw a report recently I can’t remember exactly who it was by, a report that said someone else had the majority of business at Microsoft; that's not the case. We have the majority of the analytics business at Microsoft and that business continues to grow. It's a relationship that we're always have to be little bit careful about because we don't run on Microsoft’s platform, we run on open source and they know that. We talked to them about that and that being said, we have a great relationship, we have the best product so despite that they continue to use our services and our products and we look forward to continuing to work with them. They are also a partner and then we are a purchaser of their products obviously for our desktops.

So in terms of increasing the likelihood of working with Yahoo!, I would suspect that it would because we do have a very good relationship with someone that is a reliable reference for them and I think the Discover OnPremise product does run on Microsoft platform so that will hopefully help us out in the relationship there too.


Your next question comes from Michael Huang – ThinkEquity.

Michael Huang – ThinkEquity

Thanks very much. so couple of questions. So in terms of your record bookings, I'm assuming this is a record bookings both in sales in new and existing customers and then besides the cross-sells, when you look at the strength of the bookings, what would you attribute it to? Was it incremental improvement in secular trends or improvement to close rates, win rates or something else? Thanks.

Josh James

It was a combination of a lot of things Michael. I think you mentioned most of them so certainly the cross-selling was something that helped us out. We saw a lot of increased usage from our big domestic customers which was exciting to see our North American team do so well. Every other geographical region performed a little bit above expectations and we are certainly seeing our ability to win customers without having to discount like we had to a few years ago, which is nice. We have healthy relationships with our customers.

I think you are continuing to see customers that say I don't want to make a change 12 months, 24 months from now and that becomes a big component of them making the decision. Still in every situation, almost every sales situation that we have, Genesis is a part of that relationship. We have this ecosystem. We are the leader in the space. That ecosystem with over 100 partners gives them a lot of comfort that they can grow and evolve with us. We say that phrase a lot, grow and evolve, because these customers they are going to be customers of ours initially but then as they change and become more mature and sophisticated in the way they run their online business, they want to know there are additional add ons that already leverage that data that we are managing for them, and Genesis gives them a lot of confidence that either we are going to own that product already or through Genesis, they can leverage one of five different partners that may exist in that particular area of interest for them.

Michael Huang – ThinkEquity

When you look out over the next couple of years, how much potential growth is there in your existing customer base with this broader footprint that you have? Which of the non-catalyst offerings do you think can make the biggest revenue impact two years out?

Josh James

We gave some color about our top 50 customers and then also talked about how that really, I think the tip of the iceberg here on the potential opportunity. They are the first movers and so there is a lot of opportunities inside our customer base but we also have customers that have four or five products from us. With the average being at two of those top 50 customers and with most of them just scratching at the surface on those additional products where they maybe have a portion of their business that is using SearchCenter or a portion of their keywords, or they have a couple pages where they are doing landing page optimization and then we start to see that expand; or where they buy a couple of Discovery licenses and then six months later we see them come back and double down and buy some more licenses; and then they come back six months later and say we need this for all of our users.

There is a lot of opportunity with those products. As far as over the next couple of years where we can get the revenue from the cross-selling, it is Discover certainly both OnDemand and OnPremise. Then we’ve got Search Center which I think we are going to have a pretty substantial year in selling Search Center. We’ve got some numbers I think that are really exciting in terms of the relevance that we have in that particular space and in ad spend that we are going to talk about in future earnings calls. But we are becoming a very significant manager of ad spend for Google, Microsoft, Yahoo! and others and that is reflective of our customer base. We think we are going to have a pretty big year on that front.

And then of course the testing and targeting products that we have, we think there is a tremendous amount of upside there with testing and targeting.


Your next question comes from Robert Breza - RBC Capital.

Robert Breza - RBC Capital

Jeff, can you walk us through the sales force and the make up there? Obviously with 130 quota carrying reps, can you talk to us where the additions have gone in terms of geographic regions? Maybe like you said product specialists, how should we think about the sales force evolving as you through the year as well? Any color would be helpful.

Josh James

We have got some overlay teams that are specialists in their various areas. We found that to be the most effective way, we experimented last year with a couple of different models and found the most effective way to be having certain folks that are managing relationships and then bringing in the overlay sales team; they get a piece of that from a commission perspective and then the overlay sales team gets the majority of it. That is something that has been fairly effective for us so we are going to continue that.

The other thing it does is it helps focus the sales team on continuing to build out our footprint in terms of analytics customers, and we want to make sure we are continuing to accelerate our growth on that front since we are the clear leader and in many cases it is just a matter of getting it in front of the right customer, the right contact; once we get the product, the opportunity to show them our product and help them understand the company they would be partnering with, we have really, really good close rates so we will continue that.

In addition to the overlay sales team, a lot of the investments that we have been making as Mike referenced have been overseas so we have been investing quite a few heads into new markets, quite a few heads into markets that are still in their nascent stages where we may have put two people there last year and now we are going to go back and double down or we're going to add some QBSRs then also add a lot of support functions around them because we feel like we have got a big business we can build there. Then also in the more mature markets that we have overseas that have performed well.

One thing and we have talked about this before, it is almost unbelievable when we look at the numbers and look at how each area is performing, all of our regions are performing well whether it is our mid-market team, we are hiring a bunch more people there; or our enterprise domestic team, we are hiring a bunch more people there; and then also all of the international regions have been growing rapidly also and we are getting good returns.

The returns are a little slower in new markets and so sometimes we will build an extra six months or nine months into the model to allow for those folks to build and develop that market, the relationships and get their first couple of customers that they can use as references to build up the businesses. That is something that we felt like was a big opportunity, it was one of the main reasons that we wanted the additional scale from Visual Sciences, is it allows us to invest in a lot of places that someone else who is not our size can’t; just can’t invest that same way, can’t match that which gives us a competitive advantage in those markets for a time period.

Robert Breza - RBC Capital

Just as a clarification, Josh, I think you mentioned something about quotas, I am not sure if you said they were going up or down or more or less staying flat?

Josh James

In previous years when we were in high-growth in the early years you don’t mess with quotas because it is not about trying to maximize the stress you can put on the sales team as much as it is about attracting as many good salespeople as possible. We went through that phase and then we went through the phase of okay, now let’s leverage the fact that we are a big enterprise company that has a great reputation out there, that has great customers and let’s leverage the dollars that we are investing into the sales team and look for higher efficiency and performance out of them, and we increased the quotas for a few years. This year you are not going to see as big of an increase in quota as we’ve seen in previous years, just to make sure that we are not putting ourselves in a situation with all the moving pieces where we set our own expectations to a place that we can’t achieve; or if we do achieve, we are not taking care of crossing all of the t’s and dotting all of the i’s and there is a lot of that we need to do this year also.


Your next question comes from Keith Weiss - Morgan Stanley.

Keith Weiss - Morgan Stanley

On your combined customer base, when you ended the quarter with over 3,000 customers, Visual Sciences on their last conference call talked about 1,590 customers. In your press release you said it had over 4,300 customers. The variance between 4,600 and 4,300, is that customer overlap?

Mike Herring

No it is not customer overlap. One thing that we did in our diligence and since we combined the businesses is really scrubbed through their customer number. We have a different methodology for calculating the number of customers and when you apply our methodology it rationalizes that number down a little bit. We haven't seen any attrition or anything yet, we only count customers of a certain size and we only count one customer even if we have all three properties that they run and that kind of thing.

Keith Weiss - Morgan Stanley

On the quota carrying sales reps, I believe on their second quarter call Visual Sciences talked about having 44 quota carrying sales reps. You guys ended the year at 109; I'm sure Offermatica brought some to the table, but now you have 130. I am assuming that a lot of those are guys exiting Visual Sciences?

Josh James

That's exactly right.

Keith Weiss - Morgan Stanley

On your sales channel strategy, a couple of interesting going on in the market. Accenture bought Maxim, which I know is one of your partners they are on Genesis, they were working on some big accounts including AOL. Is that an opportunity for you guys to become closer to Accenture?

Josh James

There is an opportunity to become closer to Accenture. I don't think it is because of Maxim or metrics. I would say to the contrary. That makes it less likely they will make great partners. I don’t know everything they are planning on doing, but Maxim was a good partner of ours, is a good partner of ours, and to the extent that Accenture is looking to build their consulting business, then I think they are going to be an absolutely fabulous partner of ours. To the extent that is the beginnings of something else, we will have to see. I don’t think it is based on the conversations we have had with them. I think they are trying to increase their opportunities for touch points with marketers so they can go in and consult with them. Obviously the foundation of any consulting is going to be our Analytics product. We have several customers where we have jointly sold our Analytics products in there, and Accenture has a big consulting contract. So I think that relationship is definitely going to improve over time, but I just don’t think it is necessarily to be directly tied to the actions that they took.

Keith Weiss - Morgan Stanley

I picked up that you guys are more directly targeting ad agencies now and working with ad agencies to come up with their own white boxes offerings that they could serve there. Could you tell us about what you guys are doing in that space and the opportunities you see there?

Josh James

Agencies have been a big partners of ours for quite some time, we have been targeting them for three or four years that as that business develops and matures we are offering a lot better solutions and services to them and that may be some of the things you are hearing about.

We've got a team dedicated to helping out agencies and I think, it is not necessarily if you are talking about white box in terms of white label, that's not happening. We don't private label our products. We think it is important for the agencies themselves actually that we when they are reporting -- it is kind of like Google. If Google is going to tell you to spend more money on Google, it makes you question that data.

What we have seen with most of our agencies is they actually like been able to reference Omniture’s data. It helps them do their jobs more effectively. It helps them justify the performance that they are delivering to their customers. It helps those customers justify the investment they are making in those agencies. So it is really a win-win and definitely is a relationship that has been helping drive our business and is something we are going to continue to invest in very, very aggressively.

Keith Weiss - Morgan Stanley

When you cite that 30% of your contract value in the fourth quarter coming from additional products, that sounds like a great number to me. Is it possible you could give us a reference point to perhaps what that was a year ago in the fourth quarter, just so we can get an idea of how that has grown as a part of your business?

Josh James

A year ago was approximately zero.

Keith Weiss - Morgan Stanley


Josh James

Yes. Low-single-digits because it really would have been only Search Center.

Mike Herring

It was approximately zero.

Josh James

It may have been a couple percentage points but it the reason is we were just starting. We were just starting Search Center. We were just starting Discover. A lot of it was forcing it whereas now we have been through multiple iterations of these products, we have services teams that are educated on them, we have overlay sales teams that are built out now, so we feel like there is a lot of opportunity there.


Your next question comes from Vic Churamani - Lehman Brothers.

Vic Churamani - Lehman Brothers

A question for you on guidance just to make sure we are clear. When we look at the 305, 310 number annually and you also mentioned about 15% of revenue you're going to pretty much shutdown on Visual Sciences; when we do the math here it looks like it is roughly $70 million or so in Visual Sciences revenue. So suffice to say, looking at consensus numbers, that you are probably looking at $70 million or change in Visual Sciences revenue and perhaps another $15 million or so in Offermatica. That boxes with your over 50% growth rate for the year.

Mike Herring

That math is pretty close.

Vic Churamani - Lehman Brothers

You mentioned that since you bill monthly as well as quarterly and annually you see a trend more towards annually. Does that change the backlog levels from off balance sheet to on balance sheet, i.e. deferred? Does that impact the cash flow going forward.

Josh James

It hasn’t impacted that much yet. I think we are just starting to see that shift. We are encouraging it more on our sales team. If you think about, we have a pretty large book of business that is paying us pretty consistently through the year now, whether it is monthly, quarterly or annually. So it will, over time, probably affect the cash flow some but it won’t be very visible to people just reading quarterly financial statements.

Vic Churamani - Lehman Brothers

On Visual Sciences, assuming the 15% revenue is shut down why would you not expect that revenue base to grow? Why a sense of conservatism or caution? Maybe perhaps you can give us your underlying assumptions there?

Josh James

If you took let's just say $10 million worth of licensed sales spread through the year and you have the same sales but you converted it to term, instead of recognizing $10 million in revenue in that first year, in the year-ago sales you would probably recognize close to $1 million or $2 million of sales because you are deferring it out.

The sales that occurred in Q4 wouldn’t even affect the year if those sales occurred, whereas if you were selling perpetual licenses it all would happen. It is one of the reasons why when we look at our growth, we are very excited about it but because as happy as we are with the $43 million plus that we closed in Q4, the book of business that we are actually running and operating is a significant number higher than that. As we push that wave in front of us, it gives us a lot of visibility into revenue, into cash flow, allows us to invest appropriately and hit our operating margin targets pretty accurately.

Vic Churamani - Lehman Brothers

So in other words, you do have ratable recognition so because of that factor you would still expect [inaudible] business to grow like 10%? Is that fair?

Mike Herring

That's right.


Your next question comes from Brent Thill - Citi.

Brent Thill - Citi

One question regarding cash flow, you had a pretty material deceleration in the second half versus the first half and you walked through a couple of scenarios why that happened. Can you just walk through what you're doing to help to reverse that and what potential I think you mentioned a couple of the changes on the billing, but what is going to help improve that as we look forward to the next year?

Mike Herring

Frankly, some of the things that would improve it are things that we don’t really want to happen, like the slowing of growth. If we have growth slowed, then either AR wouldn’t be increasing as quickly and so therefore we would have less of a depression on operating cash flow.

There are a couple of different things that can help improve that though. Improving annual prepaids, we are definitely seeing a trend towards that and we are also incentivizing our sales teams to focus on that.

Overall, as our operating expense base becomes a smaller percentage of revenue to the effect of changes in payables and accruals and stuff get smaller.

So I think we will see operating cash flow trend, if you draw a regression line over multiple quarters like four or five or six quarters upward, but as we continue to grow and have these big quarters we are going to have quarters where operating cash flow is less and quarters where it is more and it is going to have some volatility on it if you are looking at specific time periods.

Brent Thill - Citi

So you feel you are managing less to that number, managing [development] numbers are more important for us to look at?

Mike Herring

Yes, we don’t manage to that number. We don’t guide to it, yes cash flow is important but it is not the way we run the business.


Your next question comes from Pat Walravens - JMP Securities.

Pat Walravens - JMP Securities

Can you talk a little bit about how many of these former Visual Sciences customers you have set up in your services organization to transfer in the quarter? How long does it take to move one over and what kind of resources do you have in place to do that?

Josh James

The nice thing is we have quite a bit of resources in place to do it because a big majority of the employees that stayed on with Omniture from the former Visual Sciences company actually moved into teams that are focused on migrating and serving those customers going forward on the Omniture platform.

We are not out hiring a team to do that, that team, we are transitioning a team that already existed and that team actually is pretty engaged and excited to be part of Omniture, so far that is what we have been hearing.

In terms of how long it is going to take these customers to get there, we are not as we have said many times before, we are not pushing customers to do this quickly. We are taking a soft touch to it and more selling them the advantages of migrating over and have a complete package that makes it very easy for them to do from a technical standpoint; they will have the same account managers before and after and so there is going to be a big push around it at our summit which is in March.

Really, it is about education and about getting people excited for it. We felt that that is what worked really well in the three previous times we migrated customer groups – albeit smaller groups – and so that is the way we have put this program together, using best practices from those experiences.

Pat Walravens - JMP Securities

I hope that they will want to move. I am just wondering, if you had to move 200 in a quarter, could you do it?

Josh James


Pat Walravens - JMP Securities

You could.

Josh James

And we will move that many in one of the quarters in 2008.


Your next question comes from Steve Ashley - Robert W. Baird.

Steve Ashley - Robert W. Baird

Do you have any idea what plant, property and equipment expenditures might be in 2008?

Mike Herring

Generally if you take our annual revenue increase that we are forecasting and then we take about 30% of that and that would be approximately, when we do our planning, that is the way we look at it. It is about $0.30 on the dollar for annualized revenue increases.

Now there will be a little bit less probably in 2008 because of the piece of revenue that is just coming over from Visual Sciences where there will be some transitioning equipment where we won’t have to purchase the entire amount to service that revenue. But that is the rule of thumb that I use when I am building my model.

Steve Ashley - Robert W. Baird

Josh, you actually mentioned during your prepared remarks that customer were starting to ask you for new products, products you don’t currently offer. I don’t know if you were able to provide any color on what types of things they might be asking you for?

Josh James

Sometimes we get requests around Analytics, but they are mostly product functionality increases. Every once in a while there is a functionality increase that we could go out and acquire, but historically we have always built those. That would be one area.

The second area would be on the campaign side, anything to help them spend their dollars more effectively online from an advertising perspective across multiple networks, multiple mediums and multiple types of placements. Right now with Search Center we help them place their bids for keywords on search engines. But over time I think you are going to see that become much broader.

The third area would be in Optimization or conversion. So once they get to the site, once they arrive, how can you help them convert more effectively? There are a whole bunch of different offerings and solutions that our customers are requesting in each of those areas.


Your next question comes on the line of Brad Witt – Broadpoint Capital.

Brad Witt – Broadpoint Capital

Josh, curious as to what kind of demand you're seeing from multichannel Analytics and what you built into adoption for multichannel Analytics into your guidance? Also if you could talk about situations where you think customers may be deciding between Discover OnDemand versus Discover OnSite whether you think that is going to be vertical specific, or just some thoughts there.

Josh James

The way that we think about it and the way that we forecast it, this is a new business for us and they are going through some changes, bringing it over to, as Mike was just describing, term licenses instead of perpetual licenses. Over time we are going to do everything we can to make those products look and feel and act the same.

There is going to be a period of time though in-between where there is some different functionality in each of them, but eventually we want to get it so that the choices that the customers are making are truly just, do I want it behind the firewall or am I okay leveraging the security and reliability that Omniture has?

It is more I think about the multichannel opportunity. We said prior to the acquisition of VS that we didn’t see that being the area that we needed to focus on in order for us to grow our business rapidly. We still feel the same about that.

That being said, we also acknowledge that there are some customers that are ready for multichannel analytics and they want to look at their web data and compare it to their point of sale system data and compare that to their call center data, et cetera.

That is one thing that is really interesting about what the Discover OnPremise team does. We kept that team pretty much intact and have given them the charter to go out and sell that as much as they can. They are extremely excited to be able to sell into the Omniture customer base and be able to take some of the data – they are really good at taking data from offline data sources. That is one of their specialties.

But it is also, it is not – it is definitely partly the technology but I think it is equally if not more so the way that you sell it, service it, talk about it, the types of people you target inside an organization, and that is something that they have proven they have figured out how to do that.

We are really interested to let them sit out there and continue to sell that and shape the future of Omniture with some of the successes they are having, because it fits nicely in with the other things we are doing.

It is interesting when you think about the data that we have, it is not so much about collecting the data as it is really about presenting it and having it be in a form that you can get to, get real-time updates and get real-time access to it and actually leverage that data in real time, change things that are taking place whether it is on an ATM machine or in a call center or in an offer for a call center individual.

It is going to be interesting to see how things evolve there over time.


Your next question comes from Youssef Squali - Jefferies.

Analyst for Youssef Squali - Jefferies

Just following up on the Microsoft question that was asked, I'm curious to know what you think are the chances of them taking web analytics and having with their own [inaudible] products?

Josh James

Yes. We obviously asked about that every time they say we would like to buy some more Omniture, and we said okay, well give us an update on this. It is really the same reason that Google, in our assertion, it is the same reason that Google has analytics. It is to help all of the small businesses out there get a little bit more data and have a little bit better customer experience, because when they are spending their dollars it is not just a black hole and back come the leads. It is helping them understand which leads are performing, which ones aren’t performing. If they are coming through site, where are you losing them?

So far everything we have heard and been told about Gastineau fits right in line with Google’s strategy on Google Analytics. So that is not a concern of ours yet. That being said, of course we always pay a lot of attention to what those guys are doing, but the one thing that will never change is that both those companies, if analytics were to become, if they were trying to position and sell analytics to our customers, they would be asking our customers to spend advertising dollars with them and then report on the effectiveness of those advertising dollars, and that is just not going to happen.

Furthermore, in order to really do it effectively you need to get data speeds from Google, from Yahoo!, from Microsoft and a variety of other folks online, which we do. Google is never going to send a data feed to Yahoo!, Microsoft, and I don’t think it is every going to happen in return either. So we feel pretty good about our position, as long as we continue to move fast and build out a solution that is right for our customers, we feel like we are in a great position to continue to take advantage of the opportunity.

Michael Look

We appreciate everyone's time. I thank everyone and look forward to seeing you and many of the investors here shortly. Thank you.

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