Chordiant Software, Inc. F2Q08 (Qtr End 03/31/08) Earnings Call Transcript

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 |  About: Chordiant Software Inc. (CHRD)
by: SA Transcripts

Chordiant Software, Inc. (CHRD)

F2Q08 Earnings Call

May 6, 2008 5:00 pm ET

Executives

Peter Norman – Vice President, Chief Financial Officer

Steven Springsteel - Chairman, President, Chief Executive Officer

Analysts

Analyst for Tom Ernst - Deutsche Bank

Derrick Wood - Pacific Growth Equities

Patrick Walravens – JMP Securities

Operator

Good afternoon ladies and gentlemen, thank you for standing by. Welcome to Chordiant Software’s Q2 08 earnings teleconference. (Operator instructions) I would now like to turn the conference over to Chordiant’s Chief Financial Officer, Peter Norman. Please go ahead sir.

Peter Norman

Good afternoon, I’m Pete Norman, Vice President and Chief Financial Officer of Chordiant Software. Thank you for joining us today to review our final results for our second quarter of fiscal 2008. On the call with me today is Steve Spriingsteel, our Chairman, President and CEO. We’ll begin with prepared comments from management and then we’ll open the call for questions.

By now you should have a copy of the press release issued by the company this afternoon after the close of the market. You can find a copy of this release on our website at www.Chordiant.com. A replay of this conference call can also be accessed through the investor relations section of the company’s website.

The information in today’s conference call will include historical information and forward-looking statements including guidance about our business that involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements.

Chordiant’s actual results could differ materially from past results and forward projections. Forward-looking statements are generally identified by words such as believe, may, expects, will, guidance, projects, projection, and similar expressions. Further information on potential factors that could affect financial results is included in Chordiant’s most recent SEC filing. We assume no obligation to update guidance or other forward-looking statements.

In addition, non-GAAP financial measures and the most directly comparable Generally Accepted Accounting Principles or GAAP financial measures may be discussed on this webcast. Chordiant continues to provide all information in accordance with GAAP and does not suggest or believe non-GAAP financial measures should be considered as the substitute for or superior to measures of financial performance prepared in accordance with GAAP.

Chordiant believes that these non-GAAP financial measures provide meaningful supplemental information regarding its operating results. Primarily because they exclude amounts such as the expense for non-cash equity based compensation that the company does not consider part of ongoing operating results when assessing the performance of certain functions, geographies or members of management.

We believe that our non-GAAP financial measures also facilitate the comparison of results for current periods and guidance for future periods with results for past periods. Please visit the investor relations section of Chordiant’s website for information regarding the non-GAAP financial measures discussed on this webcast. And now I’ll turn the call over to our Chairman, President and CEO, Steve Springsteel. Steve.

Steven Springsteel

Thank you Pete and welcome to Chordiant Software’s second quarter of fiscal 2008 earnings conference call. First I’d like to spend some time updating you on the results from the second quarter, the high level financial metrics, our current thoughts on the economic environment and our areas of focus for growth going forward. I will then turn it over to Pete who will go into more detail on the financials as well as our guidance for fiscal 2008.

Revenue for the second quarter was $24.7 million, down 25% year over year. Our second quarter revenue was at the high end of our preliminary results range of $23.5 to $25 million that we provided on April 1, but lower than our internal expectations coming into the quarter.

GAAP net loss for the second quarter was $1.2 million or a loss of $0.04 per share and our non-GAAP net earnings were $125,000, or approximately breakeven per share. Both GAAP and non-GAAP earnings results were better than our preliminary results range. Bookings for the second quarter were approximately $20.4 million. At the end of the second quarter deferred revenue was $55.1 million and backlog was $93.5 million.

We ended the quarter with cash balances of approximately $70 million which is down from the $87 million reported last quarter. This decrease results from the stock buyback program, our operating results for the second quarter and an increase in our DSOs which Pete will detail later in the conference call.

Upon thorough evaluation of the selling environment at the end of March, we determined that there was a more pronounced weakening in the North American and UK financial services market than what we had planned for and had been discussing with your previously.

We also saw an increase in the sales cycle in other markets we serve. While these prospects and customers outside of the financial services vertical were not directly affected by the issues impacting the financial services sector, they are aware of the overall challenging macroeconomic environment and became more cautious at the end of the quarter, often adding in additional levels for approval.

For example, with one customer we were able to secure the necessary approvals but when it went to the CEO for final signoff, he decided that he needs to run it past his Board which caused this sale cycle to elongate. We continue to be in active conversations with these potential customers and we are starting to see business activity pickup but we have adjusted our sales cycle expectation and forecasting processes to account for the elongation we saw this quarter.

For forecasting purposes, we do not expect an immediate increase in spending in the financial services sector in North American and the UK, consistent with what we have been discussing with you this last few quarters. With that said, we continue to make progress investing in emerging markets and our expanded verticals.

The investments we have been making the last several quarters should start to provide more tangible results in the second half of our fiscal year as transactions work their way through the sales process which in our case can take a few quarters.

Our pipelines in these areas continue to grow and this is what gives us confidence in our business going forward. I have been consistently focused on running Chordiant as a profitable operationally efficient business and this continues to be one of my key priorities.

Given the revenue shortfall we have experienced this past quarter, we’ve undertaken a reduction in force of approximately 10% of the headcount across most functions of the company. While this is a reduction in force, these actions will enable us to fund investments in the growth areas of our business and do so prudently and efficiently.

It allows us to continue to allocate resources to emerging markets where we are seeing more opportunities and to specific revenue generating sales headcount as well as our alliances program. With that said, we expect to return to our targeted non-GAAP operating income percentage model range by our fourth fiscal quarter.

Now let’s spend a few minutes updating you on some of the highlights from the second quarter. During the second quarter we signed a transaction for over $1 million with [Ock] Bank, a leading highly profitable and innovative Turkish bank headquartered in Istanbul with over 700 branch offices.

This transaction was significant for Chordiant as it exemplified that our focus on and investments in emerging markets is paying off. We hired two new sales staff to expand our direct sales footprint into the Asia Pacific region during the second quarter. In addition we added a direct sales rep in Russia to expand our opportunities there.

As we have stated on previous conference calls, we will continue to focus our investments in emerging markets and we are in the process of working with our partners as we establish footholds in other regions such as India, China and Eastern Europe. We also hired a VP to manage our worldwide alliance activities and most recently we hired a director of alliances for North American to compliment our director of alliances for Northern Europe.

We also continue to believe that our partner enabled program and strategic alliances remain a key pillar of our strategy and we’re seeing a significant increase in our pipelines with our partners. This increased reach remains key as we look to grow and diversify the company’s sales pipeline.

During the second quarter we expanded our alliance program with the announcement of the partnership with HCL Technologies. This partnership will enable Chordiant to develop deeper vertical solutions and enable Chordiant solutions to reach HCL’s worldwide customer base.

I personally look forward to a long and prosperous relationship with HCL. We also remain very active with IBM and on April 7, Chordiant was proud to be awarded IBM’s prestigious 2008 impact award. This award is presented to companies that demonstrate unique abilities to develop and offer services oriented architecture solutions, helping customers solve challenges in non-traditional ways.

We were specifically highlighted for our ability to deliver real time predictive decisioning through the Chordiant decision management products suite. We were also very pleased that IBM will be showcasing Chordiant’s new auto insurance self service solution at their booth in the upcoming ACORD Conference on May 12 through 15 and then follow that up with our showcasing of our consumer directed self insurance health care application at the American Health Insurance Providers Show June 18 through 20.

Both conferences are major insurance technology shows and IBM is one of the major exhibitors at these events. Chordiant will be in the IBM booth throughout the conferences. With this major award and joint participation in these two shows, we believe this is a ringing endorsement of the strength of the solutions we provide and the demand IBM sees in the marketplace from their relationship with Chordiant. Clearly we feel the same way about them.

In addition to expanding our direct sales and alliances focus, ongoing innovation is also key for Chordiant. We are pleased to announce that Chuck Altomare has joined the company as Vice President Worldwide Engineering. Chuck will be responsible for all technical and product development activities across Chordiant’s applications and solutions.

Prior to joining Chordiant Software, Chuck was Vice President of Engineering at Business Objects where he managed and led their large European development center for three years and prior to that he spent 11 years of leadership positions at Informing. Chuck brings an extensive and successful background in delivering high quality complex engineering products and solutions to Chordiant.

His global experience in managing diverse teams is a strong asset and will enable him to make major contributions within our growing global research and development team. During the second quarter our research and development teams were working on a number of product releases to enable us to maintain our technical competitive advantage.

Some of the key releases during the quarter included our Decision Management versions 6.1 which adds enterprise class capabilities with new collaborative development, version management and offline backup capabilities. This new version will enable businesses to more easily develop and deploy sophisticated customer experience strategies at a large scale environment.

We also added Marketing Director 6.3 with added functionality that allows for quickly building new campaigns and easily maintaining existing campaigns. And Foundation Service 6.3 adds improved decisioning management and server integration as we continue to exploit the capabilities of our predictive analytics.

We believe that a key to our future success is our ability to continue to innovate and expand our solutions capabilities to meet the challenging needs of our customers. And finally I’d like to provide and update to our project at Citi. We have been in production at Citi for a few quarters now and I wanted to mention that in the first few weeks of April we received an incremental [seed] order from Citibank.

We are pleased with this and continue to expect to receive more [seed] orders from Citibank as they continue their rollout. However, we are continuing to take a conservative approach to the size and timing of this forecasted [seed] orders. With that said, Citi is a great example of the value that we provide to our clients and while the economy is challenging, we believe the financial services companies will continue to invest in their businesses.

The timing of purchases has some uncertainty but when purchases are made by customers, Chordiant remains best positioned to provide the customer experience solutions they need to reduce customer churn, increase up selling and cross selling opportunities and reduce overall operating costs.

While this was certainly a challenging quarter, we remain confident in our solutions and the value that we provide to our customers. With our investments in new and expanding markets, I continue to believe that Chordiant is positioned to return to profitability and growth in the second half of 2008 exiting the fiscal year in our target of profitability range, even in the face of continued challenging conditions.

With that I’ll now turn the call over to Pete Norman our CFO for a deeper dive in of the financials as well as provide an update on guidance. Pete.

Peter Norman

Thanks Steve. Let’s take a more detailed look at our final results for the most recent quarter ended March 31, 2008. As Steve indicated, Revenues for the second quarter of our 2008 fiscal year were $24.7 million, down 24.6% from the $32.8 million we reported for the same three months in 2007. Sequentially, revenues were down 15.2% from the $29.1 million we reported for the December 31 quarter.

While these results came in at the upper end of our preliminary expectations for the quarter that we released on April 1, 2008, the quarter was impacted by elongated sales cycles due to a weakening of the financial services market in North America and in the UK.

This caused the booking of deals to slip out of the quarter because the majority of these transactions were book ship transactions, both bookings and license revenue were impacted. As of March 31, 2008, backlog which includes our deferred revenue balances was $93.5 million compared to the $96 million last quarter. It is important to note that included in backlog is the remaining non-cancelable commitments of $24.6 million to be collection from Vodafone.

Our backlog balances remain at historic level and the Q1 and Q2 amount represents the two highest quarter ending totals since we’ve been tracking this metric. Chordiant defines backlog as contractual commitments received from customers through purchase orders or contracts that have yet to be delivered.

Our aggregate $55.1 million deferred revenue balance at March 31, 2008 declined approximately $2 million from the $57.1 million balance at the end of the prior quarter. Our deferred revenue balance varies from quarter to quarter depending on the timing of license transactions, the magnitude of the support and maintenance agreements renewed during the period and the accounting treatment associated with new contracts.

The 3.5% decline in our deferred revenue balance this quarter was driven by the continued progress on several percent of the completion transactions that were signed in prior periods for which revenue was recognized, partially offset by the deferred revenue associated with the [Ock] Bank and other new contract bookings.

A significant portion of our deferred revenue balance continues to relate to license fees. As of March 31, 2008, we had six accounts with more than $1 million in deferred license revenue which will be recognized in future periods. Of the $55.1 million in total deferred revenue, approximately $19.1 million or 35% of the balance related to license fees and the remaining 65% was primarily associated with support and maintenance agreements.

Bookings for the quarter were $20.4 million. As Steve state din his comments, our largest booking in the current quarter came from one of our emerging market segments where we continued to focus our investments. As we’ve discussed in the past, due to the size of our transactions and the timing of deal closings, customer orders fluctuate significantly from quarter to quarter.

Bookings for the first half of the year now aggregate $70.2 million. Looking at the geographic distribution of our revenue, for the second quarter North American revenues of $14.7 million represented approximately 59% of our total revenues with the remaining $10 million or 41% being international.

Now let’s take a more detailed look at the income statement. License revenues for the second quarter of fiscal 2008 were $4.8 million or 19% of total revenues. Our license revenues will fluctuate from quarter to quarter to the extent that we find large book ship deals and account for prior transactions based on the percentage of completion method of accounting.

This is why we provide you with metrics such as bookings and backlog so you can better assess the trends in our business. Service revenues were $19.9 million or 81% of total revenues. Our service revenues include revenue from both professional service projects and revenue from support and maintenance agreements.

For the trailing 12 month period ending March 31, 2008, support and maintenance has represented 50% of the total. With respect to margins, our overall second quarter non-GAAP gross margin including licenses and services were 64.8%. This was below our targeted range of 74-76% and a decline of 550 basis points compared with the December quarter’s results.

The decline in gross margins is primarily due to the revenue mix shifting toward slower margin services revenue. Non-GAAP service margins which includes support and maintenance were 57.7%, down 130 basis points as compared to last quarter, but at the midpoint of our targeted model of 55-60%.

Before going into details of our operating expenses by category, I would like to provide you with some detail on the reduction in workforce we undertook on May 1. As Steve mentioned, we reduced our headcount by approximately 10%. These reductions were across all functions of the organization.

We expect to incur a onetime expense of approximately $400,000 in the third quarter related to this action. We plan to reallocate some resources in support of growth opportunities in emerging markets as well as adding headcount in revenue generating areas, such as sales and alliances.

Now let’s review operating expenses. Before commenting on functional spending by category, please note that our aggregate operating expenses were favorably impacted in the March quarter due to significantly reduced commissions and bonus expense. Sales and marketing expenses excluding stock based compensation for the quarter ended March 31, 2008 were approximately $7.2 million, decreasing from the $8.7 million we reported last quarter.

This decrease is primarily due to lower sales commissions in the quarter and the seasonal expenses we incurred in Q1 relating to our sales kickoff, president’s club and executive customer advisory board events. I would like to reiterate that we plan to selectively invest in growth areas such as emerging markets, alliances and sales headcount in core verticals outside of financial services.

Research and development expenses excluding stock based compensation were down slightly at $6.2 million for the quarter compared to $6.5 million last quarter. We expect near term R&D expenses to return to Q1 levels. General and administrative expenses excluding stock based compensation were $3.5 million for the March 31, 2008 quarter, down from the $4.4 million reported last quarter.

The decrease is due to the prior quarter including normal yearend audit fees, combined with no executive bonuses being earned in the second quarter. The non-GAAP operating loss as a percentage of revenue for the quarter was 3.7%, down as compared to income of 3% for last quarter.

The decline was primarily due to the license revenue shortfall that we experienced for the quarter. Other income and expense combined with interest income was approximately $963,000 for the quarter, essentially flat as compared to last quarter. We anticipate lower interest income in future periods as $18.6 million in cash has now been used to fund our share repurchase program.

Due to our loss for the period, the income tax provision resulted in a benefit of $80,000 in the quarter. In the near term, the majority of our taxable income will continue to be offset by our $127.6 million in Federal net operating loss carry forwards. Our non-GAAP net income excluding amortization and stock based compensation for the quarter ended March 31, 2008 was $125,000, rounding to $0.00 per share compared to $1.7 million or $0.05 per share in the quarter ended December 31, 2007.

This final result is better than the range of preliminary expectations we provided to you on April 1. Under GAAP, the net loss for the quarter ended March 31, 2008 was $1.2 million or a loss of $0.04 per share on a primary basis compared to GAAP net income of $205,000 or earnings of $0.01 per share last quarter on a fully diluted basis.

Again, this was better than the range of preliminary expectations we provided to you on April 1.

Now let’s take a look at cash and accounts receivable. Cash flows from operating and financing activities for the quarter both resulted in usages of cash. Aggregate cash, cash equivalents, marketable securities and restricted cash on our balance sheet were $70 million, a decline of $17.4 million sequentially.

Cash flows as well as license revenues during the quarter do not include any receipts relating to the previously announced Vodafone contract. As adjusted for March 31 exchange rates, the remaining $24.6 million in the Vodafone commitment becomes due and payable to Chordiant in the amount of $9.2 million during September of 2008, $5.2 million in December of 2008 and approximately $10.2 million in April of 2009.

As discussed in our December 8-K filing, these payments may be received earlier, depending upon the timing of the orders being placed by Vodafone. With regard to our previously announced share repurchase program, during the quarter on an accrual basis, we used $9.3 million to repurchase 1.5 million shares at an average cost of $6.10 per share.

Subsequent to March 31, the 10b5-1 plan that was established with the broker continued to accumulate shares of the company’s stock and on April 30, we reached our objective and have now retired 10% of the shares previously outstanding. Accordingly, after the market close on April 30, we terminated the repurchase plan and will not utilize the remaining $6.4 million of the funds that were previously authorized.

At the conclusion of the plan, 3.4 million shares were retired at an aggregate cost of $18.6 million. The average price paid per share was $5.55. Based on our forecast of cash flows and the successful conclusion of the share repurchase program, we remain comfortable with our cash balances.

During the quarter, our DSOs relating to accounts receivables were 95 days, up from the 66 days we reported last quarter. The increase was due to a lower average daily sales figure for the quarter, combined with a $3.5 million receivable equal to 13 DSOs that was not collected until the first week in April.

Now let’s turn to our guidance. With regard to our fiscal year 2008 guidance, we are revising our previously discussed guidance as follows. Total books for fiscal year 2008 which includes the book of the Vodafone transaction are now expected to be in the range of between $130-$140 million.

As in the past, our guidance does not include the incremental amounts of any future megadeals individually over $10 million. Total revenues for fiscal year 2008 are now expected to range from $112 million to $117 million. With respect to total operating expenses, the savings generated from the reduction in workforce are not expected to produce a significant decline to total spending during the second half of the fiscal year. As we plan to continue our investments in selective areas that are expected to generate top line growth.

Total operating expense for Q3 and Q4 should return to the Q1 levels assuming that bonus and commission targets are met. We expect to exit the fiscal year of 2008 with our non-GAAP operating income percentage within our targeted range of 15-20%. We also now expect to report a GAAP primary or fully diluted EPS of between a $0.07 loss and income of $0.07 and our non-GAAP fully diluted EPS is expected to be between $0.11 and $0.25.

These earnings estimates for fiscal 2008 are based on approximately 31.9 million diluted shares outstanding. We expect deferred revenue balances which exclude the Vodafone backlog to have declined slightly or remain approximately flat during fiscal 2008 as compared to 2007.

Finally, Chordiant expects to generate positive cash flows from operations in the second half of fiscal 2008 and end the year with approximately $65 million in aggregate cash, cash equivalents, marketable securities and restricted cash. This considers the final results of the share repurchase program that ended in our Q3.

Our updated guidance takes into consideration the shortfall we experienced in the first half of fiscal 2008, the reduction in force that we have implemented and the current macroeconomic issues that we were seeing in the market, specifically with respect to the financial services industry in North American and the UK.

We believe that our continued investments in alliances, verticals outside of financial services and emerging markets will have a positive impact on our results for the second half of the year. We believe it is prudent to take a conservative approach to our guidance for 2008.

With that, let me turn the call back over to Steve for a brief summary. Steve.

Steven Springsteel

Thanks Peter. In summary, while the economy continues to present us with some challenges, we believe we have made the necessary adjustments and investments to position us to continue to grow our business and remain profitable.

We will continue to focus our efforts during the second half of fiscal 2008 on the communications and insurance healthcare verticals, expanding our reach in new emerging markets, increasing our efforts in our alliance partners and continuing to enhance our technological competitive advantage.

We believe these efforts will position us well to remain the leader in customer experience management. That concludes our remarks for today, we will now open the call for questions. Operator.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Tom Ernst – Deutsche Bank.

Analyst for Tom Ernst - Deutsche Bank

This is Greg [Don] I’m on behalf of Tom. You mentioned you’re not expecting an immediate improvement in the financial services vertical when you’re factoring your guidance.

But you are looking for $65 million in bookings in the back half of the year. Could you talk about, one, how do you usually see bookings from a seasonal perspective given you’re going into the back half and then two, just assumptions on close rates and how to characterize them?

Steven Springsteel

What we look at when we look at our bookings at the second half of the year is really we’re going to start to see the payback or the payoff from the investments that we started to make in the emerging markets as well as the verticals such as insurance, healthcare and telco that we made at the beginning of the year. So that’s why we feel confident about the bookings associated with the second half.

We do believe the financial services we’ll still continue to do business there as evidenced by the order that we’ve already, the one order that we’ve gotten from Citi so far this quarter. We’re just not factoring in a wholesale turnaround in financial services by any means.

Analyst for Tom Ernst - Deutsche Bank

You mentioned the maintenance component at roughly $40 million a year on an annual run rate basis and looking at the stock and the cash balance, the stock is trading just over two times maintenance right now, which is relatively low compared to traditional software peers. Can you talk about the renewal rates on those maintenance contracts and what you’re seeing and the kind of visibility you have to that revenue stream?

Steven Springsteel

The renewal rates we see are pretty high. What we do, our applications are very sticky, they’re typically very mission critical type applications. Where we will not see a company renewal will be if the company was potentially acquired and they get their system migrated to whatever the acquirer’s system is.

And we have seen in the last five years, we’ve seen one or two instance where a customer has opted not to renew maintenance because they decided to stay on an older version because it was running fine and they had no intention of attempting to upgrade. But those renewal rates are actually pretty high, they’re in the 90 percentile range.

Operator

Your next question comes from Derrick Wood – Pacific Growth Equities.

Derrick Wood - Pacific Growth Equities

How many deals over $1 million did you close in the quarter and then how many that slipped out have closed since then?

Steven Springsteel

In the quarter that just ended, in March we closed one transaction in excess of $1 million and we had talked about five that had shifted out into this quarter of such we’ve closed one already and we’re still pursuing the others.

Derrick Wood - Pacific Growth Equities

And I imagine that’s the Citi?

Steven Springsteel

I guess we’ve closed two of the five then, yes.

Derrick Wood - Pacific Growth Equities

And I guess looking at your pipeline or your bookings assumptions for the second half of the year, what would you say the percentage of that is exposed to financial services?

Steven Springsteel

Ironically enough if you look at the pipeline, financial services is a very small portion of the pipeline going forward. The insurance, healthcare and telco went up pretty dramatically and financial services represents clearly less than 50% of the pipeline which historically as you recall has been up in the 70% plus range.

Derrick Wood - Pacific Growth Equities

Can you give us an update on the strategy or success in trying to cross sell the big referenceable win at Vodafone and some of the headway you’re making in US telcos?

Steven Springsteel

We do have some on the pipeline and that’s all that I can say at this point in time.

Derrick Wood - Pacific Growth Equities

You made a 10% headcount reduction, it looks like you’re going to take some of those savings and put it into some of your new initiatives. As you look at the US here, are you, you’re seeing most of the growth come in from emerging markets I guess.

So are you, what’s your headcount right now in the sales reps in the US and do you plan to maintain that or is that going to be a continued shift away from the US and into more emerging markets?

Steven Springsteel

We took out a chunk, probably about five headcount out of the US sales force. That leaves probably eight left in there. So our total direct sales headcount worldwide as of today is 26, quota carrying, and we’d like to get to 30 by the end of the fiscal year and so the incremental heads that we would be looking to hire would be in the emerging markets.

Derrick Wood - Pacific Growth Equities

So you’re comfortable with at, eight in the US is that just because you’re able to leverage partners more in the US or you just see more of the growth opportunities outside?

Steven Springsteel

Actually it’s a little bit of both. We’re getting more and more traction on the partner side with folks such as IBM in the US and I think that’s about right. Until we get some more deal closure rates happening the US, I wouldn’t want to add any more heads there.

Operator

Your last question comes from Patrick Walravens – JMP Securities.

Patrick Walravens – JMP Securities

Obviously this is a really tough market environment. How do you as the CEO get comfortable with the deals that are in your pipeline and decide, is this one really going to close when it’s forecast, what kind of steps did you take to do that before updating your guidance?

Steven Springsteel

Sure, just to give you kind of how we monitor our pipeline and what we’ve done is we have at a minimum a bi-weekly sales call, one with North America, one with international which we go through the pipeline. The call is led by either David Cunningham who heads up our worldwide sales, myself as CEO or if both David or myself are on the road, then our VP of Worldwide Field operations would head the call.

I also looked at the specifics of the pipeline and when we put together our forecast, I personally have either talked to the customer or have drilled down at a very granular level on where we are in the sales process, what the next steps are and the related timing.

Patrick Walravens – JMP Securities

What was the cash flow from operations in Q2?

Steven Springsteel

It’s actually disclosed in Q. It’s about $10 million burn.

Patrick Walravens – JMP Securities

Just looking at your guidance, if I read it right, you’re currently at around $69 million in cash and you plan to end the year at $65 million, am I doing something wrong there?

Steven Springsteel

We’re at $70 at March 31 and we gave guidance that we’d end at about $65. And we had the use of cash in the stock repurchase program in Q3 of another $9.3 million.

Patrick Walravens – JMP Securities

How should I split the license revenue generation between the June and September quarter? Are they going to be the same or will it be weighted more one towards the other?

Steven Springsteel

We don’t give quarterly guidance and it’s going to depend upon what happens with Vodafone. I mean we’ve got a commitment that is worst case in September and they could very well place the orders ahead of that.

Patrick Walravens – JMP Securities

Will we be non-GAAP profitable in the June quarter?

Steven Springsteel

Again we didn’t give the quarterly guidance, we said we would be back to our targeted range in Q4. Having said that we’ll clearly be striving, I mean we want to keep our string of five profitable quarters in a row together.

Operator

I’m showing that there are no further questions, do you have any closing comments?

Steven Springsteel

Thank you everybody for joining us this afternoon, I know the prepared comments were long but there’s a lot of information and data that we wanted to make sure that we got out to everyone. Look forward to talking to you on the next call and thank you very much.

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