Sonic Solutions (SNIC)
Q3 2006 Earnings Conference Call
February 8th 2006, 4:30 PM.
Executives:
Anne Leshcin, Investor Relations
David Habiger, President and Chief Executive Officer
Clay Leighton, Chief Financial Officer
Analysts:
Paul-Jon Mcnealy, American Technology Research
Richard Ingrassia, Roth Capital Partners LLC
Jeff Osher with JMP Asset Management
Sameer Doctor, J.P. Morgan
Justin Cable, B. Riley & Company, Inc
Steven Frankel, Canaccord Capital
Michael Cox (Gene Munster), Piper Jaffray
Chris Kinkade with America's Growth Capital.
Presentation:
Operator
Welcome to today’s Sonic Solution’s Third Quarter Fiscal Year 2006 Conference Call. This call is being recorded, today’s call will last approximately 60 minutes. With us today is the President and Chief Executive Officer, David Habiger, and the Chief Financial Officer, Clay Leighton. Now at this time I would like to turn the conference over to Anne Leshcin. Please go ahead ma’am.
Anne Leshcin, Investor Relations
Good afternoon and thank you for joining Sonic Solutions fiscal third quarter 2006 earnings conference call. With me today are, on today’s call David Habiger, President and CEO and Clay Leighton, Chief Financial Officer. Dave will provide a summary of our third fiscal quarter performance and then review the status of our target market and look at recent announcement and review our corporate priorities. Clay will then review our financials in more detail and provide guidance. I would like to take a moment to mention that during the March quarter in 2006, the Company will be presenting at the Roth conference on February 21st, and at the JMP Conference on March 7th. If details aren’t available and other events occur, we will make additional announcement.
Before I hand over the call over to Dave, I will review our Safe Harbor. During the course of this conference call, we may make projections within the meaning of the Federal Securities Laws including the Statements regarding Sonic Solutions growth and financial performance, as well by strategic and operational plans. These forward-looking statements are based current information and expectations and are apparently subject to change.
Actual results may differ materially and adversely to those in our forward-looking statements due to various factors. We ask that you review these cautionary statements as listed in today’s press release. Future for the company’s recent filing on Form-10K and 10-Q, for more detail discussions of the relative risks and uncertainties. Sonic Solution’s undertakes no obligation to review or update any forward-looking statements or update the reasons, actual results could differ materially from those anticipated in forward-looking statements.
I would now like to turn the call over to David Habiger.
David Habiger, President and Chief Executive Officer
Welcome everyone and thank you for joining us today. Sonic had a record December quarter, as revenues grew $40.8 million. Net earnings on a GAAP basis were $0.30 per share both at and above the top end of our guidance ranges. We improved our profitability with operating margins growing to 22.7% from 10.1% last quarter. I think it’s worth noting that this quarter marks the one year anniversary of our Roxio acquisitions. Due in part the successful integration of the former Roxio organization into Sonic, we saw strong results across our businesses. Since our last call, we have announced a long list of product launches and partnership, each of which contributes to the expanding position as a leader in the digital media software space. At CES we debuted the world’s first DVD-on-Demand System for Electronic Sell-through of content of Movies and Television. We announced our partnership with Scientific-Atlanta, which resulted in a CES Innovations Award for the first cable set-top box, featured DVD recording and playback, we showcased our DVD Play and Burn Solutions for Broadcom-Powered Set-top box.
Finally, Technicolor demonstrated the first ever advanced interactive Blu-ray Disc and HD DVD Titles, which were created using ground breaking professional authoring solutions. In addition our AuthorScript engine was selected by Pure Digital to power the single use digital video camcorder platform. Our Bi (phonetics) DVD applications also began shipping with Hitachi DVD camcorders, each month about 10 million consumers watched enhanced Internet connected DVD content, using our InterActual player.
In our consumer division, Roxio had a very strong quarter, exceeding our financial targets of both revenue and margins increased. We believe these results provide clear validation for our strategy of connecting Sonic’s OEM products distribution channel with the award-winning Roxio Brand retail channel.
As 2006 unfolds, an OEM such as HP, Dell fully converted the Sonic-branded product to Roxio brand. We believe Roxio’s business, will strengthen the retail, as well within our OEM and direct channels. Roxio’s strengthen in the quarter was due largely to the strong holiday demands and popularity of the latest released Roxio’s flagship products, Easy Media Creator 8, as well as the strength in entire Roxio product line including our Macintosh product such as Toast®. With the continued surge and sales of digital camcorders, cameras, cell phones, iPods and the increasing acquisition of music and video over the internet, the PC has become the central location for acquiring, Managing and Sharing digital content. With Creator 8, we have produced the industries most complete solutions for Photo Management, Video Editing, CD and DVD Authoring and Music applications.
We began shipping Creator 8’s volume in October, and by December the sales in retail outpaced the competition by almost two to one margin in revenue. And since launch, Creator has received numerous industry accolades and has generated a tremendous response from our retail partners. Another key indicator of our success is Roxio division is our online sales. With 2 million new customers and over 1 million unique user registration per month, we are delivering both high margins and direct access to our customers.
We believe online registration, our key indicator of future upgrade revenue compared to the combined online sales except for Roxio and Sonic organizations in the December quarter of fiscal 2005, online revenue increased to approximately 65%. We also increased our market share in Roxio branded cost, measured by revenue in calendar 2005, from 39% to 49% as recently reported by the NPD group which is confirmed by our own internal analysis.
Roxio was named the number one publisher in this category and the number one selling platform for all of 2005. Our OEM business also had very healthy quarter, as we executed on our strategy of deepening and expanding our relationship with OEM. First I would like to give you an update on our relationship with Dell, as we mentioned last quarter, Dell’s restructuring of it’s website, impacted our business during the September quarter. Since that time, we have worked with Dell to resell our program. And we are happy to report that our relationship with Dell continues to be strong and growing. In fact we expect Dell to begin shipping a new digital media product from Sonic in the next few days.
Beyond our PC OEM channel, we continue to expand our distribution relationship in the CE device companies. An example of this is Sprint Nextel agreement we announced last quarter. Nextel began shipping Creator 8 to enable to transfer of music from PC’s to Motorola phone, and to enhance they added photos and videos using the phone. Customer sales from this partnership were extremely strong, thus we believe our relationship with Nextel will continue to grow and expand. Going forward we see the mobile entertainment market becoming a huge area of opportunities, besides as wireless phones become all-in-one entertainment and communication devices, in which Roxio products will play a central roll.
Our advanced technology group also posted a good quarter, on the consumer device side our development and licensing agreements with Broadcom continued to progress. At CES we announced the availability of Office Script CE for Broadcom set-top boxes, which provides the complete integrated DVD burning and playback solution, now available from corporation into commercial cable, satellite and standalone consumer electronic products.
This is the first of many collaborative efforts from this agreement, specially as download and burns comes to the forefront. Other areas we are penetrating include Automotive, Next Generation Consumer Electronics and Electronic Sell Through. We are working with major chip manufacture on licensing of our technology, in the automotive market, which could be a multimillion dollars opportunity by 2009. We have also engaged with top share game console manufacturers, for the licensing of our technology into the next generation systems.
Finally as we discussed we believed – we believe that DVD-on-Demand could become a very large market opportunity. We see multiple channels for this custom burning of the premium DVD content for the back office solutions to kiosks, to customers burning videos at homes, all of which we are ready to help a part of deploying this year. Two of our partners, Scientific-Atlanta and Broadcom are implementing our technology for downloading and burning content to DVD using set-top box solutions.
There are a verity factors driving Sonic’s growth, this afternoon I would like to focus on two of them, the transition to HD and the introduction of DVD on demand. As a leader on digital media, we believe that the best positioned company to take advantage of this, be these emerging new formats and capitalize on them by developing new channels for the distribution of digital media. As the countdown to launch for the next generation disk formats continue, those everyone successes to its prospect of both formats coming to market, while deployment of our professional authoring systems slowdown in September quarter due to delay in the finalizing the format specification, we are pleased to report that most of the issues have resolved and that’s the major studios are now committing idn1004 launch. While our Hollywood authoring customers are gearing up for delivering.
Creating these titles in Blue-Ray or HD DVD requires a completely new set of authoring tools and techniques, which combines the tradition of world of DVD’s with advance interactivity previously available only on PC’s equipped with are InterActual DVD software.
We believe Sonic is uniquely positioned as the only tool vendor capable of providing professional Authoring facilities worldwide with the technology they must have to create titles in both the Blue-Ray and HD DVD format. The overwhelming majority of titles scheduled for launch are being prepared using Sonic authoring tools by members of a highly acclaimed high definition Authoring Alliance.
The other area of opportunity that we have as discussing is DVD on Demand. Over the last two years, we have been working with major content owners, technology suppliers, distributors and retailers to create infrastructure and support the hardware that will enable on demand production and electronic sell through of DVD content. I am pleased to report that we have begun to see our development efforts come to fruit this year. At CES this year both Sonic and our partners demonstrated various incarnation of this technology including Kiosks, PC and Set Top Box solutions. Sonic powered DVD kiosks are coming to market now and we expect Innovative Production Systems as well as Download Embedded Systems to appear this year enabling the wider range in movies, television and alternative content to reach consumers, to retail outlets and their house. We believe electronic sell-through of DVD content holds tremendous promise for everyone from consumers to cable and satellite operators, to retailers and content owners and advertisers. We anticipate making a number of significant announcements related to DVD on Demand over the course of this year.
At this point, I like turn the call to Clay Leighton, our CFO, who will provide more detail on our third quarter financial results and our guidance for the fourth quarter of 2006.
Clay Leighton, Chief Financial Officer
Thank you David. We are very pleased with our financial results that we reported today for our December quarter. We delivered record revenues in earnings in December and our results at the high end exceeded our guidance. More specifically, net revenue for the quarter was $40.8 million up 28% from $31.9 million, revenue in the September quarter up 107% from $19.7 million in the same quarter of last year, above the high end of our November guidance at $37 million to $40 million.
Our revenue split for the December quarter was as follows; professional products revenue was approximately $2.8 million, which is down 9.7% from $3.1 million in September but up 35% from $2.0 million in December of last year. We expect our revenues from the professional division to increase as the launch of high definition DVD format accelerates.
Consumer products revenue was $38.0 million of the December quarter, up 32% from $28.9 million in the September quarter, up a 116% from $17.6 million in December of ‘04. The increase is due to the very successful launch Creator 8 in October and to the continued strength in our OEM business. Licensing products revenue was roughly $4 million in the December quarter, about the same as in September. Gross profit for the quarter was $31.3 million, up 26% from gross profit of $24.8 million in September up 87% from $16.7 million in December in ‘04. Gross margin for the quarter was 76.9%, which is down from 77.6% in the September quarter and down from 84.7% in December of 2004.
This quarter, we had approximately 7,45,000 of additional revenue due to the pass through royalties associated with one of our OEM contracts. This is included in both our revenue and COGS, adjusting revenue and COGS, our gross margin would have been approximately the same as in the September quarter. Our quarterly amortization expense including the cost of revenues was about $1.4 billion.
Operating expenses were $22.0 million for the quarter, up the 1% - up less the 2% from $21.6 million last quarter September and down from $23.6 million in the June quarter. In general we have held our headcounts approximately constant over the past year, we have gone from 602 employees at December 31st, 2004 to 630 at September 30th, to 616 at December 31, 2005.
As we projected when we acquired Roxio, we decreased operating expenses during the year and continue to effectively manage our headcount. Research and development expenses were $10.1 million for the quarter down 6.9% from September quarter expense of $10.8 million. The decrease in R&D expenses primarily due to the large related cost of Creator 8 and Toast versions 7, which occurred in the September quarter. Sales and marketing expenses were $7.8 million for the quarter, up 5.4% from September quarter expense of $7.4 million the December increases primarily related to new product launch activities.
G&A expense were $4.2 million for the quarter, up 23.9% from $3.4 million in September. The increase is primarily due to outside legal and SOX compliance fees.
Operating income for the quarter was $9.3 million and our operating margin was 22.8%, up from operating mark income of 3.2 million and operating margin of 10.1% in the September quarter, this is a dramatic improvement in operating margin and demonstrates the leverage in our business. Other income was an expense of 445,000 for quarter primarily the net interest related to our line of credit and some currency translation expenses.
During the quarter, we had a net tax expense of 651,000 equivalent to the effective tax rate of 7.4%. We anticipate that our effective tax rate for the balance of fiscal year 2006 will be between, 0% and 10%. GAAP net income for the quarter was $8.2 million and our EPS was $0.30, both records for Sonic, up from EPS of $0.11 in September and the high end of our guidance. We are very pleased with these operating results.
Turning to our balance sheet, cash, cash equivalent in short-term investment ended quarter at $49.7 million, up $4.9 million from $44.8 million in the end of September. Our operation generated about $5.1 million during the quarter. Reported net AR was $23.7 million at December 31st, up from $17.0 million at the end of the September, this represents 52 days sale outstanding based up on simple calculations, this is up from 48 DSOs, at the end of September, however, this is due impart to the increase in differed revenues, which isn’t take into account in the DSO calculation. Inventory at December 31st was 687,000, up slightly from 546,000 in September, net fixed assets were 5.4 million down from 6.2 million at the end of September, acquired intangibles were $45.1 million in December 31st down from $46.4 million at September 30th, during the quarter we amortized $1.3 million.
Goodwill was $54.2 million up 678,000 from $53.5 million in September 30th due to the slight purchase accounting adjustment related to the Roxio acquisition. Accounts payable accrued liabilities, increased just slightly from $30.296 million at September 30th to 30.332 million at December 31. Differed revenue as I mentioned with both long-term and short-term increase from $7.8 million in September 30th, to $10.7 million at December 31st, this increase largely due to pre-payment on new technology licensing deals.
During the quarter in terms of common stock, up 53,000 shares were issued all related to the exercise of stock options, otherwise, the balance sheet as you know are similar prior quarters. This quarter in our press release, we issued - after market today, we noted that there will be an increase, we will be increasingly the R&D tax benefits we booked in the June quarter by approximately $1.9 million. The reason for this is that during the process of completing preparation in filings of our Federal and State corporate income tax returns, which took place in December-January. We learned that the amount of the R&D investment credit, we were entitled to was greater than the amount recorded in our books. We will file amended 10-Q for June-September quarter related to this change. The effect of this change will be to increase our reported June GAAP EPS from $0.15 to $0.21.
I would now like to turn to guidance. We are changing the way in which we provide guidance because of the variety of input we have received from Sonics shareholders. In the past we provided specific range estimates for revenues and earnings for future quarters, sometimes as much as 18 months into the future, most public companies don’t do this.
So, from this point forward our policy will be to provide guidance, one quarter out only. We will also comment on our general business trends, however this quarter, we will comment on fiscal year ‘07 guidance, let me note that, because Sonic is making a transition for the Company with low GAAP tax rate to a Company with more typical GAAP tax rate. We will speak about profitability mostly in terms of operating income. We believe this is the best indicator of the underlying business. Our policy with respect to guidance for the next quarter will be that will provide a revenue range we commented on our profitability. Depending on the quarter, we may comment on our take on current street consensus.
For fiscal year 2007, we expect revenues will growth on a year-over-year basis by between 20% and 25%. This is quite consistent with the full year of revenue range, we provided for you and in our last earnings conference call. Please note, that our revenue level should continue to exhibit a pronounced seasonal pattern with June-September quarters relatively light versus the December and March quarters. Additionally, because we now have significant amounts of bricks and mortar sale in our mix, December quarter and March quarter revenue levels will be approximately equal. We expect that Sonic will continue to be significantly profitable in fiscal year 2007. Our target operating margin is 25% to 30% of revenue. This suggests that Sonic’s operating income should grow by more than 50%, over the results in fiscal year ‘06.
For the fourth fiscal quarter this year, the quarter that will end on March 31st 2006, we expect revenues and earnings that will be roughly equal to the revenue in earnings result that we just reported for this quarter. This implies a revenue level from March slightly lower, sorry, it should be slightly higher in current street consensus estimates and an earnings result that needs current street consensus estimates. We are very exited about our markets our strategic position and the potential for us to deliver significant growth in revenues and earnings shareholders. Dave.
David Habiger , President and Chief Executive Office
Thanks Clay. I would like thank our employees for their hard work and dedication and making this a successful quarter for Sonic. As we have done in the last three quarters I would like to highlight the key takeaways in this call.
Having successfully integrated by Roxio, we are leveraging our OEM sales to increase our retail and e-tail business we are growing impressively with OEM partners to include more CE companies, in addition to the company’s in the PC space. We have a number of exciting prospects on the horizon for our technology licensing business, expanding into new markets such as automotive, gaming and next generation consumer electronics.
Going forward, we see significant outside potential for Sonic as DVD on demand becomes a new, major new channel for the distribution of digital content. Our unique position in the digital media space from Hollywood to home and from PC to CE gives us confidence for our future success. Increasingly our vision is driven by the emerging consumer digital lifestyle. We believe this space consumers are demanding their media where, when and how they want it? It is our belief that Sonics is in an exceptional position to define and lead us to new consumer experience.
Now we would like to open the line up for questioning. Operator.
Questions-and-Answer Sesssion
Operator
Thank you sir, if you would like to ask a question today, please press “*” “1” at this time, “*” “1” to ask a question today, and if you are in a speakerphone we ask that you make sure your mute function is turned off to allow your signal to reach our equipment. Once again “*” “1” to ask a question today, also please limit yourself to one question. We will take follow-up questions if time permits. Once again “*” “1”, we will pause for just a moment to give everyone a chance to signal. We will take our first question from Steven Frankel, Canaccord Adams.
Q - Steven Frankel
Hi, let me start by violating one question rule if I may but just a quick review of that past two revenue, is that a onetime event or would we might see that in the next couple of quarters as well?
A - Clay Leighton
Steve, it is always hard to predict these things, it’s possible we see it. We of course maintain ongoing relationships with the OEMs and I think we might see a little bit more of this, but if it is very difficult to predict, I will try and highlight it when it does happen.
Q - Steven Frankel
Okay, and then more importantly from a strategic view, Dave what has to happen to get download and burn implemented both at retail via kiosks and then in the Scientific-Atlanta case, through a cable company, do the movie companies have to agree to this and how quickly do you think this all starts to come together?
A - David Habiger
Well, fundamentally the content owners have to agree to let their content be distributed in different ways than they have in the past. And I think it’s fair to say that we are seeing that happen daily with different deals announced by from Apple to Disney to more of the other companies outside Sonic. And there is not one thing that have to happen, I mean we are making a fundamental bet that content and content holders will allow content to be distributed in a way it hasn’t been in the past, primarily in a digital format and what has to happen is at every level content needs to be put in the market place and then we will in many cases burn that to disk. Not in all cases but in many cases. There is not a single thing that needs to happen. You know certainly, the sooner content is out in the market place the better for Sonic because I think that’s the fair statement.
Q - Steven Frankel
And would you anticipate that at least on a trial basis some of the kiosks might show up in stores this year.
A - David Habiger
I think that is realistic, yes.
Q - Steven Frankel
Okay, I’ll let somebody ask the question, thank you.
A - David Habiger
Thank you, Steve.
Operator
And we’ll take our next question from Richard Ingrassia with Roth Capital Partners LLC.
Q - Richard Ingrassia
Thanks. Afternoon everybody.
A - David Habiger
Hi, Rich.
Q - Richard Ingrassia
Dave, I know that products are in perfect comps but much have you up sided Roxio and Creator 8, do you think it was due to the late timing and weak reception for our Studio 10 from Pinnacle?
A - David Habiger
I don’t think to that correlated to be honestly, I didn’t know that Studio 10 was late so I guess that probably answered the question. The two generally, don’t and general they really don’t compete against each other it’s a different kind of customer whose buying those two. So I suspect that when we referred to our competitor in this case and leading them to the one we are referring specifically to the nearest competitor in our space and category which is Nero, a private company from Germany.
Q - Richard Ingrassia
Okay good for the studio was on time per their schedule, just late in the holiday season?
A - David Habiger
Again, the fact that I don’t even know whey they ship probably just a good indication that it is really separate areas.
Q - Richard Ingrassia
Okay, thank you.
A - David Habiger
You are welcome.
Operator
Our next questions comes from Gene Munster with Piper Jaffray
Q – Michael Cox
Hey, this actually Michael Cox, nice quarter.
A - David Habiger
Thank you Michael.
Q – Michael Cox
When do you think Dell and HP are going to converting Roxio brand of products?
A - David Habiger
They both started the process and I think you should be able to start, you will start to see it now probably within the next month or two. Again they have started process so you might be able to find excuse somewhere around the world on a certain platform for me to run one of those companies but when we expect to see the broad adoption branding I think it will be much more visible in the next month or two.
Q – Michael Cox
I am - it’s sounds like you are pretty confident that High Def. DVD titles will be out by early summer what if we hear that they are going to slip to late summer is that something we should be worried about or are the gears kind of already in motion to get things in place for titles, a lot earlier than that?
A - David Habiger
I can hear some motion but certainly a successful launch to happen sooner or later is better for us in our professional business atleast then the one that is slower or stagnant and at the moment I would agree, our anticipation is we start to see the first titles in beginning to middle of summer.
Q – Michael Cox
And just lastly Clay can you talk about what to expect for the tax rate in fiscal ’07?
A - Clay Leighton
I think we have indicated before and I tried to hint at it in my prepared book remarks that we - it will be close to statutory rate so I would assume that we would be in the 35% to 40% that type of a number.
Q – Michael Cox
Okay. Great thanks a lot.
A - Clay Leighton
Thanks Michael.
Operator
Our next Chris Kinkade with America's Growth Capital.
Q - Chris Kinkade
Hi, guys i was wondering if you could just touch on customer concentration in the quarter.
A - Clay Leighton
Sure Hi Chris, this is Clay, again I will refer you to the que which will be on file for the exact numbers, but Dell was approximately a 20% customer for us. The debarred Ingram Distributors together represent probably around 30% and we have to get the exact split for that and then the last one that usually gets mentioned is Digital River/E5 which help us with our download direct business and those were probably in 20% range.
Q - Chris Kinkade
And then did HP reach say over 5% of revenue in the quarter.
A - Clay Leighton
I don’t think that HP will disclosed hence there is no exact information on the HP number. But I think it is fair to say that is growing in our revenues, usually included in case they are shipping more of our stuff.
Q - Chris Kinkade
Great and then finally just was wondering if you could comment on the up coming Windows Vista release and talk about the impact that may have on your OEM and retail business.
A - David Habiger
Sure, Chris this Dave. In general I think we would see that as the good thing. The sooner we can see a change the better. I can’t predict when the products will launch but certainly the sooner it happens the better is for Sonic. Our business revolves around bridging different OSs from one to another and changes in technology and this is clearly is going to be a major change and it’s going to open up a bunch of, variety of new opportunities for Sonic but our PC OEMs specifically. There is always risk too whenever you have a major change like that there is obviously that change, little risk as well. But given that we run our - we’re a fast moving small company relative to most of the other companies in the space, we tend to best in a market that’s moving quickly where we can react faster than they can.
Q - Chris Kinkade
Okay thanks a lot.
A - David Habiger
You are welcome.
Operator
And we’ll go next to Justin Cable with B. Riley.
Q - Justin Cable
Thanks. Couple of quick questions, first on the guidance Clay the growth set by ’07, you are saying 20% to 25% I believe it was 20% to 30% previously if I’m not mistaken. I was just wondering if there is any reason for kind of tampering that projection or is this just to be more conservative or is this to be more in line with consensus, there is always a reason behind it.
A - Clay Leighton
I think in part of it is mathematics and part of it is I think there is no change. I’m certainly not trying to signal any significant change in the numbers. When it was computed the mathematical answers is that we computed the ranges before they were actually greater ranges on the base year. Which would then lead to greater ranges in the percentages if you take the lowest one and the highest and the highest and the lowest it would give us mathematically a greater range on the potential of 20% to 30% that we had before and I think now we have indicated by the guidance we have given that we’re now coming out at the high end or higher that we had predicated to revenue and base year is settling down. So mathematically it would just come out about the same number and I think that was certainly our intention here to signal that we are basically reaffirming the guidance that we were given on a go forward basis.
Q - Justin Cable
Okay that’s helpful. And as far as this new digital media product with Dell, is this an incremental revenue opportunity it does sound like it’s sort of is, based on your enthusiasm about it. And will we see something similar with OEMs.
A - David Habiger
Hi Justin yes, that is something we are excited about and it is incremental revenue and yes we will be - we are always working hard to make new products and launch them at new companies. I think in the short term this one will be not something you’ll see outside of Dell, this particular product.
Q - Justin Cable
Is that a Roxio branded product or is it something that’s private label?
A - David Habiger
Unfortunately we can’t comment on it since Dell has not officially launched it, it would have been great if it had. I was hoping it would before this call but as you can imagine we can’t pre launch their products we are close enough to something happening that we feel comfortable atleast talking about it, I feel you have got an obligation to talk about it.
Q - Justin Cable
Okay, thank you.
A - David Habiger
Your are welcome.
Operator
And our next question comes from Sameer Doctor with J.P. Morgan. And apparently something wrong with Sam’s line there. Move on to Jeff Osher with JMP Asset Management.
Q – Jeff Osher
Hi, guys nice quarter. Just looking to clarify, If I look at your net income and the change in differeds and add back amortization I’m getting a cash number that’s like $0.46 cash earnings, is that rough a good cash earnings number?
A - Clay Leighton
I am going to have to do that off the top of my head but that seems like approximately a good number given that we would if we picked up, If you add back the amortization for quarter it depends what period of time that you do it. The amortization was then approximately 1.4 million and the depreciation would be 700 or 800 thousand so those are adding in $2 million. I might not get quite as high as 46 but I would certainly get a substantial increase over the $.30 which we have reported.
Q - Jeff Osher
I am also adding back the change in differed what was the option, the non cash comp in the quarter?
A - Clay Leighton
Nothing in this quarter.
Q - Jeff Osher
Okay.
A - Clay Leighton
We did in the December quarter we didn’t have any expense booked to our P&L.
Q – Jeff Osher
Okay and then Dave can I prompt you to expand on huge jump in differed and I guess the last question will be is that a record as far as for revenues for your guys?
A - David Habiger
Jeff, maybe I can take it. I actually don’t believe that it’s a record but I go back looking at the books along time back in 2001 we had differed revenue, it is close to $11 million. So we can’t claim it as a revenue. In general as I mentioned on the call my prepared remark of course we believe differed revenue is a good thing and it represents future business and we largely attributed it to licensing tight deals that we have and I think you could anticipate with announced and unannounced customers there, that will show up in our revenue in future quarters.
Q – Jeff Osher
Great thanks guys.
A - Clay Leighton
Thanks Jeff.
Operator
Operator Instructions And our next question comes from P. J. McNealy with American Technology Research.
Q - Paul-Jon McNealy
Hi good afternoon.
A - Clay Leighton
Hi PJ.
Q - Paul-Jon McNealy
Hi. Two things one is you have talked about Dell being a 20% customer in the past and now that the new products announcement coming up. Should we continue to think of them as providing 20% of the revenues or should that number start creeping back up again?
A - Clay Leighton
Hi PJ it’s Clay. I think in general I wouldn’t necessarily expect the number to expand. I would expect the relationship to expand with them. But I am not sure it’s going to expand at the same rate as our revenue so If anything it might work down a little bit, but as a percentage that we clearly believe that our revenues from Dell are going to continue to grow.
Q - Paul-Jon McNealy
And then secondly, as you talk about the next generation Easy Media Creator and you talk about the e-tailing division. How should we think about your broad major product release scheduled for calendar year. I mean are we going to be looking at some incremental versions to be e-tailing and retailing or the next product release still reasonable to be considered in this calendar year?
A - Clay Leighton
We will strive to produce and valuable upgrades and as fast as the organization can handle. In general the thing we know about our customers base is that if we do not provide an upgrade to a changing market, new formats, new CE devices, new use model cell phones, etc. we’ll ultimately loose them so we cannot wait a year for release. I certainly think that whether it’s a Dot release PJ or we call it a 9.0 or 10.0 or 7.5. if somebody checking at the specific detail on that, I think it’s fair to say you’ll see Sonic releasing new products and updated products and I think of probably two quarter cycle will be fair number. Significant products couple of times a year and dot releases another two times in between.
Q - Paul-Jon McNealy
Okay great. Thanks guys.
A - Clay Leighton
Your are welcomed.
Operator
And at this time there are no further questions I would like to turn it back to the speakers for closing remarks.
Clay Leighton, Chief Financial Officer
Well, thank you again and we look forward to talking to everyone next quarter.
Operator
This does conclude today’s conference call. We thank you for your participation and you may disconnect at this time.
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