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Double-Take Software, Inc. Q4 2007 Earnings Call Transcript

February 18, 2008 | about stocks: DBTK

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Double-Take Software, Inc. (DBTK)

Q4 2007 Earnings Call

February 5, 2008 4:30 pm ET

Executives

Melissa Sharp - Investor Relations

Dean Goodermote - President, CEO, and Chairman of the Board of Directors

Craig Huke - Chief Financial Officer

Analysts

Walter Pritchard - Cowen & Company

Brent Bracelin - Pacific Crest Securities

Aaron Schwartz - JP Morgan Securities

Tim Klasell - Thomas Weisel Partners

[Menish and Ron Johnny] - Oppenheimer

Mark Kelleher - Canaccord Adams

Analyst for Richard Kugele - Needham & Company

Rajesh Ghai - Thinkequity Partners

Presentation

Operator

Good day everyone and welcome to the Double-Take Software’s fourth quarter and year end 2007 conference call. The date of this call is February 5th. This call is the property of Double-Take Software and any recording, reproduction, or transmission of this conference call without the express written consent of Double-Take Software is strictly prohibited. This call is being recorded, you may listen to a webcast replay of this call by going to the Investor Relation section of Double-Take’s website. And now at this time I’d like to turn the call over to Miss Melissa Sharp, Investor Relations for Double-Take. Please go ahead.

Melissa Sharp - Investor Relations

Good afternoon and thank you for joining us to discuss Double-Take’s financial and operating results. With me today are Dean Goodermote, President, CEO, and Chairman of the Board of Directors, and Craig Huke, Chief Financial Officer. On the call today you will hear forward looking statements about events and circumstances that have not yet occurred, statements regarding projected financial results, statements containing words such as; will, expect, believe, and should, and other statements in the future tense are forward looking statements. Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties. Please refer to the company’s recent SEC filings at the SEC’s website at www.SEC.gov for detailed discussions of the relevant risks and uncertainties. The company undertakes no responsibility to update this information in this conference call under any circumstances.

This press release distributed today, that announced the company’s results, is available on our website at www.Double-Take.com in the Investor Relations section, under financial press releases. The current report on form 8-K furnished with respect to our press release is available on our website in the Investor Relations section, under SEC filings. In addition, in this conference call, we will provide non-GAAP financial results. The reconciliation of these measures to GAAP measures is set forth in the tables that reconcile our non-GAAP results to GAAP results from the press release located on our website as I described.

Before I turn the call over to Dean, I would like to mention that the company will present at the following investment banking conferences during this calendar quarter: the Thomas Weisel Partners annual technology, telecom, and internet conference in San Francisco on February 7th, Credit Suisse software conference on February 13th in the Pacific Crest Data Center, 3.0 conference in San Francisco on February 29th. Now I will turn the call over to Dean, Chairman, CEO, and President. Dean.

Dean Goodermote

Thank you Melissa. We’re very pleased with our proponents for the quarter just completed, as well as for the entire year, and we’re looking forward to a solid and consistent 2008. With many achievements during the year, our first full calendar year as a public company. One of the major achievements was financial performance, we met or exceeded our revenue targets for each the quarters and for the year. We were quite accurate with our revenue projections, less so with our income projections, we were always well ahead of those projections. We hope to achieve similar consistency with our revenue guidance this year, and expect to be more accurate on [inaudible] since with the acquisition of TimeSpring, we are now caught up on our head count targets for 2007 and will be expanding from here. One financial metric I’m particularly pleased with is our cash position. Despite making earn out payments for the acquisition of Double-Take EMEA during the quarter of about $2 million, that’s our next to last payment, and acquiring Double-Take Canada, for which total transaction costs were close to $9 million, our cash position was down less than $3 million from where it had been at the end of the third quarter. In our development efforts we made considerable progress over the course of the year. Among other things we substantially enhanced our offerings for Microsoft Exchange and SharePoint server applications, and VMware’s ESX virtual machine replication. And we used the release of Double-Take reporting console in the second quarter of the year and our unique full server fail over, which replicates whole servers including application and operating system changes in Q4 to set in motion price increases in most markets for our flagship product Double-Take and its associated support fees. These two increases were effectively an 11.5% point increase. By approaching the market with overall price increases rather than add on license sales, we boosted support revenue last year and in the future at the expense of some license revenue. We will never know how much, but I believe it is meaningful to explain some of the differences between the component breakdowns of our actual revenue than that modeled by somebody on the street.

The support fee stream is recurring and very sticky. It is extremely important to us and we focus on ways to boost it. Our deal sizes on average were similar in the fourth quarter to what they have previously been. The average deal is around $10,000.00. We continue to increase our third-party relationships and have added more than 50 partners for the quarter and more than 200 for the year. Dell remains our largest re-seller, representing about 17% of sales in the fourth quarter, followed by Florida based Sun Bell with about 12%. No other partner represented more than about 10% of sales for the quarter or the year, though CDW, Bell Micro and HP contributed in meaningful ways. Not surprisingly, HP has failed to keep pace with our business overall.

As the OEM model we work with, we believe that does not leverage our strength so we are re-deploying some of the resources we have dedicated to it. We will also be exploring a change in the model. For both the quarter and the year, about 91% of our sales came from direct channels, 90% for the quarter and 91% for the year. About 35% came from international markets for both periods. This is up about one basis point from where it was last year and it is an area we want to focus on growing.

We continue to see pull in the virtual space. Our virtual product sales represent about 10% of total product sales for the fourth quarter and about 8% for the year. We believe the actual pull to be greater than this since our physical products are also sold into the virtual market space. A major milestone for us last quarter was the completion of our first technology acquisition, when we acquired TimeSpring, which I referred to earlier as Double-Take Canada. This acquisition will give us the ability to roll back to any point in time. Today, Double-Take provides for recovery from catastrophic events such as hurricanes. TimeSpring allows us to recover from operational errors such as a misplaced sequel statement. The technology of TimeSpring is architecturally very similar to Double-Take, so from that perspective the acquisition was ideal. Also its engineering talent fits well with ours and we believe Montreal will be a good venue for our development center. In the medium term, as we work on integrating the product with Double-Take, sales are not likely to be meaningful and margins will be impacted. In the long run, we plan for the acquisition to have a positive impact on revenue. Also in thinking about the medium and long-terms, the answer to the question that is on many of your minds is, “No, we have not seen an impact in the field from the apparent slow-down in the global economy.” With that said, it is hard to get away from the noise and no doubt impact our outlook.

I will now turn it over to Craig to give you more details. Craig.

Craig Huke

Thanks Dean. I will cover a few of the highlights of the quarter and then we can open up the call to questions. Double-Take’s total revenue for the fourth quarter was $23.5 million, an increase of 23.5% from the fourth quarter of 2006 and at the top end of the range of our previous guidance for Q4, which was $23.1 million to $23.6 million. Software license revenue was $14.2 million, an increase of 16.4% from the $12.4 million of the fourth quarter of 2006 and very close to the total that we had anticipated when we gave our Q4 guidance back in October. Maintenance and professional services revenue totaled $9.4 million; an increase of 36% from the $6.9 million in Q4 2006 and no revenue from TimeSpring that was acquired on December 24th was recorded in the Q4 results.

Gross margin for the quarter was 90.5% compared to 90.6% last quarter and 90.6% in Q4 of 2006. Operating expenses totaled $15.8 million in the fourth quarter, an increase of 2% from $15.5 million in the fourth quarter of 2006. There was approximately $0.1 million of costs for TimeSpring included in the operating expenses in the fourth quarter of 2007. There were a few unusual items in the operating expenses of Q4 in 2006 that impact the year-to-year growth rate and I’ll discuss them more in the G&A section.

Sales and marketing increased 23.7%, $8.2 million for the fourth quarter of 2007, from $6.6 million in the fourth quarter of 2006. The increase resulted from higher commissions on an increase in sales and revenue caused from higher head count in both the United States and in Europe and increased marketing spend. Sales and marketing expenses 34.8% of revenue in the fourth quarter of 2007, compared to 34.7% in the fourth quarter of 2006. Research and development expenses increased 7.2% to $3.1 million in the fourth quarter of 2007, from $2.9 million in the fourth quarter of 2006. Increase is primarily due to development costs related to head count and new products. R&D expenses as a% of revenue was 13.3% in the fourth quarter of 2007, down from 15.4% in the fourth quarter of 2006. General administrative expenses decreased $29.3 million, or 23.9% to $3.9 million in the fourth quarter of 2007, from $5.5 million in the fourth quarter of 2006. The 2006 number includes two one-time items. The first $3.2 million of non-cash compensation expense related to the issuance of stock to our CEO upon the completion of IPO last December, and it also includes a reduction of expense of $1.2 million related to cash received from our former Chief Operating Officer on the settlement of a dispute. Excluding these items, G&A expense in 2007 was 13% higher than in the fourth quarter of 2006, and the increase is primarily attributable to the cost associated with being a public company of $700,000, and this was partially offset by a reduction of stock expense of $200,000. Depreciation and amortization expense increased 23% to $600,000 in the fourth quarter of 2007, from $500,000 in the fourth quarter of 2006. The increase comes from higher depreciation expense on capital expenditures. GAAP operating income for the fourth quarter was $5.5 million, compared to $1.7 million in the fourth quarter of 2006. Operating margin was 23.3% during the quarter, compared to 9.1% in the fourth quarter of 2006. On an adjusted non-GAAP basis, operating income was $6.2 million in the fourth quarter 2007, compared to $6.0 million in the fourth of 2006, and ahead of our previously stated guidance for the quarter, $5.3 million to $5.5 million. Adjusted non-GAAP operating margin for the fourth quarter was 26.3%, compared to 31.5% the fourth quarter of 2006. A reconciliation of these non-GAAP financial measures, as well as other non-GAAP financial measures, we refer to in this call to the most directly comparable GAAP financial measures as included in the appendix or press release that proceeded this call and is available on our website. We also include in that release an explanation of how we used the non-GAAP measures and the components of these measures and we urge you to carefully read the disclosures. Other income during the fourth quarter was $600,000 compared to $100,000 in the fourth quarter of 2006. The increase is due to interest earned on higher average cash balances during the fourth quarter 2007. GAAP-net income was $6.3 million, or 27%, or $0.27 per diluted share for the fourth quarter compared to $0.5 million or $0.07 per share in the same period a year ago. All of the preferred stock that was on our balance sheet in 2006 was converted to common stock upon the completion of our IPO so we had no accretion or dividend charges during 2007. During the fourth quarter, the company recorded an income tax benefit of $300,000, compared to income tax expense of $100,000 in the fourth quarter of 2006. The income tax benefit came as a result of the company reversing the valuation allowance on approximately $2.4 million of deferred tax assets relating to net operating loss carried forward through 2009, the benefit of which we now believe will more likely than not, be realized. The effect of this reversal, which was not considered in the guidance that we had given for the quarter, was to increase reported earnings per share by $0.10 a share. Diluted weighted average outstanding shares for the fourth quarter was 23.2 million shares. In the fourth quarter of 2007, adjusted non-GAAP net income was $4.2 million compared to $6.0 million before accretion in dividends on preferred shares in the fourth quarter 2006. to get to adjusted non-GAAP net income, we excluded only non-cash stock based compensation expenses associated with stock options of $0.5 million in 2007 and $4.3 million in 2006. We ended the quarter with cash in short term investments with $54.7 million compared to $67.4 million at the end of September and $55.2 million at the end of December 31, 2006.

Cash from operations during the fourth quarter provided $8.3 million and we received $400,000 of proceeds from the exercise of stock options. Additionally, we used $900,000 for capital expenditures. We paid $1.8 million during the quarter for earn-out payments related to our acquisition of Double-Take Canada and we paid $9 million related to the acquisition of TimeSpring.

Accounts receivable on December 31, 2007 was $18.1 million which was up from $16.1 million at the end of September 2007. Accounts receivable days sales outstanding was 69 days at December 31, 2007 compared with 68 at the end of September 2007 and 60 days at the end of December 2006.

Head count was 348 at the end of fourth quarter 2007 compared to 320 employees at the end of September 2007. This number includes 15 employees we acquired from TimeSpring acquisition in addition, primarily in sales and technical support.

Turning now to full year financial results, total revenue for 2007 was $82.8 million, an increase of 36.0% from $60.8 million for the full year 2006. Software license revenue for the year was $49.2 million, an increase of 28% compared to $38.4 million in the same period last year. Maintenance and professional services revenue for the year were up $33.6 million up 49.8% from $22.4 million in 2006. Software licenses comprised 59.4% of total revenue in 2007 versus 63.1% for 2006. GAAP gross margins were 90.0% in 2007 compared to 87.6% in 2006. GAAP operating income for 2007 was $16.6 million compared to $7 million in 2006 and GAAP operating margin was 20% in 2007 compared to 11.4% in 2006. Adjusted non-GAAP operating income for 2007 was $19.2 million compared to adjusted non-GAAP operating income of $12.4 million in 2006. Non-GAAP operating margin in 2007 was 23.2% compared to 20.4% in 2006. GAAP net income was $20.1 million or $0.87 per fully diluted share for 2007 compared to a GAAP net loss attributable to common shareholders of $500,000 or $0.13 in 2006. Adjusted non-GAAP net income was $22.0 million in 2007 compared to $12.2 million in 2006. Adjusted non-GAAP net income for 2007 excludes $1.9 million of non-cash stock based compensation expenses associated with stock options. The adjusted non-GAAP net income for 2006 excludes $1 million of non-cash stock based compensation expenses updated with stock options and $3.2 million of non-cash stock-based compensation expenses associated with the great common shares to our CEO upon the completion of the initial public offering.

The company is providing its initial guidance for the first quarter and full year 2008 which reflects the result of 2-4-2007 and current business trends as follows. The company expects revenue for the first quarter of 2008 to be in the range of $21.9 million to $22.5 million. Non-GAAP operating income which excludes the impact of stock option expenses will be in the range of $3.1 million and $3.3 million. This does include the effect of amortization of intangible assets of $600,000 in the quarter. It does include the cost associated with our TimeSpring acquisition of approximately $800,000. Non-GAAP income per share for the first quarter 2008 is expected to be in the range of $0.10 to $0.12 per share, excluding the impact of stock-based compensation, but including the impact of amortization of intangible assets.

The effective income tax rate for Q1 is expected to be approximately 38% and weighted average diluted shares are assumed to be approximately 23.4 million to 23.5 million shares.

For the full year, revenue is expected to be $100.6 million to $103.0 million. Non-GAAP operating income, excluding the impact of stock option expense, is expected to be in the range of $20.6 million to $21.6 million, including the amortization of intangible assets of approximately $2.5 million. Non-GAAP income per share is expected to be in the range of $0.63 to $0.66, excluding stock-based compensation charges and including amortization of intangible assets. The effective tax rate for the full year is expected to be approximately 38%, and weighted average diluted shares are assumed to be approximately 23.6 million to 23.7 million shares.

So once again, I’d like to thank everybody for joining us today. And we now open up the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you, sir. Today’s question and answer session will conducted electronically. (Operator Instructions) And gentlemen, we’ll take our first question from Walter Pritchard with Cowen & Company

Walter Pritchard - Cowen & Company

Guys, just a couple questions. One, I am wondering if you can run through...In your prepared remarks you talked about the trade-off between licenses and support. I wondered if you could just give us a little bit more detail on that?

Dean Goodermote

Yeah, you sound sick.

Walter Pritchard - Cowen & Company

Yeah. Yep.

Dean Goodermote

Sorry about that. When we chose to raise prices twice, the option to - I’m sure this is understood well, that’s why I wanted to put it in remarks – the option to us was to release add-on products and had we done so they would have generated license revenue within our existing base. And at the extent that new customers acquired double-peg plus something, that plus something as an add-on would have been more than what we just raised the price at. So, in both cases, that eliminated license sales. But what it did do, and will do, for the future, is raise maintenance because our maintenance fees, our support fees are based off of license sales. So it boosted the maintenance rates. It dampened to some effect license sale, but it boosted maintenance rates both somewhat last year and into the future, and it also eliminated those license fees that we will never make. This was a very conscious decision and we sort of made financial calculations about what we thought would be the impact. And over the long term, medium to long-term, we think there’s just a great benefit to that approach. The second thing it does is by bundling these features and functions we believe it creates more of a sense of urgency to either sign up for, or continue, or renew maintenance in some way, shape, or form. Does that make sense?

Walter Pritchard - Cowen & Company

Yes. It does. And then, Steve, around HP, you mentioned you’re diverting some resources away from HP. Can you talk about what impact that may have on your 2008 guidance ?

Dean Goodermote

Yeah. Diverting, I think I said redeploying, and what we’re doing is we’re trying to make this model work for us. HP is a great company. And really the model we think is not good. So, their business is still important to us, but it’s growing at less of a rate than our company is, and it shouldn’t. So what we used to have a separate HP group that reported, really ultimately to me, but was locked off from the rest of the company, compete with the rest of the company. We’re at least now taking those resources and deploying them into respective sales managers around the world. And the hope is actually that we can start to bring to bear the attention that we give to other resellers such as we do like Dell or [inaudible] or anyone else. So there’s still people on it but just getting more integrated with the company. And then secondarily we hope to work with HP to get that contract structured into one that is more one where we can work where we can promote the name of Double-Take, we can take over the sales directly if we need to, we can take over the support directly and really make a push at it. We’re not good blind players.

Walter Pritchard - Cowen & Company

Then just this last question Craig on the margins. I notice you guys came into this year or I guess into ‘07 guiding something like 16% or 17% off your margins, you ended up doing like 24% just wondering if you look at 21% your guiding to for this year how should we think about that? It seems like you would have to hire an awful lot of people to get there.

Craig Huke

You know I think you know Dean made a comment in his remarks that we were in essence fully hired to our budget by the end of ‘07 and throughout the year we had always been below that budget which is why the operating margins came in higher than what we had originally guided to. I think given where we are today and where we expect to be, you know I would expect we would be in that range somewhere. You know I think we had the benefit of slower hiring last year that I wouldn’t expect to be there in ‘08.

Walter Pritchard - Cowen & Company

And just any headcount target in terms of the end of ‘08, what’s that?

Craig Huke

I think I said we ended at 348 or something like that, we are looking at a 20% to 25% headcount growth throughout the year of ‘08.

Walter Pritchard - Cowen & Company

Okay great thanks.

Operator

We’ll go next to Brent Bracelin, Pacific Crest Securities.

Brent Bracelin - Pacific Crest Securities

Thank you Dean. I was wondering if you could talk a little bit about the growth here in the market obviously you’ve talked a little bit about the license dynamics. But as you look at your guidance for ‘08 you’re looking at a 21% to 24% growth that’s even with the benefit of this what 11% price increase which would imply that the new licenses and distributes of new licenses growth would slow material here. How fast is this market growing? Are you seeing a slowdown in overall market? Could you frame maybe your guidance of 21% to 24% growth relative to the market opportunity?

Dean Goodermote

Well you know again we really, really, really, I can’t stress this enough, look at our revenue as revenue and maintenance is important. So it’s always risky to think that license you know when you start breaking down looking at components. Businesses like ours are never 100% renewal. So we look at that bottom line as our growth and relate it to the market growth. So the top end of the guidance we’re approaching we’re 24%, more than 24%, which is sort of in the range we’ve always said this market is growing at as 20% to 30% so I feel we’re in the similar position as we were. You know I’m not sure how to say this otherwise. It is hard today with everyone reacting the way they are to predict a robust world economy. So beyond that there is no, I don’t see empirical evidence that the market growth has slowed.

Brent Bracelin - Pacific Crest Securities

Okay fair enough. As you think about your guidance for operating income growth you know you kind of answered this. But as you think about that guidance it implies about a 10% kind of increase this year in operating profit is again that being conservative or are there some specific plans where you guys plan to make some investments this year?

Dean Goodermote

Yeah what we’re really making the investment is, is the TimeSpring business so we’ve sort of loaded all that in and we’ll be investing that in the short term and we’ll see what happens with that later on in the year.

Brent Bracelin - Pacific Crest Securities

Okay great. My last question. Have you had any push back from the two price increases in the last quarter that has resulted in some customer losses?

Dean Goodermote

Not one that I’m aware of, I do think that price increases combined with a skyrocketing euro and pound probably had some impact on us late, late in the year not so much that we lost deals, it’s just it was starting to become, we’re a modest priced product, and I think it was starting to become very high priced in Europe but again I can’t point to an example of where we actually lost something because of the increases.

Brent Bracelin - Pacific Crest Securities

OK thank you.

Operator

We’ll go next to Aaron Schwartz at J P Morgan.

Aaron Schwartz - JP Morgan Securities

Good afternoon. I just had a question about the mechanics of the price increase. In terms of the install basis they move to 5.0 if they’re on maintenance. Do they have any type of license catch up or do they just pay the higher maintenance price automatically and have rights to that product?

Dean Goodermote

That’s exactly it. The latter point is that they pay the maintenance and they don’t buy a license.

Aaron Schwartz - JP Morgan Securities

Okay.

Dean Goodermote

That was partly what I was trying to say. It’s a double positive. In fact, I think is one, their maintenance rate goes up this year next year the year thereafter and then two, they have more of a reason to continue maintenance or to re-engage in it.

Aaron Schwartz - JP Morgan Securities

OK and then just looking at your revenue forecast for calendar ’08, is it fair to assimilate that you do not include any revenue from the time share products or do you just include them and monitor later in the year?

Dean Goodermote

We may not report on it directly I’d say is an accurate statement that our assumptions are as modest to date.

Aaron Schwartz - JP Morgan Securities

Okay. In terms of the windows server release that’s upcoming, do you have any... If you look back at prior releases, do you expect any slow down or re-acceleration of your product growth around that release or how do you look at that?

Dean Goodermote

Well, we’re going to try and market off of it. What’s happened in recent years is that Microsoft has become so big and then in some ways... you know, their software is so good and there hasn’t been a massive upgrade falling so if you take like Vista for instance, I know it’s on the desktop. If we did something with Vista it would have been of minimal influence, so you won’t see a massive... I don’t think you’ll see a massive increase in business from us, but to the extent that people do move we want to be associated with it, and it’s just that I would suspect it’s modest but from a market point... And although you didn’t ask, I don’t know when they will finally be ready with a competitive, with a hyper V. I think that provides a bigger opportunity for us than the 2008 server.

Aaron Schwartz - JP Morgan Securities

OK understood, and lastly it seems like time frame in terms of maybe accelerating your investments gives you a team of developers. Is it fair to assume that incremental investments this year will then be focused on the sales side?

Dean Goodermote

Definitely more than last year but we are doing investment across the company but relative to last year we are investing more in sales and sales and marketing around the world than we did before.

Aaron Schwartz - JP Morgan Securities

OK that’s helpful thanks for taking my questions.

Dean Goodermote

Thank you

Operator

We go next to Tim Klasell with Thomas Weisel Partners.

Tim Klasell - Thomas Weisel Partners

Yeah, just a quick question on the guidance and how TimeSpring impacts that. Mentioned sort of a modest impact of TimeSpring. When should revenue start to come in from TimeSpring? Should it be the second half of the year, how should we be thinking about that?

Dean Goodermote

Yeah we’re not... you know it could be sooner but we’re not thinking of it before the second half.

Tim Klasell - Thomas Weisel Partners

OK and then real quickly on the virtualization product, there was a nice sequential uptick there on that product. Did you do anything special or was that just natural market forces.

Dean Goodermote

I think it’s natural market forces. I think... you know, we were around early in the space. I think it’s gotten very noisy and kind of confusing, and so what we did was always there. I think it might be beginning to be understood and referenceable if there was anything but there was nothing other than continuing to work along with it that was special.

Tim Klasell - Thomas Weisel Partners

OK good, and then on guidance you certainly have given us the sort of hints that the guidance may be a little bit conservative because you have some concerns around the macro even though you’re not seeing it. Do you have any sort of a gut feel that if you are going to see a sort of a macro slow down when you it would impact you?

Dean Goodermote

I don’t know. I think I can get into your business. Um. No. I mean, I guess it’s just, it’s impossible for it to not affect your attitude as you’re looking forward and then to put a better realism. I said we were sort of lagging indicators. I think probably we get hurt not so much because she opposed the white purchases and this is what I’m talking about that we haven’t seen anything. It’s more like if large institutions that would be buyers of ours started laying off lots of people and that would result in much use of email or people, servers or share point or less need for virtualization, things like that. So I don’t know when that would be if ever but I think if you start seeing layoffs, that would hurt us but I don’t know.

Tim Klasell - Thomas Weisel Partners

Just jumping over to the maintenance renewals, did the price increase and did that cause people to look around and say ‘I probably should renew my maintenance agreements rather than buy a new license every so often?’ Did you see an uptick in maintenance renewals?

Dean Goodermote

Yea, now again, I don’t have the specific numbers to quote or we don’t feel secure enough to know that they’re accurate, but internally we believe we saw a fairly significant uptick over the year, yes.

Tim Klasell - Thomas Weisel Partners

Ok, ok. And then one final one. Craig, the license to services split, can you give us sort of a feel for that for the year?

Dean Goodermote

Um, yea I think you’re looking probably close to what we saw in 07, maybe 59, 5941 in there some where. Not terribly different from what we’ve been at for the last four quarters or so.

Tim Klasell - Thomas Weisel Partners

Ok. Very good. Thank you.

Operator

We’ll go next to [Menish and Ron Johnny] with Oppenheimer.

[Menish and Ron Johnny] - Oppenheimer

Are you planning on implementing any of these price increases internationally?

Dean Goodermote

There have been some increases in some international markets. The currency appreciations mostly in Europe took that over. And in Europe by the way we announced that since the last quarter increase we’re going to be, we started experimenting with a lower tier product to go after the less critical servers. So there’s some even differences in pricing in Europe than there is in here and we’re continuing with that this quarter.

[Menish and Ron Johnny] - Oppenheimer

What’s the pricing of that lower tier product?

Dean Goodermote

I don’t have it exactly but you’re talking about you know it could half of less than half of what the current one is.

[Menish and Ron Johnny] - Oppenheimer

Ok.

Dean Goodermote

It’s bought in sort of chunks usually. And we just started doing that and so far it’s not a huge number but the trends look good.

[Menish and Ron Johnny] - Oppenheimer

Ok. And any update that you can provide us on the Linux platform?

Dean Goodermote

We’re really at what I think you know large companies call pre launch. So we’re out with selected customers with the product. We’re being on technical issues.

[Menish and Ron Johnny] - Oppenheimer

Do you be on Beta?

Dean Goodermote

Yes we’ll be on Beta.

[Menish and Ron Johnny] - Oppenheimer

And you talked about 20% to 25% head count growth. What areas are you looking at for 2008 and how do you plan to add these adds, is going to be more linear or should we expect more to be added towards the first half of the year versus the second half?

Dean Goodermote

I’d say that you’re looking for it to be more heavily weighed towards the first and second quarters. But you look at where the heads are going to come from. He mentioned we are going to invest more in sales than marketing. Excuse me. And a lot of that outside of the U.S. But if you look at the biggest piece of it it’s going to be in the engineering product development area. We will add people in Montreal to the TimeSpring development center that we’ve got and also in Indianapolis so those are really the two biggest areas and then also with our technical support group to make sure that that would continue to keep the customers supported and happy.

[Menish and Ron Johnny] - Oppenheimer

All right. Thank you.

Operator

We'll go next to Mark Kelleher with Canaccord Adams.