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Executives

Keren Ackerman - Director of Investor Relations

Joe Cowan - Chief Executive Officer

Max Carnecchia - President

John Calonico - Senior Vice President of Finance and Chief Financial Officer

Analysts

Derrick Wood - Pacific Growth Equities

Matthew Andrews - Kaufman Brothers

Mark Schappel – Benchmark

Nate Swanson - ThinkEquity

Paul Kaump - Northland Securities

Interwoven (IWOV) Q4 2007 Earnings Call January 31, 2008 11:00 AM ET

Operator

Good day and welcome to the Interwoven fourth quarter and year end financial results conference call. Today’s conference is being recorded. At this time I’d like to turn the conference over to Keren Ackerman, Investor Relations Director at Interwoven.

Keren Ackerman

Thanks Tom. Good afternoon everyone and thank you for joining us as Interwoven discusses its results for the fourth quarter and year, ended December 31, 2007. With me on the call today are Joe Cowan, Interwoven’s Chief Executive Officer; Max Carnecchia, our President; and John Calonico, our Chief Financial Officer.

Joe will provide an update on our strategic initiatives. Max will summarize our Q4 business highlights and customer traction, and John will review our fourth quarter and full year financial results, as well as provide our financial outlook for the first quarter of 2008.

Our presentation today contains forward-looking statements about our financial outlook, products and business developments. These statements are subject to risks and uncertainties that could cause actual results to differ materially from what we expect.

Some of those risks are mentioned in today’s press release, others are discussed in our forms 10-K and 10-Q which are on file with the Securities and Exchange Commission and available at www.sec.gov.

On today’s call we will also be presenting non-GAAP financial information. This information is not calculated in accordance with GAAP and may be calculated differently than other company’s non-GAAP information.

Quantitative reconciliation of our non-GAAP financial information to the most directly comparable GAAP financial information appears on our web site at www.interwoven.com in the Investor Section and in today’s press release. Also we are providing guidance for the first quarter on a non-GAAP basis with the reconciliation to GAAP appearing in today’s slides.

Now, I would like to turn the call over to Interwoven’s Chief Executive Officer, Joe Cowan.

Joe Cowan

Thank you, Keren. Good afternoon everyone and thank you for joining us. I am extremely pleased to report that Q4 provided an outstanding finish to a very strong 2007 for Interwoven.

Our fourth quarter revenues and earnings were the highest ever reported. We increased quarterly revenues by 17% from last year to $63 million and increased license revenues by 19% to $25 million. Our annual revenues and earnings were also at record levels. For the full year, total revenues increased 13% to $226 million and non-GAAP net income increased 47% to $28 million.

Max and John will provide more color on our fourth quarter results in a few moments. But first, let me say that I am very pleased with our progress across the business. Q4 was an extremely productive quarter. Our sales teams around the globe turned in a strong performance.

We successfully completed the acquisition of Optimost and we made considerable progress on our strategic initiatives. A year ago, we stated that we were seeing tremendous opportunities across all of our businesses. Looking back on the year, we clearly capitalized on those opportunities.

In our Web Content Management business, we strengthened our position as an essential component of our customer strategies to maximize their online business performance. The brands that drive the global economy continued to turn to Interwoven to power their online businesses, and in the past year, we made great progress in extending our offerings to meet the rapidly evolving needs of these organizations.

For example, we identified a critical need for capabilities that enabled businesses to deliver dynamic, contextual and targeted online content. In response, we launched our Segmentation and Analytics Solution and our Targeting product earlier in the year.

In November 2007, we took another significant strategic step with the acquisition of Optimost. In the two months since Optimost became part of Interwoven, we integrated the employees; trained their sales team; began a technical integration of our offerings and have already closed transactions that were sourced through the Interwoven sales team.

The response from our field organization and customers has validated the strategic rationale for this acquisition. The addition of Optimost to our product family has deepened our ability to address the needs of marketers, and we are very encouraged by the opportunities for this business looking forward.

In the fourth quarter we also rolled out a significant update of our Composite Application Provisioning Solution, which allows businesses to automate and standardize the deployment of custom Web applications, resulting in dynamically improved efficiency in time-to- market. All of these solutions were well received by customers and we racked up a number of notable wins with brand name accounts in the fourth quarter.

Our Global Capital Markets business continued to execute on its operational plan, despite the market challenges that emerged in the second half of the year. This business performed well despite the uncertainty that currently characterizes the credit markets worldwide. Our Global Capital Markets team clearly understands the specialized requirements of their customers, and our team continues to deliver capabilities that help these firms.

Last but certainly not least, I am extremely pleased with our Professional Services Industry Solutions business, which delivered an outstanding performance across all metrics in 2007. In this business, we expanded our market-leading position along several vectors.

First, we maintained our strong pace of competitive conversions in 2007 by driving 52 displacements throughout the year. Next, we continued to penetrate adjacent vertical market opportunities, such as accounting, government and management consulting. For instance, in the accounting vertical, we now have over 70 customers including many of the largest firms in the world.

Finally, we released enhanced versions of our Matter Centric document management, records management and Mobility products, enabling us to sell additional product offerings to our installed base.

In summary, 2007 was a year of milestones for Interwoven. We achieved record financial results; we passed the 4,000 customer milestone and we had solid execution across the company.

I’d now like to turn the call over to Max for a discussion of our Q4 business highlights and customer traction.

Max Carnecchia

Thank you, Joe. As Joe mentioned, Q4 was a quarter of record revenue and profitability for Interwoven, capping off a full year of stellar performance by our field organization around the world. I would like to personally acknowledge the excellent performance of our team, who leveraged a strong tailwind of year-end spending to deliver license revenue growth of 19% versus Q4 of last year.

Our solid performance is further reflected in our new customer acquisitions. In Q4, we added 108 new customers, bringing our total global customer count to over 4,200 organizations in over 60 countries around the world.

Notable customer orders in Q4 included, among others, American Medical Association, Bank of America, Bear Stearns, CalPERS, Canadian Broadcasting Corporation, Chunghwa Telecom, CNBC, Cummins, Digi-Key, Education Management Corporation, Macy’s, Northrop Grumman, Phillips International, Postecom, Premier Farnell, Rohm & Haas, Royal Bank of Canada, State of New South Wales, T. Rowe Price, and Wachovia.

Let me take a moment and highlight some notable achievements and key customer wins in the quarter. Our Professional Services Industry Solutions team closed a very significant transaction with one of the world’s largest accounting firms in Q4.

Interwoven WorkSite will be deployed globally, across the firm, over the next few years to serve all users within the organization. This transaction also involved a sizable implementation of Records Manager, which enables the centralized management and retention of all types of physical and electronic records, including images, documents and e-mail.

Last August we announced Interwoven Universal Search. And in the fourth quarter we sold this exciting offering to a number of existing customers. One great example, DLA Piper purchased Interwoven Universal Search to provide its 3,600 professionals in 25 countries with the ability to quickly locate essential information and documents across the firm’s many disparate information systems.

We also saw increased interest for our Mobility offering, which allows professionals to stay connected with the latest client information while on the road, for faster response times and better overall client service. Notable wins for our Interwoven WorkSite Mobility Server in Q4 included Norton Rose, Drinker Biddle & Reath LLP, and Royal Bank of Canada, to name a few.

Turning to our Web business, in the fourth quarter we continued to see organizations invest in transforming their online presence to deliver more targeted experiences and optimize their marketing investments.

In the Americas, the American Medical Association selected our Segmentation and Analytics Solution to tailor relevant research and information to the right audience, thereby enabling a more compelling web experience and providing a higher level of service to its members.

One of our marquee customers in Asia-Pac, Qantas Airways, purchased our Composite Application Provisioning Solution. This solution will allow Qantas to automate and streamline the aggregation, synchronization and deployment of content and code to its web servers, reducing the time to web for important online initiatives in the highly competitive travel industry.

Finally, I would like to reiterate the company-wide enthusiasm about the addition of Optimost to the Interwoven family. The field organization is seeing a high degree of interest in optimization within our customer base and these capabilities give us yet another way to engage our customers in a larger conversation about their overall online marketing strategy.

More broadly, we see Optimost playing a key role in helping us further differentiate Interwoven, where customers are looking for a complete offering. A terrific example is our recent win at Digi-Key, one of the world’s largest distributors of electronic components.

Digi-Key is re-architecting its online presence to substantially increase web based revenues. In support of this initiative, Digi-Key selected Interwoven’s entire platform for online marketing, including Optimost, TeamSite, Targeting our Composite Application Provisioning Solution and MediaBin.

I would like to thank the entire Interwoven team for the tremendous results they delivered in the fourth quarter and throughout 2007. We have the best team in the business and it’s the talent, passion and innovation of our employees that allow us to achieve these results and help our customers succeed.

Now, let me turn the call over to John Calonico, who will discuss our financial results in greater detail. John.

John Calonico

Thank you, Max. Before I begin, let me refer you to the financial statements contained in today’s press release, filed on Form 8-K. This release provides our financial results for the fourth quarter and year ended December 31, 2007, as well as a reconciliation of non-GAAP financial information to the comparable GAAP financial measures.

Our fourth quarter performance provided a strong close to 2007 and punctuated another year of solid financial progress for Interwoven. In fact, our fourth quarter in annual revenues and earnings were the highest ever posted by the company.

In Q4, total revenues were $62.9 million, up 17% from last year. Of fourth quarter revenues, 40% was generated from software license fees and 60% was from customer support, consulting and training.

License revenues for the quarter were $24.9 million, an increase of 19% from last year. For license transactions in Q4 in excess of $50,000, our average deal size was approximately $245,000, an increase from last quarter and last year.

Our average selling price in Q4 benefited from four customer transactions in which the amount of software sold exceeded $1 million. Excluding license transactions in excess of $1 million, our average selling price in Q4 was approximately $200,000. No single customer accounted for more than 10% of revenues in Q4.

Support and services revenues for Q4 totaled $38 million, an increase of 15% from last year. To further break down support and services revenues:

Support revenues totaled $24.8 million, an increase of 10% over last year;

Consulting and training revenues were $11.6 million, an increase of 12% from last year;

And subscription revenues from Optimost were $1.5 million for the fourth quarter, which amount is net of approximately $300,000 purchase accounting adjustments. Revenues from Optimost only reflect sales since the November 1 acquisition date.

Consulting revenues in the quarter included the benefit of approximately $500,000 from customer engagements with acceptance provisions, which were completed in Q4. Non-GAAP gross margin in Q4 was 75%, up from 74% last quarter and essentially the same as last year. Our license gross margin was 96% while our non-GAAP services margins were 60%.

Total non-GAAP operating expenses were $37.2 million, up from last quarter, due primarily to variable costs associated with higher revenues and operating expenses from Optimost. Our overall headcount at year end was 888 employees, an increase of 97 from last quarter. Of the employees added in Q4, 67 were from Optimost.

We saw good operating margin expansion in the quarter. Our non-GAAP net income from operations was $10.2 million for the fourth quarter, up from $7.6 million a year ago. As a percentage of revenues, non-GAAP income from operations was 16%, an increase from 14% last year. In Q4, Optimost posted a loss from operations of approximately $250,000.

After considering interest and taxes, our non-GAAP net income increased 31% from a year ago. For the quarter, non-GAAP net income was $8.2 million or $0.18 per share, versus net income of $6.3 million or $0.14 per share last year. On a GAAP basis, our net income for the quarter was $10.7 million or $0.23 per share as compared to net income of $4.3 million or $0.10 per share last year.

Our GAAP results include charges associated with amortization of intangible assets, stock based compensation, and costs associated with the now concluded voluntary review of historical stock option granting practices.

Also, due to the company’s recent history of profitable results, our Q4 net income in the fourth quarter includes the benefit of approximately $4.2 million or $0.09 per share associated with the reversal of a portion of the company’s valuation allowance against its deferred tax assets.

For the full year, total revenues were $225.7 million, an increase of 13% from the $200.3 million posted in 2006. On the bottom line, our non-GAAP net income improved 47% to $28.3 million or $0.61 per share as compared to net income of $19.3 million last year or $0.44 per share. These record annual results reflect our continued focus on achieving revenue growth and expanding operating margins.

Turning to the balance sheet, we ended the year with cash and investments of $157.3 million, a decrease of $40.5 million from Q3. The decrease in cash from Q3 was due to cash paid for the acquisition of Optimost of $51 million.

Cash collections in the quarter were excellent. Excluding excess lease payments and costs associated with the stock option review, we generated approximately $14 million from cash from operations in Q4.

At quarter end, days sales outstanding were 57 days, relatively consistent with last quarter and last year. This statistic continues to reflect the fact that when customers purchase our software, they deploy it and pay for it.

Deferred revenues, which consist principally of deferred maintenance, increased to $62 million from $57 million at September 30. This increase is consistent with the company’s historical Q4 trend. Our maintenance renewal rates for the quarter were in line with the historical rates.

In summary, we are very pleased with our Q4 financial results. We posted a quarter of increasing revenues; improved margins drove record bottom line results, while simultaneously maintaining a conservative financial position. And these Q4 results punctuated a year of continued financial progress at Interwoven.

Now I’d like to comment on our financial outlook for the first quarter of 2008. Considering the traditional seasonality of our business and being mindful of the current macroeconomic uncertainty, we provide the following guidance.

For Q1 and including Optimost, we expect total revenues to be in the range of $59 to $61 million. We anticipate non-GAAP net income per share to fall within a range of $0.14 to $0.17. On a GAAP basis, we anticipate net income per share to fall within a range of $0.08 to $0.12. These per share estimates are based on a fully diluted share count of approximately 47 million shares.

Now, let me turn the call back to Joe.

Joe Cowan

Thanks, John. We completed a successful 2007 and we have a lot to be proud of. But it is now time to turn to 2008 and I am even more excited about the opportunities ahead of us. We have a strong profitable core business that will continue to be the foundation from which to build an even stronger company through organic development, strategic partnerships and acquisitions.

In this way, we believe Interwoven will continue (audio gap) becoming a larger and more profitable software company that is known as an innovative market leader that offers best-of-breed products to our customers, who are themselves regarded as market leaders.

I recently attended my first worldwide sales conference with Interwoven where I saw excitement and real passion on the part of our employees and partners to help build the kind of company that I have described.

They clearly grasped the tremendous opportunity before us. There was a real enthusiasm for being part of something special, as we continue on our journey. I very much look forward to giving another progress report in April at the end of our first quarter.

That concludes my remarks. Now we would like to open up the call for questions. Operator, can you please open the lines?

Question-and-Answer Session

Operator

(Operator Instructions). We will take our first question from Derrick Wood - Pacific Growth Equities.

Derrick Wood - Pacific Growth Equities

In terms of the hiring, looks like you did about 30 new hires excluding Optimost. That seems to be a very big number, pretty aggressive, the biggest I think I’ve ever seen. Can you give us some color around what initiatives you have with these significant new hires?

John Calonico

If you were to subtract the Optimost employees, we did add 30 total employees to what we would now call the Interwoven core business. And of those 30 employees, Derrick, a significant portion of those went in to the Customer Support and Consulting area.

Quite honestly, we were finding that we provided a little bit too much of that service from consultants and contractors, and so we felt it was appropriate to bring that talent in-house at this point.

Derrick Wood - Pacific Growth Equities

On Optimost. So the revenue number, is there a maintenance write-off at all or how is the structure in the accounting for Optimost?

John Calonico

As I mentioned in the prepared remarks, the total revenue recognized for Optimost in the quarter was $1.5 million. And that is revenues recognized since the transaction closed on November 1 through December 31.

That $1.5 million is net of approximately $300,000 of what you were classically referring to as the purchase price accounting and the writedown of deferred maintenance. And so, the amount recognized of $1.5 million is the amount that we recognized in both the GAAP and the non-GAAP financial statements.

Derrick Wood - Pacific Growth Equities

And we saw a jump in service margins sequentially in the quarter, pretty nice, I think it was around 61%. Was that due to just a lower percentage coming through from Professional Services? Just guide us through that, and then if you could give any color on what the gross margins are, on maybe a normalized basis for Optimost?

John Calonico

Let me take the services gross margin question. One thing that I would point about that is that the Optimost gross margins have been relatively consistent with what we’ve seen in the Interwoven business on an overall basis.

We did have in the quarter and I mentioned this in the prepared remarks, one transaction which was about $0.5 million dollars of services revenue that got recognized in Q4, but essentially it was related to an acceptance provision. And therefore the majority of that work was provided in Q2 and Q3, and the expense recorded in those periods, but then the revenue recognized in Q4.

So that did have a small impact on the margin. I would say the larger impact though, Derrick, is that maintenance continues to become a higher portion of the business, and that’s high margin business for us.

Derrick Wood - Pacific Growth Equities

Final on the metrics, you said 108 new customers, does that exclude Optimost, is that the organic number?

Max Carnecchia

That includes the Optimost number as well.

Derrick Wood - Pacific Growth Equities

It definitely it seems like you obviously are entering 2008 with a lot more products. You’ve got great momentum. What are the most important drivers that you think are instrumental for ‘08 to continue to drive this momentum? And then on the flip side of that, are there any risks, have you seen anything on the economic side that would lead you to see any changes in budgets or spending?

Joe Cowan

I’ll get that first, and then let Max chime in with a few words. If you look, we do have some good momentum. We’ve got some products. We talked about things like our CAPS products, we’ve got the Optimost products.

The nice thing about Optimost is we’ve got it integrated into our Enterprise sales group, and it gives them something else to go sell, and that actually helps us in the selling of our core products. So we think we’ve got a nice family of products, things like the Targeting products.

We are focused on areas in the marketplace where there is growth, because companies are continuing to invest in their websites. Even as the economy gets a little shaky, we are seeing companies that are starting to move more and more of their advertising dollars over to the Web business.

And that means those websites have got to be optimized and the content has got to be better mapped so those customers can handle the website. So we think that we are positioned with our products and our services going into 2008.

As far as the market is concerned, we mentioned that in the Global Capital Markets business, which we are selling to financial organizations, we did see some challenges there. We think we still have a good solution, and we think there’s still opportunities in that marketplace.

But as you know, with all the turmoil going on, a lot of those companies are just waiting to see exactly what’s going to take place before they really spend a lot more money. Max, you want to pick up on that?

Max Carnecchia

What we need to continue to do in 2008 is execution, which I think we’ve done a competent job of through the last couple of years. In addition to what Joe pointed out, which was mostly around the Enterprise Web Content Management business, we have the same type of opportunity in our Professional Services Industry Solutions Group, with the Interwoven Universal Search and many of the new and updated capabilities that we introduced through the course of 2007. And that team just knocked the cover off the ball, and I know that Chris and his team will be able to continue to do that in 2008.

From an economic perspective, I agree, all the customers I speak to, the partners with the exception of what you pointed out, Joe, with Global Capital Markets, don’t see anything specific that I could point to where, Derrick, I hear from customers that they are pulling back in spending, or they are trying to dial it down.

I think our caution and what John is trying to share with you is, you can’t pick up a newspaper or read a story online or listen to a news report on a radio without hearing about some economic headwind, and we are identifying that.

Derrick Wood - Pacific Growth Equities

And Max, you have three core products in the Web Content Management side of things now. Is there going to be any changes? Do you foresee any need to do any changes to the sales force structure, go-to-market structure, marketing initiatives, etcetera?

Max Carnecchia

I think, Derrick, just to maybe expand on your thought a little bit, there is a set of capabilities there, and I don’t know if I would just bucket them up into three areas.

When you take all of the capabilities that TeamSite, Site Publisher, Targeting, Optimost, the Composite Application Provisioning, MediaBin, MetaTagger, all of the fantastic things that we’ve done to build out, really what is now an online marketing platform, I think we’ve got the right organizational structure. We’ve got the right team. We’ve got the right leadership.

What you’ll see from us as we continue to be successful is potentially adding a little bit more capacity through the course of 2008 on the sales side so that we can take advantage of what we are seeing out there in the market.

Operator

We will take our next question from Matthew Andrews - Kaufman Brothers.

Matthew Andrews - Kaufman Brothers

I am dialing on behalf of Bobbi Coffey. I just have two questions regarding your Financial Services sector. Can you give me an understanding of what weakness you are seeing there? And then based on current economic developments, can you give me an understanding as to what assumptions you are making when determining guidance?

Max Carnecchia

I’ll try to take your first question, and then John can take the second part of the question. You referred to it as our Financial Services business and actually the only place where we’ve seen some challenges is more the Global Capital Markets business, which is a very small subset of overall Financial Services, and those are the bulge bracket prime brokerage firms that are out there.

We’ve identified that those firms are reviewing their budgets for 2008 with a fine toothed comb, and they are doing it not once, not twice, but they are checking that list three times. And that’s again against everything that you see every day in the newspaper around these big write-offs that they are going through and making sure that they’ve got their expenses and their investments lined up against where their businesses are going to grow or what’s going to happen in their businesses in 2008.

Just to remind you, the Global Capital Markets portion of Interwoven’s business is the smallest by far of the three businesses that we have, and our team has done a great job of seeing this coming and then reorienting the way they are going to market to ensure that we are not over-balanced against that opportunity set in the market.

And John, over to you for the second part of that question.

John Calonico

As far as the guidance goes, our approach has always been to be conservative with what we guide, and that has been our history over the last four to five years, where we want to put numbers out that we know we can achieve. We clearly continued that practice with the guidance that we gave you today, and believe that we’re well positioned to be able to deliver against that guidance.

We will, in Q1, always caution folks about the Q1 seasonality, and we do think it was important to mention the fact that we, like everybody else, are reading the papers and seeing the macroeconomic conditions, but again, this is just us trying to provide conservative guidance that we know we are comfortable with.

Operator

And we’ll take our next question from Mark Schappel - Benchmark.

Mark Schappel - Benchmark

Max, to start off with you, regarding the large deals that were signed, how many of those came from the Web Content Management side of the business and how many came from the collaborative document management side of the business?

Max Carnecchia

Two of those came from the Web Content Management side of the business and two came from the Professional. So it was an even split there.

Mark Schappel - Benchmark

And John, regarding the $1.5 million in Optimost revenue in the quarter, how much of that is reflected on the license line and how much is reflected on the services line on the income statement?

John Calonico

That’s a great question, and I probably should have been more forward with that, but all of it is in the services line at this point. It’s a subscription business, software as a service model, and therefore we’re reflecting in the services line item. So the $1.5 million is in services at this point.

Mark Schappel - Benchmark

From your answer it’s fair to assume that all of the license growth you saw was from the organic business?

John Calonico

Yes.

Max Carnecchia

100%.

John Calonico

Great point; it is all from the traditional businesses that we had throughout the year.

Mark Schappel - Benchmark

And any one side of the business that seemed to tilt the scales this quarter, or was it just well balanced across the board?

Max Carnecchia

You gave me a chance to shout out to my team; our PSIS team did an amazing job in Q4 and throughout 2007. The Enterprise team, Ray Picard, James Murray, Sanjay Aurora, those guys just completely nailed it, so it was both international, as well as domestic on the enterprise side as well, so very nicely balanced.

Mark Schappel - Benchmark

Okay, and then just finally how many sales reps today do you have actively selling the Optimost product?

John Calonico

So it’s the entire enterprise team; it’s probably about 50, may be a little over 50 individuals on a world wide basis.

Operator

We will go next to Nate Swanson - ThinkEquity.

Nate Swanson - ThinkEquity

Question for John, it’s been a while since we’ve been able to talk about operating margins. Without giving calendar ‘08 guidance, I’m just wondering if you could talk a little bit about how lean you are running and whether at this point you might be leaning more towards the side of investing for top-line growth or if you think you are at a comfortable point where you can continue to deliver the operating margin expansion that you have over the past four to six quarters?

John Calonico

That’s a great question, Nate. Just to give you some additional information here, when we closed out 2007 here with a 16% non-GAAP operating margin, that number would have been 17% had it not been for the haircut that we had to take on the Optimost revenue.

So, you’ll recall that our objective was to get to the high teens and into the 20% as a business as we look forward. At this point in time, as I look at the business, we’re focused on continuing to drive operating margin expansion. That operating margin expansion will come from revenue growth and it’s clearly this company’s intention through 2008 to continue to deliver additional margin points.

As far as the specifics, we’ve given guidance for Q1 and we haven’t given guidance beyond that. So look for us to continue to drive margin, that’s just one of the fundamentals of our business.

Joe Cowan

Let me make a comment. If you go back and just look at the entire software space, size does matter when it comes to your ability to deliver on your margin. And that’s the reason we are focused on both of them. We think growth is important, but we believe we have to continue to be a profitable company. So, it’s going to be a profitable growth.

Nate Swanson - ThinkEquity

Along that line as you look at your $160 million in cash, I am wondering if we do enter a downturn in the economy, if you think private company valuations will become more reasonable increasing your potential to do things at better valuations and if that’s been an impediment to you over the past year or so?

Joe Cowan

If you look we did the Optimost acquisition. Anytime, you’re in today’s market buying growth, you pay a nice multiple for it, but we believe that it’s very strategic to us and what we’ve actually done since I have been here, we’ve spent a lot of time and a lot of energy going back, looking at our business, understanding both the marketplace and our business and understanding strategically where we think we need to go.

We’ve now completed our strategic process even though strategy is an ongoing thing, but we have our plans in place and I think we understand our business clearly enough to know where there’s targets of opportunities for acquisitions and with the valuations, that does help and it may open some of those targets up for us sooner, rather than later.

Nate Swanson - ThinkEquity

Okay. And then focusing on the Optimost side a little bit. John, I just want to make sure I understand correctly. The loss of $250,000 for the quarter on the Optimost business, does that include the 300K write-down of deferred?

John Calonico

Yes it does Nate and let me just be real clear. Had we not taken the deferred write-down of $300,000, we would have shown a breakeven for the Optimost business for the quarter.

Nate Swanson - ThinkEquity

And have you said − refresh my memory − how large of a write-down for the 12 month period?

John Calonico

No we haven’t. But I will tell you that in Q1 it’s probably a couple of hundred thousand dollars, maybe about the same level. And that’s because it’ll be three months of results, versus two months of results in Q4.

Nate Swanson - ThinkEquity

And then just my last question there would be maybe for Joe or for Max. In terms of the Optimost business, historically some of the competitors in that space have seen higher churn rates, I guess would be the correct way to phrase it, in installed base there. I am just wondering what are you seeing in terms of, one, competitive positioning, and two, the duration of contracts and the predictability of that business.

Max Carnecchia

First from a competitive perspective, there aren’t a lot of competitors for that business. It’s really one significant competitor and I don’t think that dynamic has changed much at all. I was very pleased with the performance of that business for us even in the stub period for Q4 and it, both in terms of what the turnover was, the churn and then the new customer acquisition and the renewals and the subscriptions that were ongoing, was right in line with what we had expected and right in line what we had anticipated.

Operator

And we’ll take our next question from Paul Kaump - Northland Securities.

Paul Kaump - Northland Securities

Optimost, you said 108 customer wins and that included Optimost correct?

John Calonico

That’s correct.

Paul Kaump - Northland Securities

Optimost by itself, do you have any numbers there that you can share with us or is it just too difficult to split that out?

John Calonico

It’s not difficult to split it out Paul, but I don’t think we are going do that. It’s fair to say that we had a healthy number of customer acquisitions on the traditional side of the business. And the Optimost guys, they continued to grow that business. We continued to add new customers at a really nice pace.

Max Carnecchia

Paul, the other point here is that we are selling Optimost as part of a solution with Interwoven. And therefore if I were to parse the customers for you, I wouldn’t necessarily be able to; 1 plus 1 would be a larger number than 108, just because of the way this thing is playing out.

Paul Kaump - Northland Securities

Can you give us any sense on how many customer wins there were with people taking up both Optimost and then some other legacy product?

John Calonico

So we used that example with Digi-Key. There were definitely multiple examples of that. In the first two months of being together, I don’t know that we want to set any expectations, but it was definitely nice.

Paul Kaump - Northland Securities

But it sounds like you’re getting good traction on both sides?

Max Carnecchia

Yes. We didn’t really hammer this at all in the prepared remarks, but having Optimost is something that our existing installed base has been asking for, and now we have it. And so, both the installed base customers that we can cross sell to and sometimes that brings additional Interwoven product, sometimes it’s just the Optimost.

But you could say it’s turning out to be the combination that we anticipated and a lot of excitement in the market. It’s definitely helped the perception of Interwoven get beyond just traditional Web content management and there’s lot of enthusiasm amongst customers and amongst our field team.

Paul Kaump - Northland Securities

And can you refresh my memory as to how many customers they had when you acquired them? Was it something in the 70s-80s?

John Calonico

Paul, it was about a little over 70 customers that they had. The subscription number of customers, that is, the ones that were on repeatable business models were somewhere in the order of 60 I believe.

Paul Kaump - Northland Securities

And then it was roughly a $10 million revenue run rate if I am not mistaken. How do you see that out in fiscal ‘08? You had a pretty good start here in the first couple of months, post-acquisition. Is that the kind of business that can grow 30%, 40% this year, or how are you looking at it?

John Calonico

Paul, we didn’t give specific guidance for Optimost. We clearly believe that coupled with the products that we sell, that it has significant growth opportunities for us in 2008. You do know the place that we are starting from. So we are starting with a run rate of about $1.8 million and we see some fairly substantial growth as we look out into 2008. Max you want anything to add on that?

Max Carnecchia

Just I keep coming back to what we are seeing in the market, which is that just a lot of interest. And it’s us and one other company. There is not a lot of competition out there.

Paul Kaump - Northland Securities

And then just maybe if you could comment on the marketing pipeline overall, how that’s looking for the first half of ‘08, if you’re seeing any slowdown. Doesn’t sound like it from the macroeconomic standpoint. But what are you anticipating there?

Max Carnecchia

Paul just from my perspective, we had our kick-off two weeks ago. We brought in a very significant number of our partners and when I look into what my sales teams are telling me, the customer interactions that I have directly, and then what we’ve heard from our extended channels, our alliance partners, I’m just not hearing a lot about any kind of slowdown.

The slowdown that John and Joe and I are talking about, and were in the prepared remarks, are really a reflection of turning on your browser in the morning and reading a story in Yahoo.

Operator

There are no further questions at this time. I’ll turn the call back over to Ms Ackerman.

Keren Ackerman

Thank you everyone for joining us today. We look forward to talking to you again in April.

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Source: Interwoven Q4 2007 Earnings Call Transcript

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