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Executives

Moshe BenBassat - Chairman and CEO

Shmuel Arvatz - CFO

Analysts

Daniel Meron - RBC Capital Markets

Nathan Schneiderman - Roth Capital

Michael Martin - Small Cap Report

Nick Farwell - Arbor Group

Hugh Cunningham - Oppenheimer

ClickSoftware Technologies, Ltd. (CKSW) Q2 2012 Earnings Call July 25, 2012 9:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the ClickSoftware Technologies, Ltd., Second Quarter 2012 Financial Results Conference Call. All participants are at present in a listen-only mode. Following management's formal presentation instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded July 25, 2012.

With us online today are Dr. Moshe BenBassat, CEO and Chairman of the Board; and Mr. Shmuel Arvatz, CFO.

Before I turn the call over to Dr. BenBassat, I would like to remind you that during the course of the conference call, the company will be making express or implied forward-looking statements within the meaning of the Privates Securities Litigation Act of 1995 and other US federal securities laws.

These forward-looking statements include, but are not limited to, those statements regarding future results of operations and operating expenses, visibility into future periods, and probably of future revenues including our outlook for full year 2012 revenues, growth, and rates of growth, and future return on investment, cash flows, and dividends, our ability to generate profits and cash to finance our operations, growth, and any dividends payment we may declare in the future, expectations regarding operating profit and margin, pipeline growth, and winning new business growth, opportunities in the workforce management and enterprise mobility markets, future closing of contracts, future product offerings, receipts of orders, and recognition of revenues and deferred revenues.

Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or performance to differ materially from those projected. Achievements of these results by ClickSoftware may be affected by many factors including, but not limited to, risks and uncertainties regarding the general economic outlook, the length of or changes in ClickSoftware's sales cycle, ClickSoftware's ability to close sales to potential customers in a timely manner and maintain or strengthen the relationships with strategic partners, the timing of revenue recognition, foreign currency exchange rate fluctuation, and ClickSoftware's ability to maintain or increase its sales pipeline.

The forward-looking statements discussed on this call are subject to other risks and uncertainties including those discussed in the "Risk Factor" section and elsewhere in ClickSoftware's Annual Report on Form 20-F for the year ended December 31st, 2011, and in subsequent filings with the Securities and Exchange Commission.

Except as otherwise requested by law, ClickSoftware is under no obligation to and expressly disclaims any such obligation to update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.

Also, I would like to remind you that ClickSoftware reported net income and net earnings per share on a GAAP and on an adjusted non-GAAP basis. Today's press release includes a reconciliation of non-GAAP information to the most directly comparable GAAP information and is posted in the Investor section of the company's website at www.clicksoftware.com.

Dr. BenBassat, would you like to begin?

Moshe BenBassat

Yes. Good morning everyone and thank you for joining ClickSoftware's earnings call for the second quarter of 2012. As usual, I shall start with a brief overview of the overall status of our business and trends and selective operational achievements with special focus on our progress with the ClickAppStore for enterprise mobility.

Shmuel Arvatz, our Chief Financial Officer, will then provide you with a more detailed review of the financial results for the quarter. We shall conclude this call with an outlook for the remainder of 2012 followed by summary comments and will then take your questions.

Clearly, the result we reported for the second quarter ending June 30 were disappointing especially since four days later after the end of the quarter we signed a very large contract valued between $10 million to $15 million, which provides very good comfort for the remainder of the year and beyond, what four days can do.

I recognize there have been some concerns in the market following our second early announcement this year. Let me start by clearly stating that while market condition in some parts of the world and especially in Europe are challenging, we believe that our business is well balanced and, therefore, we have the potential to prepare well in 2012 and beyond.

I normally do not go into fine details of our revenue composition plan for the rest of the year, but considering the uncertainty our investors feel these days I believe it is important to go into higher granularity so that you get the same comfort that we have. So here we are. Total revenue for the first two quarters of the year were slightly above $44 million. Based on signed contracts and firm commitment that we now have at hand, which includes the new contract signed since the end of Q2, we believe that an additional $48 million is achievable with very high probability. This includes deferred and committed revenues from licenses, support and professional services.

Together with the $44 million of Q1 and Q2 we reach a total of $92 million. So as you can see roughly 92% of the targeted revenues are already secured with very high probability.

I strongly believe that we should be able to deliver the last 8% in the normal course of business during the remaining five months of the year.

I should also point out that while Europe produced lower than expected revenues as Shmuel will shortly discuss, the Americas growing faster than our original plan. Overall our revenues in the first half of the year were $44.3 million representing about 44% of the mid range of our new guidance which is about $100 million. This is in line with our normal pattern in previous years and is also quite normal in the software industry where the first half of the year is below 50% of the target annual revenues.

Let me now turn in to discussing progress in our new growth engine specifically, around enterprise mobility. I would start with key quantitative metrics that show our exciting progress in the market, and then provide update of the ClickAppStore. Altogether, we now have 101 enterprise customers who purchased more than 130,000 mobile user licenses. Compared with roughly 60,000 -- 63,000 a year ago, this is 55% year-over-year growth. Many of these clients are large organizations, presenting us with quite challenging requirements. In terms of pipeline, the number of opportunities created in Q2 also are very significant and show a very substantial year-over-year growth.

During earlier calls and press releases, we spoke about the ClickAppStore for business mobility. This unique technology and the production of new apps is progressing full steam ahead. A new innovation we are now disclosing is the notion of CLICKBUTLERs, designed to improve the built-in intelligence of mobile software in a way that it anticipates what the user needs and acts on it automatically and within the right context, the so called context awareness, like the good all classic English butler would do.

Let's take it as an example, a service technician working with our ClickMobile software guided by the CLICKBUTLER technology. Upon entering the car at 8:00 a.m. for the first job ClickMobile simply asks going to Ivybank at 1 Main Street. The butler knows the schedule of the day. Upon clicking yes, the turn by turn traffic instructions starts automatically. Next, 10 minutes before arriving at Ivybank, the software would prompt your contact people at Ivybank are A, B, and C, click on the one you wish to call. These will ensure that Mr. C or someone else will be waiting at the reception desk to accompany the technician into the bank.

This intelligent dialogue is in contrast to the way most other mobile software works, that is upon starting the day the user swipes to task manager and finds out that his first job is at Ivybank at 1 Main Street. To get driving directions to Ivybank the technician copies the address swipes to the navigation app on a smartphone and paste the address into the destination field. He then proceeds to follow the directions.

Once he arrives at the address he now swipes to his contact app to find and touch his contact person's phone number so that he would greet him at the lobby. Swiping between apps and manually transferring data one after another is cumbersome, time consuming, error prone, and annoying. If we can save 12 minutes per call for a person on average delivers five jobs per day we gain one extra hour per day. This is what the CLICKBUTLER technology enables. Sounds simple? Not quite.

As many of you recall, the roots of ClickSoftware are in artificial intelligence and in developing the CLICKBUTLER technology we are leveraging many of the tools and infrastructure that already exist in the ClickPlus forum and all of our other products.

Let us now proceed to review a sample of our second quarter wins around the world. As a start, I'm pleased to inform that the large multimillion dollar contract we signed and announced right after the close of the second quarter was with Oi, the leading provider of telecommunication services in Brazil. Not only is this contract one of the largest contract in our company's history in terms of revenue and employees serve, but it also highlights our expansion and solid entry into South America. As you may remember in earlier quarters we reported about new wins in Russia.

Q2 of 2012 brings a nice mix of large contracts, cloud based deals, and repeat business, which is a demonstration of growth and diversity. I will start with highlights of new wins in the second quarter. First is [NetCore] an employee owned company with a broad portfolio of services throughout North America. After a long detailed selection process NetCore selected the cloud based solution of ClickSoftware for scheduling mobility, planning, and forecasting. A major bill for ClickRoster for shift scheduling was signed with Bell Canada for shift scheduling of about 7,000 field staff.

The next one is Roche Diagnostics, which offers a broad portfolio of tools for healthcare providers. Roche selected the ClickSoftware cloud based solutions for scheduling and mobility. So, as you can see the cloud based solutions and the mobility are playing more and more roles in our sales.

Another major win in medical equipment is HealthStream, a worldwide provider of dental and medical imaging systems and healthcare IT solutions. HealthStream selected the scheduling and the mobility solutions.

In Singapore, we won Certis CISCO that operates the largest auxiliary police force in Singapore with over 3,000 trained officers. Certis CISCO selected our shift planning product.

Finally in Australia, Brisbane City Council selected our scheduling and mobility products. As usual we also had a number of repeat orders from existing happy customers including [Otay] in Greece, TELUS in Canada and Hawaii Electric Company of course in the United States.

With this I conclude the first part of the call and shall now turn on the floor over to our CFO, Mr. Shmuel Arvatz. Shmuel?

Shmuel Arvatz

Thank you, Moshe. The result of the second quarter were in line with our pre-announced expectations. Revenues were $22.5 million, up 9% year-on-year, net income on GAAP basis was $73,000 or $971,000 on non-GAAP basis. While we are disappointed by the slow start to the year, we're encouraged by the strong booking we had seen following the close of the second quarter.

As previously announced in early July, we signed a substantial contract with Oi, Brazilians leading telecommunication company which significantly improved our visibility for the second half of the year. While some deals in the first half of the year took longer to close than we anticipated, we remain confident in our business model as well as in our ability to properly plan forecast and most importantly execute.

That being said, given the uncertainties in the global economy and our experience in 2012 thus far, we have decided to take a more conservative approach to our annual revenue guidance. As such we are revising our full year revenue estimates for 2012 to $98 million to $103 million, down from $100 million to $105 million, which was originally forecast at the beginning of this year.

Earlier this week, our board of directors approved distribution of cash dividend of $0.08 per share. The payment will be made on August 22 to shareholders of record as of August 8. We continue to believe that the cash dividend is good vehicle to maximize shareholders value and its payment highlights our confidence that we will generate profits and cash that exceed what we need to invest in future growth.

Before I begin reviewing the second quarter results, I would like to remain everyone that I will refer of non-GAAP figures which excludes share based compensation, amortization of intangible assets and changes in deferred tax.

Revenue for the second quarter was $22.5 million, up 9% year-over-year. Reviewing the results by territory, we know that revenue from the Americas were $13 million or 58% of revenue. Revenues from EMEA were $7.1 million which represents 31% of revenues. And revenues from Asia-Pacific were $2.4 million or 11% of revenues. Revenues in the America were the strongest this quarter setting a new record for this territory. This is inline with our previous guidance with higher rate of growth in the Americas. We believe these revenues in EMEA were impacted by the macroeconomic slowdown in the region.

Revenues from software licenses were $6.3 million or 28% of total revenues, up 4% year-over-year. Service revenues were strong this quarter up 11% to $16.2 million or 70% of total revenues. The increase derived from both professional services and our maintenance and support contracts. This reflects many large projects that we have been deploying most of which require significant professional services.

Gross profit was $13 million, down 5% compared with the second quarter of 2011. This represents a gross margin of 58%, down from 66% in the second quarter of 2011. The reduction in gross margin for the quarter is attributable to higher proportion of revenue coming from our services which carry lower margin as well as lower margin generated by our implementation services.

Operating expenses for the quarter was $12 million, up 23% year-over-year. The increase reflected the higher level of activities and investment across the board and as we continued to build out our business and pursue our growth strategy.

As of the end of the quarter, we had 465 employees, up by 60 employees from the end of 2011. Operating income was $900,000, down 76% compared to last year which represents 4% of revenue. The reduction in operating income was due to the increase in expenses to support our future growth plans together with moderate growth in revenue.

Net profit for the quarter was $971,000 or 3% per fully diluted share down 72% compared to $3.5 million or $0.11 per fully diluted share in the same quarter last year. Our cash flow used in operation for the quarter was $1.1 million. On the investment side, we used $0.7 million of the cash to purchase fixed assets and also paid $2.5 million in cash dividend resulting in a $4.3 million decrease to our cash reserve that is cash, cash equivalent and investment. As of the end of the quarter our cash reserve totaled $49.9 million.

Our balance sheet remained strong. As of the end of the quarter we had $65 million in working capital, $84.4 million in total assets and our shareholders equity was $59.2 million.

Our book to revenue ratio for the quarter was below one. As a result our backlog and reserved revenue as of the end of the quarter for the upcoming 12 months was $30.5 million, down by $3.2 million compared to the previous quarter. Obviously, this figure does not include the large transaction we booked in July bringing the overall backlog as of today to a comfortable level. DSO were 87 days, down by 3 days compared to the previous quarter.

Before I conclude my comments since some of you asked in the past I want to update that our board of directors have recently reviewed a proposal to initiate a share repurchase program. However, following a review of the benefit and the disadvantages of the share repurchase including legal and tax implication, the board reached the conclusion that it would -- cannot be in the best interest of our shareholders. The main reason for this decision is the potentially unfavorable tax implication regarding certain benefits for which we are eligible in Israel.

In short, a share repurchase is treated as dividend for tax purchases and to fund the share repurchase in a tax efficient manner we're limited to utilizing profit that were not related to tax incentives which we previously received. As a result, the potential amount that could have been allocated to the share repurchase then is relatively small and will not have the desired impact.

To conclude, while the financial performance for this quarter was below our expectation, we believe that we're on tract in our plans for growth and are looking forward to the second half of the year.

With that, I will turn it back to you Moshe.

Moshe BenBassat

Thank you, Shmuel. As Shmuel suggested while we feel that we stand a good chance to achieve results within the original guidance, we decided to take a cautious position and adjust our guidance slightly downward to the range of $98 million to $103 million. We remain upbeat and believe the investments made this year which have put pressure on our margins will show tremendous return on investment for years to come.

We shall now proceed to questions and answers. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). The first question is from Daniel Meron of RBC.

Daniel Meron - RBC Capital Markets

I have a question. I think Moshe you mentioned that you expect up -- or you feel very comfortable with adding another $48 million in the back half of the year. What's the probability that -- your sense that what's the composition within that? And then the extra I think $8 million give or take to the midpoint of your guidance. What kind of deals are you working on that you think that you can -- make you comfortable that you can achieve that that guidance level? Thank you.

Moshe BenBassat

Yes, let me first talk about $48 million that we said was very high probability. What we have done is we've gone through all the signed contracts, firm commitment, expected support revenues that we know normally come and some other things -- something unusual should happen in order to prevent that from coming. And as I say, all of this came out to roughly $48 million. Now, what I should say that -- when I say very high probability does it mean 95 or something like that, it's very difficult to quantitate but we feel very, very comfortable that these almost okay secured.

As for the remaining roughly as you said $8 million, these are new deals that we need sign between now and the end of the year, which in the normal course of business we should be able to do it mainly new deal that we will generate and recognize still in 2012. Normally, of course, as we sign deals many of them will help us in subsequent 2013 and beyond. But to achieve $8 million based on what we know today on processes that were already started on pipeline which we can identify the name and the size of the opportunity, as I say, we feel this is doable.

Daniel Meron - RBC Capital Markets

Okay. And as far as, when you look back in the first half of the year there were two subsequent quarters that the points were below target. Do you feel that you -- that’s that got pushed out? Were you able to win them back later on? How should -- how much of the push outs that’s happened for the second quarter for example is something that you think you could achieve in the third quarter or the fourth quarter aside from the deal that you've already announced with the major telco?

Moshe BenBassat

Yeah, but first let's talk about the deal with Oi, the deal from Brazil. Okay clearly, this one would have come four days earlier, we would not have pre-announcement and everybody would have been much happier. So this deal by itself could have solved all the problems with the pre-announcement. Again we give annual guidance in the business of enterprise, software deals may slip. I mean we know the way the rules of the game on Wall Street and we will continue to do our best to perform by the analyst estimates. But we normally give only annual guidance. So that's as far as your question, yes some deals slip. One of them, the major one already closed and a few others are in the process of closing. And as we say producing the roughly $8 million that we need to produce in the remaining five months that will still be recognized this year is very, very possible.

Daniel Meron - RBC Capital Markets

Okay, that's helpful. And then last question before you've the floor. As you look at your overall numbers into, given the macro impact right now, but as you look longer-term, do you guys still feel that you can achieve I think 15%, 20% growth is what you're talking about into the next several years?

Moshe BenBassat

Yes and I would call attention again to South America, Russia, and other new territories that we've been developing for the past year or so and are now producing results, which could compensate for the slow business in Europe. So first we've a new territory. Second the new product that we've been developing, mobility specifically, that's rostering their chief scheduling product. All of these are providing additional sources of revenues. So between the new territories and the new product I feel that we should be able to continue to grow at about the same rate if not higher in the years to come as we've been growing in past years.

Operator

The next question is from Nathan Schneiderman of Roth Capital. Please go ahead.

Nathan Schneiderman - Roth Capital

Hi Moshe and Shmuel, thanks very much in advance for taking my questions. You guys laid out a revised revenue view for the year. What would you like to share with us with respect to your thoughts on operating margin for this year, EPS? Thank you.

Moshe BenBassat

Yeah I'll start with a general statement and Shmuel I'd like you to follow me with some more concrete numbers. As you can see we're hiring, I mean we continue to hire people because we're signing a contract, we need to deliver their results, and we're also hiring in sales and marketing because this is where we're going to generate the revenues from the new product and the new territories.

Now, we recognize that this will have impact on the margins, but as we said at the beginning of the year, we believe that in the long run it will pay us in a major way by giving us a much better platform to grow faster in 2013 and beyond. Shmuel, would you like to give some more concrete estimate about the EPS and so forth? Shmuel, are you on mute?

Operator

Ladies and gentlemen, it seems the questioner has -- it seems the speaker has disconnected from the conference. Please hold while we reconnect him.

Moshe BenBassat

Why don't we go, operator?

Nathan Schneiderman - Roth Capital

Moshe?

Moshe BenBassat

Yeah.

Nathan Schneiderman - Roth Capital

May be I could ask another question or two, while Shmuel is reconnecting. I was curious if this Brazilian telecom deal had closed at the very end of June instead of early July, would you still have revised your revenue guidance lower or would have just held it?

Moshe BenBassat

I frankly if this deal would have be signed in June, we would have been -- we would been roughly the what the analysts were expecting for us. And so the whole, the pressure and the stress could have been saved. I'm not sure if there we would or would not have adjusted the revenue guidance. It's more like cautious, it's slight -- it's a slight revision, we narrowed down somewhat the range of the guidance. But if I were to say yeah, yeah, yeah, in a kind of simple statement we're determined, okay, to get close or cross the $100 million revenues in 2012, and the likelihood of doing it is very high.

Nathan Schneiderman - Roth Capital

Okay. And then a quick one for you on EMEA. If I heard you right, you guys did about $7 million or so in EMEA, which clearly is a lot weaker than we saw last quarter, and it's a lot weaker I believe than we saw in any quarter last year. Clearly, we know there is a lot of craziness going on in Europe. Could you give us a little more detail about what you specifically saw and may be more importantly what your view is towards a Q3, Q4, in Europe?

Moshe BenBassat

So first as we all know, I mean Europe is now going through a complicated economic situation and deals seems to be like the customer seems to be not making their mind and deals get pushed or RFPs are not released. But all in all, we still see business in Europe. Also, but I cannot give you concrete number because it's one or two deal sometimes, they can make prove me wrong or right, and so without getting into specific details. Now, the weakness, as we all know, it's primarily in Western Europe. Luckily enough, we've started to explore and develop the markets in Russia and Eastern Europe, and hopefully, in this -- from this places we could generate some more revenues that will compensate for the European source.

Having said that, America is definitely I mean growing very fast specifically, as I say, before this whole new trend of mobility, which started in the consumer world with iPhone and tablets and androids, and is now, everybody is asking, okay, what is that we can do with this magnificent devices in business and we're right there. I believe that we're one of the leading companies in enterprise business mobility, already having product, which we're selling to some of the most demanding customers. And the moment you deploy them and we're talking about customers with thousands of resources. All of this is making us feel that we've back, if you wish, on the right direction of business mobility. We've the technology and the unique barriers so that it would be difficult to copy. And as I say, with that we feel that we should be able to grow.

Nathan Schneiderman - Roth Capital

All right. Hey, I'm done with my questions. But if Shmuel gets back on may be you could have him address the one I had on EPS operating margin. Thank you very much.

Moshe BenBassat

I sure, will. Shmuel, are you there now?

Shmuel Arvatz

Yeah, I'm there.

Moshe BenBassat

Okay. So, why don't you -- Nathan was asking if you could give more concrete details about operating margins, EPS, and so forth?

Shmuel Arvatz

Obviously, say we meet the top-line guidance. In the second half, we will see a significant improvement but I would not like to go into more details about this.

Moshe BenBassat

Okay. We'll leave it on that. Next question please.

Operator

The next question is from Michael Martin of The Small Cap Report. Please go ahead.

Michael Martin - Small Cap Report

Hi, and thanks for taking my question. Most of it was covered in the discussion of Europe. I may have missed the numbers, but could you give us the Europe numbers this year versus last year and the same for North America?

Moshe BenBassat

Yes.

Michael Martin - Small Cap Report

Relative numbers?

Shmuel Arvatz

Yes, I can definitely do this. Okay so this quarter the revenues in the Americas were $13 million, EMEA was $7.1 million and Asia-Pacific was $2.4 million. In the second quarter of last year Americas was $10.3 million, EMEA was $8.7 million, and Asia-Pacific was $1.6 million.

Operator

The next question is from Matt (inaudible) [018 00:37]. Please go ahead.

Unidentified Analyst

Hi Moshe, Shmuel, thank you for taking the question and then also thanks for addressing the share repurchase issue that's come up in a couple of other calls. I've two questions here. One which is if you can, maybe for Moshe, if you can give any discussions that have been had on the some of the large North American telcos, it seems like we had a little difficulty getting into let's says the Verizons or AT&T here as opposed to some of the foreign telecoms? And then the second thing is if you can provide or share any information on the relationship with SAP, any changes or updates since the acquisition of Cyclo? And then if that has opened up opportunities or other avenues with let's say the IBM or salesforce.com?

Moshe BenBassat

Well, you gave me a lot of question. First regarding your comment about the repurchase. I would like to reiterate what Shmuel said because I was part of this analysis. It was not like a quick analysis. I mean we hired consultant that gave us all the tax implications. We looked into just about any angle of the share repurchase. And as Shmuel said, eventually we decided that the amount of dollars that we could possibly allocate to this became relatively margin if we were to do it while taking all the tax implications. And eventually we decided just the benefit of doing share repurchase, recognizing it is important and it shows that the management believes in the company and so forth. Recognizing all the benefits of share repurchase the actual dollars that we would have lost had we done it would have been just as significant and that's why we decided not to do it.

Back to your question about the partnerships, clearly it's very difficult to go into all the delicate issues between the various partners that you mentioned. But we're talking to all of them and continue to work with all of them. As far as SAP, the acquisition of Cyclo certainly introduces some stress in the relationship because Cyclo as a product for mobile asset management that compete partially with our offering for mobile asset management.

But we'll have to workout together and identify exactly when our products are being offered and when the Cyclo products are being offered. All in all I believe that our mobility offering okay, is far broader okay and leaves more than enough room to find a win-win solution of working together with SAP. I should also mention that Cyclo was competing with us even before the acquisition within the SAP community since they were also a partner of SAP.

Unidentified Analyst

And then anything on the North American telecom front?

Moshe BenBassat

Yeah, the big companies such as AT&T and Verizon, they go to market in a very formalized manner of RSPs. The quest for proposal, so far we've not seen these coming from either Verizon or AT&T. I believe it has to do with internal system that they already have in place on the one hand, probably some residuals from all the acquisitions they made over the years, which made such a decision a very long in terms of IT strategy. Let's hope that they will come to market without a fees and then of course, we will compete on it.

Unidentified Analyst

Okay, great. Thank you. And one follow-up and in terms of the deals that were for the second quarter may be the large one that was announced in Brazil, what percentage of them are being introduced let's say SAP versus internal generation? Thanks.

Moshe BenBassat

Well, as we said several times in the past we cannot disclose the percentage of deals that are done by Partner A or Partner B, it's just a legal restriction.

Operator

The next question is from Nick Farwell of Arbor Group. Please go ahead.

Nick Farwell - Arbor Group

Actually Moshe, it's follow-up on some of Matt's questions. I thought in the past you had given us some rough estimate of the mix between partner and direct, is that not the case?

Moshe BenBassat

Yes, I did for the overall partner landscape including all of them SAP, IBM, Accenture and several others in for that I may have missed, altogether and we use the term influenced in the sense that not all these partnerships eventually lead to signing the contract on the partner's paper.

In some situations it's a joint sales process where eventually the sale of our product is signed on our paper and the partner component of the deal is signed on their paper. All in all the bottom line as I believe even today between 40% to 50% of our revenues are influenced by partnerships with a wide variety of partners some of them are product partners and some of them are just a large system integrators.

Nick Farwell - Arbor Group

In terms of the telecom order from Brazil, was that a direct or as you describe a partner influenced or otherwise?

Moshe BenBassat

It's a direct.

Nick Farwell - Arbor Group

Okay. In terms of looking at gross profit margins for the services side of the business, obviously that declined sequentially and I believe Shmuel commented that the implementation and the cost associated with ramping up and perhaps mobility in particular has caused gross margins to be under pressure. Could you give us some sense of whether that is stabilizing or would you expect that to remain under pressure during the balance of the year?

Moshe BenBassat

Yeah, as I said at the beginning of the year, 2012 is a year of growth in introducing new products, getting into new territories and all of this when it comes to deploying the solutions okay, introduce all sorts of inefficiencies that eventually are reflected in the profitability of professional services. For example, you have a new product, the customer may argue oh, I thought of this feature is part of that product. And you couldn’t continue to argue forever and ask him to pay for it or have some time to tell you would say, you know what, you are right, we will develop this it will become part of the product and you will get it for free. So this extra hours that you are doing initially at least, you are doing it only for this individual customer eventually impacts the profitability of professional services.

Having said that, we are constantly looking into our methodologies aligned to what promises the sales guys are making. How to avoid as much as possible the components or the factors that eventually impact professional services, I wish I could come today and tell you that this will improve in the next three months. It probably would take another period until many of the new products that we introduced will kind of be more main stream product and this will help our professional services to do the job with the high margins that we used to.

One last component, there is some impact of the cloud based operation and the profitability, if not in the services it is in the licenses, and because we are investing and typically until you reach a certain, let's say, threshold in terms of the number of cloud customers that you have the margins has been relatively low.

Nick Farwell - Arbor Group

And that should be manifested I assume under the licensed side of the gross profit margin in the income statement, correct?

Moshe BenBassat

Correct.

Nick Farwell - Arbor Group

The cloud part, yeah. And in terms of the pressure on PS revenues to what degree is that a function of the (inaudible) in mobility or is it a sort of spread across the board?

Shmuel Arvatz

It's very difficult to give concrete numbers. But I'd say overall it's probably low string in mobility overall.

Nick Farwell - Arbor Group

And then, one last question that is, are there any other orders you could comment on it and I'll call sort of new or emerging vertical like insurance or health and safety, the Singapore police order, for example, cable TV or some of the verticals that you commented in the past where you may have had some initial traction?

Moshe BenBassat

Yeah, first, in terms of public service in general we're seeing more and more I mentioned, Brisbane City Council, the Cetris in Singapore, and others that we signed in earlier quarters and also in our pipeline. So we do see a lot of public services, I believe of course medical equipment. We signed only two new ones this quarter.

Shmuel Arvatz

Yeah.

Moshe BenBassat

We continue to look into the home health care. And while this is I mean, we're not seeing concrete deals singed, we sense that in the coming years the whole idea of home health care will produce a nice prospects in fact, we already have one large one in Australia and by itself it keeps going nicely. Insurance is coming to go to market with new ideas and I must admit that the mobility opportunities are taking us into areas that we were not seeing before.

Nick Farwell - Arbor Group

In cable TV is there any update in that particular vertical?

Moshe BenBassat

Well, I mean that is we constantly have clients coming whether in North America or in other parts of the world I mean, Oi is one classic example of the telecommunication company. As you know, nobody today is stable in the sense of just being TV or telephone or Internet access. Still in this area TELUS in Canada expanded their brochures with us to cover the triple bed play area. And I guess in other parts of the world I know that in Europe we expanded with local company recently and still competing for some in Eastern Europe.

So, all in all, it's still active but again there are number of companies all over the world are not that many I mean, it's very attractive and a good ones once you win the big ones. But in terms of the number of cable companies in the world compared with the utility companies, office equipment companies, insurance companies, and you like it it's not a very large segment.

Nick Farwell - Arbor Group

Yeah, one last thought and that is, with the notion that let me say that Comcast customer recognizes their service in the windows they use, it just seems like that cable are called more specific as an origin cable TV whether its telephone or Comcast or Verizon that that particular customer base has an extremely to upgrade its service for competitive if for no other reasons efficiency.

Moshe BenBassat

We will continue to market to them and hopefully starting a sales process some time in the future.

Nick Farwell - Arbor Group

Have you seen any RSPs from any of those companies?

Moshe BenBassat

I cannot comment on this quite frankly. I'm not familiar with all the details. But certainly of the large ones, I mean AT&T and Verizon at least the best of my knowledge there was no formal RSP process going on.

Operator

(Operator Instructions) The next question is from Hugh Cunningham of Oppenheimer. Please go ahead.

Hugh Cunningham - Oppenheimer

Moshe and Shmuel, thanks for taking my question. First in terms of how your products have been regarded by your customers, are you seeing your solutions becoming more viewed as mission critical?

Moshe BenBassat

Well that's a definitely yes. I mean for a service company, the scheduling solution, the mobility solution, it's like, I would say it's like a reservation system for an airline company. I mean once you install it, I mean you cannot work without it. And so it's definitely mission critical and we do our best to make sure that it's constantly on scalable and so forth.

Hugh Cunningham - Oppenheimer

And I'm assuming if the -- we hear a lot about the North American cable operators. So I'm assuming that this new perspective on your part might sort of leak out to the ears of the cable operators here. But anyway back to, you made a comment earlier about Eastern Europe. Could you talk about, could you contrast a bit the difference you're seeing between East and West, and can you talk a little bit about your positioning in the East and what you think you can get to there?

Moshe BenBassat

I would say the main difference is -- that the East including Russia is more like emerging markets. I mean the stake of software usage for business their management in general and optimization in particular and improving customer service, it's still relatively young. But of course companies recognize this and when they get case studies with all their concrete quantitative metrics that they can improve by deploying a workforce optimization solution, of course they listen.

In Western Europe, the market is more mature and they know the benefits, many of them all ordered the purchase it, and but when you have difficult economic conditions sometimes they delay the purchase and wait for better time.

Hugh Cunningham - Oppenheimer

Okay. That's helpful. Could you just pulling back just a bit, just in general terms can you give a little bit, a bit more color on the sort of on whether or not basically the turmoil in the west is impacting the east or assisting still going east?

Moshe BenBassat

You mean in Europe or over?

Hugh Cunningham - Oppenheimer

Yeah, in Europe, are you seeing is the west weighing down the east or is the east still unaffected so far?

Moshe BenBassat

It is difficult to say quite frankly, it is difficult to say and it goes into cultural issues, it goes into language issues, it goes into, as I said, how mature the software technology in general is in this day the impact of the government and so forth, but there are companies out there who are buying. As I mentioned before it is kind of ironic turns that Otay in Greece okay, purchase from our last quarters and even in this quarter Q2 gave us another repeat order. So companies are still buying, but it is very difficult to say whether the west is impacting the east. I am sure it does, but very difficult to quantitate.

Operator

We have a follow up question from Nick Farewell of Arbor Group. Please go ahead.

Nick Farewell - Arbor Group

Shmuel, just a quick update on currency and the impact in the quarter?

Shmuel Arvatz

Okay. So this quarter actually the impact was larger than usual. In terms of revenue year over year we have a negative impact of about $600,000, and in terms of expenses we have deposited the impact of $1.3 million so overall the impact was 700 positive.

Nick Farewell - Arbor Group

In looking at the quarter I saw that interest income declined to 27,000 from 226 if I recall in the first quarter, and giving your $50 million in cash balance, what accounts for that?

Shmuel Arvatz

It accounts the currency erosions, there were many changes that impact our balance sheets. Some of them are some exposure that we take intentionally due to our operations. So overall, the finance income was offset by some currency changes, the shekel against dollar, euro and British pound, Australian dollar against the US dollar.

Nick Farewell - Arbor Group

So just being simplistic $226,000 roughly $200,000 is a run rate roughly an incremental $200,000 of currency also hit that line.

Shmuel Arvatz

That's correct.

Nick Farewell - Arbor Group

Okay. There were no non-op items that were run through that?

Shmuel Arvatz

No nothing --

Nick Farewell - Arbor Group

Assuming that means there are no non-operating items that run through the obstacles (inaudible)?

Shmuel Arvatz

Not at all. You are correct.

Operator

There are no further questions at this time. Before I ask Dr. BenBassat to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available two hours after the conference ends. In the US, please dial 1-888-326-9310. In Israel, please dial 03-925-5900 and internationally please dial 972-392-55-900. Dr. BenBassat, would you like to make your concluding statement.

Moshe BenBassat

Thank you all for participating in today's call and let's look forward for a great second part of 2012, and I look forward to seeing you again on future calls and events. Good day to all of us.

Operator

Thank you. This concludes the ClickSoftware Technologies' second quarter 2012 financial results conference call. Thank you for your participation. You may go ahead and disconnect.

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