iPass' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Aug. 7.12 | About: iPass Inc. (IPAS)

iPass Inc. (NASDAQ:IPAS)

Q2 2012 Earnings Call

August 7, 2012, 05:00 pm ET


Anitha Gopalan - Director, Finance & IR

Evan Kaplan - President & CEO

Steven Gatoff - SVP & CFO


Donna Jaegers - D. A. Davidson

Scott Searle - Unterberg Capital

Marc Silk - Silk Investment Advisors

Kevin Henehan - KMH Capital Advisors


Good day and welcome to the iPass second quarter 2012 financial results conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to the company for opening remarks. Please go ahead.

Anitha Gopalan

Thanks operator. Good afternoon everyone and welcome to iPass second quarter 2012 earnings conference call. This is Anitha Gopalan, Director of Finance and Investor Relations. I’m here today with Evan Kaplan, President and CEO of iPass and Steven Gatoff, our CFO.

We have distributed our Q1 earnings release over the wire services and have posted it on our website at investor.ipass.com. Please also refer to our website for our updated company presentation which also includes Q2 financial results.

This call is also being webcast at investor.ipass.com. A replay of this call will be available on our website for one quarter until the next earnings call. Please note that this webcast is the property of iPass and any copying or rebroadcast without the expressed prior written consent of iPass is prohibited.

Before we get started, we want to emphasize that some of the information and statements you will hear during our discussions today will consist of forward-looking statements, including without limitations, those regarding our expected performance of the business, revenue and operating model targets. These statements involve risk and uncertainty that could cause actual results to differ materially.

These forward-looking statements reflect our opinion only as of the date of this presentation and we undertake no obligation to revise or publicly release the results or make any revisions to these forward-looking statements in light of new information or future events. Please refer to our SEC filings for a more detailed description of the risk factors that may affect our results.

On this call, we will also provide and talk about our results using non-GAAP financial measures. Our GAAP results and reconciliation of non-GAAP to GAAP measures can be found in our earnings press release.

Before I turn the call over to Evan, we would like to note for you that iPass management will be meeting with investors and analysts in New York during the week of September 10th, and will be presenting at the ThinkEquity Growth Conference in New York on September 12th. If you are interested in connecting with us please feel free to send us an email at ir@ipass.com.

With that, I would like to turn the call over to Evan.

Evan Kaplan

Thanks Anitha. Good afternoon everyone. It’s good to talk to you today; thanks for joining us. We are now at the halfway point in our fiscal year and before I talk about our business and the progress we’ve made this past quarter I think it’s helpful to reiterate and level set the key value drivers for our stockholders; how they have been growing and importantly our expectation of further expansion in the second half of the year.

There are four key value drivers that I would like to highlight. First on the list is always users. Utility of our platform to end users is a source of all strategic and financial value. Specifically, we target the growth and monetization of open mobile enterprise users as we execute on the important migration from the legacy iPC platform to Open Mobile and strongly position our enterprise business for growth.

Second, we look for our OMX, WiFi roaming and exchange business to dramatically expand our market and value creation opportunity AS we move forward and put iPad’s at the center of the market we expect will grow significantly for many years to come.

Third, we focus on strengthening our competitive advantage with continued investments in our unique foundation of assets, specifically our Open Mobile mobility platform, our global authentication and transaction settlement infrastructure and our growing WiFi network footprint. We strongly believe we build strategic value and create barrier-to-entry for would be competitors with each new customer, each new interconnect and each new supply partner.

And finally and perhaps most important to you, we are very focused on delivering financial value as we drive growth in our core Open Mobile business expressed in terms of profitability, cash flow generation and revenue growth as we exit 2012.

I would like to now discuss our progress with regard to these value drivers. I’ll start by reaffirming the guidance we provided and have been executing to. Explicitly, as we laid-out in February, we expect to end the year with adjusted EBITDA profitability, positive cash flow generation, significant growth in the core Open Mobile business and sequential revenue growth for the entire company. In addition, we expect to continue to announce strategic OMX platform wins throughout the remainder of the year and begin to see a revenue ramp on OMX as we exit the year.

And then finally, and importantly, we expect to meaningfully exceed the year-end 300,000 or so Open Mobile active user target that we previous communicated. While we’re encouraged with this progress and the way we’re managing the risk associated with the declining legacy business, we always feel that we can do more, better and faster. And with that balance, I would like to go to our progress this quarter on each our businesses.

Turning to our Open Mobile Enterprise business; we exited Q2 with 491,000 gross OM monetized users and 212,000 active monetize users on the Open Mobile platform. This represents a strong sequential quarterly growth rate of 53% and 57% respectively.

As I touched on a moment ago, we expect to exceed our target with at least twice that many active users by the end of the year. In addition to the strong growth in the number of monetized users, we now have four solid quarters of OM WiFi usage data from these users. The numbers are consistent and the numbers are good.

As we discussed previously, a deployed user on Open Mobile is roughly five to six times more likely to show up on a paid WiFi network than a deployed user on iPC. We expect these numbers to improve even further as we increase smartphone and tablet penetration.

On that note, early data from the roughly 15k smartphone and tablet users indicate that they connect more frequently and generate almost double the number of sessions. This is what we anticipated, but it’s nice to start seeing initial data validating this.

Perhaps the most significant accomplishment with regard to the Open Mobile platform is the broad customer acceptance of the product as evidenced by our continued signing of existing and new enterprises. And equally important to us are the testimonials from our Fortune 1000 customers extolling the utility and quality of the product and the platform.

With regard to both migration and new customer acquisition, we are pleased to see continued strength as we sign existing global customers to Open Mobile like Rolls Royce, Tetrapak, Michelin, Airbus, Robert Bosch and Cargill and we added new enterprise logos like Borg Warner, Origin Energy (inaudible) and Ag-Power. We now have nearly 600 enterprise customers signed on Open Mobile.

Looking forward on the enterprise side, we eagerly anticipate the release of Windows 8 and while it’s early we expect the tablets to be successful as a new IT sponsored platform and we expect to have a version of Open Mobile available for the new platform when it releases in late October.

Overall on the Open Mobile Enterprise business, all indicators are up into the right, but the unbalanced reality is we continue to deal with decline in legacy iPC users, their respective iPC platform revenue and iPC related WiFi declines. While we continue to be bullish about the future given all the positive trends on the Open Mobile platform, we have a strong urgency to accelerate the transition of customers to Open Mobile to minimize risk and deliver on growth.

Now this is quite simple. Customers we don’t confer decline in usage and revenue progressively and we risk losing them altogether. This is why our number one focus is accelerating the migration through the back half of the year and into 2013; so far so good on that front.

Now turning to OMX. It's been a quarter of steady progress. We now have 50 large mobile operators signed on the platform. As we started to focus on the installations we saw, our first early deployments on OMX with DTAC the second largest mobile operator in Thailand originated through our partner Deutsche Telekom and the Zain Group the second largest telecom operator in the Middle East. We are also very pleased to announce that effective July 26 in front of the London Olympic Games; China Telecom introduced their global WiFi roaming service to the market with their OMX based solution for their subscribers.

It's too early to measure progress quantitatively but we are very excited about this introduction. We also recently announced our OMX relationship. Our OMX relationship has begun deployment with KDDI of Japan which along with Oi in Brazil are two large carriers that we hope to see in the market late this quarter or early next.

Finally, we are excited about 1000 user trials that we have started our Orange in France to offer global WiFi to their subscriber base. We are still in the middle of a trial but early results look promising and if confirmed could lead to a broader roll out. All-in-all there appears to be no shortage of OMX opportunities. We continue to aggressively grow our pipeline and what carrier customers can be demanding and often slow to deploy new services we are making solid progress on these early offerings.

It’s a very strategic value building exercise and anyone that spent time building out carrier and communications based ecosystem, it’s a slow process but one that yields strong competitive advantage and compelling economics over time.

With that let me talk about the continued growth in our WiFi network footprint as you likely saw on this morning’s press release. We substantially grew our WiFi network footprint from 780,000 to 1.1 million hotspots. With much of that new footprint in Asia, particularly China, where we continue to see a very strong commitment to WiFi.

With regard to growth in our network I want to be explicit, we view these network additions as important. While we already have a strong competitive position with favorable commercial agreements, technology integration and a physical interconnect with more than a 140 WiFi providers around the world, new network footprint increases the reach of our OME and OMX offering and enhances the strategic value of our network interconnect.

One item on the network side that would be helpful to touch on is the advent of public, private gateways, WiFi gateways. These gateways are deployed most commonly in residential homes by traditional telecom service providers in conjunction with their last mile DSL and cable implementations.

The gateway gives every home access point the opportunity to offer secure public access to that homes and with over WiFi. If the user enables that capability, they are then generally allowed to use the public segment of other users owned gateways within their country.

In countries like Brazil, France and the UK, this is an important initiative and will likely expand the available global WiFi footprint by an order of magnitude. At iPass we've begun working with a number of these carriers to allow international travelers to roam into and monetize this home footprint.

We currently have a significant presence with these providers and while this was less relevant or important a few years ago technology and quality advances, urban densities and favorable consumer behaviors are making this an increasingly attractive element of the WiFi footprint and service offering.

Look for us to expand this presence and begin disclosing some data about its monetization as these deployments mature. With the growth of our WiFi footprint and the addition of these home gateways one can start imagining a world where WiFi becomes the new Ethernet

The de facto network interface available everywhere at home, at work and everywhere you travel, indeed it’s already happening. It is our intent executing our business and working with the next generation standard committees to take the friction out of the WiFi roaming process to make that a reality.

With that let me turn to our managed network services business. We now have a profitable business that is executing well to its quarterly target and we expect it to grow steadily for the foreseeable future.

In addition to winning significant renewals and rolling out new services specifically at our high availability multilink and manage WiFi services, we are now seeing early but real opportunity in two market segments that are highly aligned with our mobility business. The first is providing infrastructure, last mile connectivity and manage WiFi for real estate holders to build their own service platforms for their tenants.

We believe this as important as we view public WiFi putting the real estate holders in an advantage position to monetize their assets for off load and basic connectivity.

The second segment is providing backhaul for the carriers themselves for their micro cell deployments; carriers have increasingly developed small cell strategies in urban areas to handle high traffic concentrations. Many of these are likely to be WiFi based small cells.

Our MNS business has unique capability deploying and managing the last mile connectivity to the small cells, it’s still early in these new segments but I like the work team is doing. Stay tuned for update as we progress for the remainder of the year.

On that note let me wrap up with some things to look for as we execute through the back of 2012 and into 2013. First, look for us to continue to manage risk and meet our financial commitments.

Second, look for us to continue to grow our core Open Mobile Enterprise business while prudently managing our way to legacy declines. Look for us to continue to grow our network footprints in Interconnect. Look for us to steady stream of OMX carrier win announcements with revenue starting to ramp in the back of the half of the year.

And lastly, look for continued transparencies as we introduce new metrics that provide investors with a clear picture of our business as we execute into what we believe is a very large market opportunity.

On that note, I will turn it over to Steven to provide a review of Q2 results, some information on the financial model around Open Mobile and guidance as we head into third quarter. Thanks for listening, Steven?

Steven Gatoff

Thanks Evan. Hi, everyone. I would like to cover three topics today. First, I'll offer some details and prospective on our Q2 results. Second, provide you with intangible data points that we are seeing with our enterprise customers around the economics of Open Mobile and third, provide some guidance on our past.

To start with Q2 results, overall revenue was well within guidance and adjusted EBITDA was modestly better than anticipated. Q2 we delivered another quarter of sequential growth involves Open Mobile driven platform revenue and Open Mobile driven network revenue. And as Evan discussed, this was accomplished by significant progress in growing our gross and active Open Mobile users.

While we are encouraged by the performance of Open Mobile in Q2, we also realized that we need to see the revenue growth from OM driven users overtake the user and revenue drain from the legacy iPC business and specifically, on the WiFi network side of the business. This speaks directly to the sense of urgency that we have around customer migrations from the old iPC product to Open Mobile.

In a moment, I'll share some specific data with you on what the economics of this migration looks like. Looking at some of the revenue details, while total platform revenue was nominally flat over Q1 at $5.4 million that was a net result of Open Mobile driven platform revenue growth of $400,000 or 11% sequential growth over Q1 versus an iPC related platform revenue decline of $400,000 or 22%.

Further, we had a unique price reduction kick in on a very large OM deployment in Q2 at a Fortune five customer. Excluding this one-time event, total platform revenue growth would have been about 3% sequentially over Q1 and Open Mobile driven platform revenue would have grown about 15% sequentially.

This is an important dynamic to understand that as the financial foundation of the model and desired outcome, namely at Open Mobile is driving user and revenue growth that is continuing to increase and in the case of platform revenue, has routinely outpace the decline of legacy iPC usage and revenue declines resulting in net growth.

In a moment, I'll also provide color on the Open Mobile flywheel effect as we've described it but first let me touch briefly on the growth dynamics for network revenue look like in Q2.

Total network revenue was $18 million in Q2 versus $19 million in Q1. As anticipated, this was primarily driven by lower WiFi network usage by legacy iPC users. Similar to the platform revenue dynamic, this two is a net result.

WiFi revenue from customers who signed on to Open Mobile continued to grow at Q2 increasing revenue about 18% sequentially over Q1 a good thing.

The rub is that legacy iPC driven WiFi revenue declined about 25% in Q2, offsetting the positive impact from OM in the short-term and hence our focus on sense of urgency on migrating customers to Open Mobile.

To give you a relevant data point nearly 75% of the WiFi network users are on legacy IPC offerings though we believe there is significant opportunity to drive a positive trend in the future. To round our revenue our managed network services business delivered another solid revenue performance quarter at $8.3 million and 12% annualized growth as we completed an important in-store WiFi deployment for a large national office products company. The path forward here is to leverage a strong revenue growth to drive increasing profitability.

One quick tangent, but I trust a helpful bit of info, we get a good amount of questions about our geographic and channel distribution revenue make up, though we've included that additional info in our investor materials that are posted on our website.

Moving on this quarter we drove network gross margin increases of more than 100 basis points from Q1 on our continually strengthening position in the ecosystem as a buyer of network and from some favorable dynamics with EFR customer usage.

From our view of carrier usage and WiFi traffic we believe that iPass continues to be the number one purchaser of WiFi from every major network service provider with which we interconnect. It’s a mutually beneficial relationship. We want these providers to be part of the pass’s mobile network so that we can offer our enterprise and carrier partners the largest global commercial WiFi footprint and the WiFi providers want to be part of the iPass network such that they benefit from iPass delivering them low acquisition costs, highly profitable, incremental traffic on their networks.

Overall, we were pleased to see this all come together to drive an adjusted EBITDA outcome of $380,000 in Q2. Importantly, we continue to drive the growth in our new businesses while maintaining cash in excess of $25 million and while maintaining solid working capital and a strong debt free balance sheet.

With that I would like to turn to my second topic what we refer to as the economics of Open Mobile. Specifically I would like to provide you with quantitative details around two important elements of OM.

One the usual results of a study we did on enterprise customer migrations from IPC to OM and two, the dynamics of the revenue function that we are seeing with Open Mobile vis-à-vis changes in ARPU end users and the resulting positive impact on total revenue.

We have talked about customer migrations from IPC to OM for some time and we refer to the dynamics of customer behavior and usage as a result of this migration as the flywheel effect. That is the increasing leverage and favorable outcomes on user numbers and usage as enterprise customers migrate to OM.

We call it the hypothesis validated by early results states that three things happen when an enterprise customer migrates from IPC to OM. One, we see more aggregate platform users at that given customer. Two, we see greater frequency of use of the platform from month to month and three; we see greater network usage at that customer.

What started as a hypothesis, then emerged as encouraging early data is now showing as meaningful quantitative evidence and statistically relevant conformations of these favorable outcomes. Diving into this, we ran a study on about two dozen enterprise customers that represented about a 100,000 users who had migrated greater than 50% of their users to Open Mobile. The results were very compelling, what we learned was that on average when these customers migrated to Open Mobile we saw 40% more overall platform users post migration.

There are numerous large enterprise customers where we have seen this play out from soda bottlers to consulting firms to petroleum companies, a quantitive and very encouraging data point on execution, growth and value creation. Let me know bridge the user growth dynamic into the second part of this topic on Open Mobile economics, that is platform ARPU and total revenue.

I say platform ARPU specifically because the short answer is that there has been little to no ARPU changes on our network offerings for the past 12 quarter.

Evan and I get a bunch of questions around ARPU. So it's important to talk about the dynamics. While what we are not being asked is the net impact that we are seeing on the total revenue function at the customer level which speaks to the core of the financial results that we are striving for and the scale that we are looking to build with OM in the enterprise business. On the surface we have seen nominal decreases in platform ARPU with Open Mobile enterprise customers.

Importantly and as I referred to a moment ago, that's only half the story. The dynamic around platform ARPU is a function of having Fortune 1000 enterprises as customers and their strong growth in monetized OM users. As I just explained, we are seeing our enterprise customers driving many more users.

We are very economic in our approach to these large enterprises and are keen to do large 20,000 – 30,000 and 50,000 user deals with customers that even at marginally lower platform ARPUs will outpace this price decline for improved overall economics.

Again we ran a customer study to test the hypothesis, similar outcome. Early results were encouraging and similarly we now have quantitative evidence confirming the same. A statistical analysis of more than two dozen customers sure that for these enterprise customers who migrated to Open Mobile, while there was platform ARPU declines in the neighborhood of 60% to 65%, platform users grew by nearly 300% and platform revenue grew at net positive 40%. We like those economics and as with our User Migration Study, we saw positive revenue results across numerous enterprise customers where the demand function elasticity is contributing to greater users and usage that’s driving a solid increase in total revenue at the customer level.

This all reflects a compelling Open Mobile revenue growth story, confirming our strategic shift some eight quarters ago and giving us confidence on the positive economics of Open Mobile and the path to total company growth.

This shouldn’t go without saying however, that while we’re bullish on the economics of OM and the favorable user on revenue growth outcomes that are striving, we're also keenly aware and have a meaningful sense of urgency around the need to stem the tide on legacy IPC declines, the need to continue migrating our enterprise customers to OM and to continue to see the uptake and strong usage that we’ve been experiencing with OM.

As we've discussed, that’s reflected on our efforts around smartphones and tablets, our end use reliable offering, our WiFi footprint expansion and other key initiatives focused on investing in our strategy growth areas to drive migration and revenue growth.

We maintained our confidence in the path forward and continue to look to drive financial and strategic value for our stockholders. And so as we continue to execute and move into Q3 in the back half of the year, we'd like to provide some thoughts on the path forward. Consistent with our pretty transparent view to what we’re doing, we would offer that there are three outcomes that we are focused on as we drive the business through yearend.

One, continuing to scale OM enterprise users. Two, driving WiFi network usage and revenue growth on the heels of the OM user growth, and three, driving OMX carrier deployments and got-to-market, so that we may begin to see meaningful roaming revenue on the platform.

And so given all these focus areas, the dynamics of the anticipated quieter summer seasonality in the enterprise business and the potential for a European decline to impact business travel. For Q3, we anticipate total revenue to be in the range of approximately $29 million to $32 million and we anticipate adjusted EBITDA for Q3 to be in the range of a loss of $1.25 million to income of $0.25 million.

In closing, we remain confident in our strategy and our business bolstered by our team’s execution and the results that we are delivering on a new Open Mobile platform, both on monetizing the enterprise side and building the strategic value on the carrier OMX side.

Stay tuned for more of this stuff on both these fronts through the end of summer and into the fall. With that we appreciate your time and support and will be glad to open the call for any questions. Operator?

Question-and-Answer Session


(Operator Instructions) And we will take our first question from Donna Jaegers with D. A. Davidson.

Donna Jaegers - D. A. Davidson

Steven, one of the comments you made on the revenue impact of the platform, you said that with two dozens customers ARPU was down 60% to 65%, but users were increased 300%. Did I hear that right?

Steven Gatoff

Yeah, so that was a study that we did specifically on the revenue side, that's right and so we said the user number on platform for that group of customers was up about 300% and the ARPU for that group was down about 65% for net platform revenue increase of 40%. Platform ARPU not network ARPU.

Donna Jaegers - D. A. Davidson

And then I was just curious you had some success in signing to Open Mobile Express, could you differentiate the Express product from the Open Mobile Enterprise?

Evan Kaplan

So Donna, this is Evan. Just to be clear when we say OMX we mean Open Mobile Exchange; I can understand why it will be easy to get confused, so the Open Mobile Exchange is the offering targeted at carriers to put carriers in the business of selling global WiFi and to exchange traffic between themselves and so.

Donna Jaegers - D. A. Davidson

I am referring to in your press release page two you signed significant enterprise customers to iPass Open Mobile Express; there is a separate bullet point from Open Mobile, so just trying to figure out the difference that was the first time I had seen it mentioned?

Evan Kaplan

Yeah so I apologize. So Open Mobile Express is a lighter version of the full Open Mobile platform. It tends to be customers who don’t take all the policy requirements and so where we can we kind of like signing those because the deployments go a lot faster. They tend not to be deeply integrated into the customer’s infrastructure the way the normal Open Mobile offering is. Sorry I apologize for that.

Donna Jaegers - D. A. Davidson

No problem. Have you been offering the Express platform or the Express product for very long and have you seen any migration from people like the Express and then they move on to the full to putting into full policy requirements?

Evan Kaplan

I think we are -- don’t hold me to this, but I think we are about two quarters into it; we announced it maybe three I am not sure. And so we haven’t seen migration up yet and we certainly haven’t change migration down, so I think they each been a hit segments; we’ll get a better feeling overtime to be honest.


And we’ll take our next question from Scott Searle with Unterberg Capital.

Scott Searle - Unterberg Capital

Evan, maybe just on the (inaudible) active un-deployed number is a huge figure this quarter. Could you give us idea of where it is coming from; it sounds like you are going well beyond your adjusting base and converting that overall, but it seems like there is a hiked sense of urgency given the economics to get them converted.

But can you give us an idea of the channel that that’s coming from or there are some new partners there and how should thing about that going forward, again very, very big quarter, a little bit of inflection versus March which was always a solid quarter . So how should be we be thinking about that looking over the remainder of 2012 and into 2013?

Evan Kaplan

A couple of things; one is, you should be looking at it positively; we are pretty happy with the results there. We have been executing well with both our deployment teams and our focus in the product just being now on I think its third or fourth release and it is in really good shape.

In terms of the migration themselves, you it had a lot of – one of the good or bad things been how you look at it with a lot of success with the US customers and that’s primarily because most of those customers are direct and so our success has been primarily through the direct and not primarily, but a significant part of it is through the direct channel. \

We are just now really getting the indirect channel, the larger carriers and other folks going and the good news about that is a lot of that activity is in Europe and a lot of our real monetization is on the European footprint. So those two things are sympathetic and give us some confidence as we go into the back half of the year and into 2013. As you would expect it’s easier to make those conversions direct into a channel but we’re getting better.

Scott Searle - Unterberg Capital

And maybe just a point of clarification, you know, you talked about the target of being active users, I think deployed at 300,000 this year and then you mentioned a figure about doubling was it double where we currently are or was that double the prior target?

Evan Kaplan

With my comments, my expectations were at least double where we currently are and active.

Scott Searle - Unterberg Capital

Okay. And, on the OMX side of the equation, when do you first start seeing the networks getting up and live and contributing in a meaningful fashion, well that happened by the fourth quarter of this year, or is that still a 2013 event?

Evan Kaplan

I think it will start in the fourth quarter, you know, start to be you know, some meaningful amount. It's not going to be life changing but its going to be a more concerned with the directionality of it.

Scott Searle - Unterberg Capital

Okay, and on the legacy side of the equation, thanks for breaking down for providing some granularity as it relates on the platform side with iPC versus Open Mobile, but on the network side of the equation, you still have minimum commits, some small dial up 3G, how did that fare when I look at the network revenue sequential, that was a portion of the sequentially decline?

Evan Kaplan

Steven, can you talk to that?

Steven Gatoff

Scott, spot on. So the net answer is that the dial up piece, the 3G piece, the other non-Wi-Fi networks elements, basically came in with expectations which was for all those can [alluded] to be down. Recall, we made a conscious decision to move away from 3G from reselling that to that something that we anticipate coming down similarly with dial small number, but coming down and then mint-commit came down just a touch.

Scott Searle - Unterberg Capital

Steven may be a follow-up on the network WiFi revenue. Was that flat sequentially or just down a little bit?

Steven Gatoff

It was down.

Scott Searle - Unterberg Capital

Okay, and just quickly on the WiFi revenue from a math standpoint, you know, given the penetration that you’re talking about the adoption of OME and active users on OME, are we getting to a point now where the WiFi revenue and contributions coming from the new platform should really be overtaking any sort of a legacy decline there in the next couple of quarters or is it still too early to call?

Steven Gatoff

I'll start with some of the quantitative stuff behind it and Evan will finish off. So, from a kind of user profile [Scott] which would translate pretty well to revenue, you know, we feel its pretty close. We put some charts up on our presentation you will find on our website, that’s speak to where platform users are and we have some similar data on WiFi and so we do look at you see the curves, or you see the iPC curve coming down for WiFi. So this quarter is kind of 75%, 25% mix, 75% coming down on iPC OM growing and so if you extend out those curves, it feels like that over the next quarter or two, they crossed, and so that’s a fundamental basis for our view that we had for several quarters now.

Scott Searle - Unterberg Capital

Okay, last question, just from a big picture standpoint, Evan you know, looking at the opportunity in terms of WiFi offload, you know, what do you see in either comparatively reason, is anything changing out there, and as you look out some of the potential MDM partners out there, I know you guys have a nice relationship with MobileIron but you know, who also would you be thinking about in terms of some of those other MDM partners, you know, over the next couple of quarters?

Evan Kaplan

So on the MDM side you asked just two questions there, one was on competitors, one was MDM which is really partners for us. On the competitive side, on the global WiFi roaming, right now we are really not seeing a meaningful competitor of any kind of scale. I think over time that will change just because it’s the nature of these markets as people see us execute into the opportunity it will be of interest. On the MDM side yes we have relationships with MobileIron but we are interested in having a relationship with a variety of different MDMs, it's our point of view as that we don't have religion on that subject. We like to work with all of them, anything they would enhance our deployments of smartphone pads and non-IT managed devices would be helpful. So we will continue to expand that program.


And we will take our next question of Marc Silk with Silk Investment Advisors. (Operator Instructions)

Marc Silk - Silk Investment Advisors

First question is if the IPC legacy customer does not go to OEM so what basically are these guys doing and who would they go to?

Evan Kaplan

Great question, they would go away. So they go away from us and the dynamic there and one that we are trying to build some product around is that the IT abdicates responsibility for providing that service. And that was really bad, I would say two or three years ago as a trend, it seems to be getting better today.

So the answer quite simple is they go away and IT abdicates responsibility of it. They generally don't go to another provider and so our belief is that over time, IT will have to give responsibility for the smartphone and tablet devices, but continue to try to offer the service.

One of the things we've done in that regard is offer an end use reliable product which allows IT to sponsor an offer to their users without having the economic responsibility. In other words they send out emails encouraging folks to negotiate at corporate rate, but people put on their credit cards and expenses. Those kind of strategy and tactics are important for those customers that we lose or decline significantly.

Marc Silk - Silk Investment Advisors

And then there's no secret that if business travel goes down in Europe, it affects you. I think that's a temporary situation because you are building out networks et cetera. So theoretically I want to ask you how the environment is for business travel in Europe and so how is it going right now and what do you see over the next six months or so.

Evan Kaplan

Let me start and Steven will add some color. Our view is it hasn't been great, but it could be better. Obviously as you know just following the macro news. You know we are not planning for it to make some significant big turnaround either. So any improvements in that I would regard as upside to our business.

Steven Gatoff

That's how we think about it, Mark going forward which is a little bit of a negative view if you will as far as how we think about numbers. This past quarter we really, we saw a little bit of an impact early on in the quarter I think like most other folks saw. Travel in May was a bit soft, but now it bounced back in June and July, it's not as bad.

Evan Kaplan

It's an important dynamic for us, Mark.

Marc Silk - Silk Investment Advisors

My feeling is you know it could impact numbers obviously going forward, but realistically your business is just getting stronger and stronger. So it will be less of an impact and that eventually when it comes back it’s a bonus.

Evan Kaplan

That would be model. We would like that to happen.


And we will take our last question from Kevin Henehan with KMH Capital Advisors.

Kevin Henehan - KMH Capital Advisors

I had a question similar to the last question. He was asking about Europe, I was going to ask about Europe as well. But I was also going to ask about the currency impact, did you see a currency impact which might have been positive when recently when the euro has gone down against the US dollar?

Steven Gatoff

So we are in the good position I would offer. It’s probably different from many other folks where all of our revenue contracts are contracted in US dollars and between customers and the US entity. So from a top line revenue standpoint, we have little to no P&L FX impact. You might have an economic discussion about whether our services become more or less expensive relative to foreign currencies of your fluctuations, the business issue but there is no P&L issue or mark-to-market, that kind of thing for hedging for the P&L.

Kevin Henehan - KMH Capital Advisors

Right because all your contracts are in dollars?

Steven Gatoff

That’s right. We have foreign base knack for our overseas, but we had a very, very minor double-digit thousand impact on the P&L in Q2.

Kevin Henehan - KMH Capital Advisors

Right, so the economics you are talking about is for say a customer in Germany or France, your service might have just gotten slightly more expensive to them because of that (inaudible)?

Steven Gatoff

Yeah, that’s right.

Kevin Henehan - KMH Capital Advisors

Right, are you seeing anything in Europe, you know some countries doing better than others, you know Southern Europe doing worse than maybe Northern Europe or Great Britain do a little better?

Steven Gatoff

I think it's about what you'd expect. You know obviously we see Germany doing pretty well. German customers particularly go into telecom. And you know we see the UK doing pretty well. And that's primarily because it's a travel destination.

Southern Europe is by the nature of our customers and business travelers, those aren't the huge destination for us in Europe. It's UK, France, Germany.

Kevin Henehan - KMH Capital Advisors

And then I had one final question. Evan, it's a follow-up to prior quarters. You know I think it was -- was it a year ago you went to Spain and you were at a security conference and then you had a press release about Gemalto and then in you know more recent quarters, we talked about possible solution there with a SIM card for a possible SIM card. You know can you give us any update on Gemalto and you know what's happening with that?

Evan Kaplan

Yeah they continue to work on -- they have some opportunities in the pipeline and they are working it. It's probably not been as predictable relationship as I would have hoped a year ago. Probably just leave it at that, but they do have some opportunities in the pipeline and they probably will close them. So pleased to say that.

Kevin Henehan - KMH Capital Advisors

So you are still working on that over time?

Evan Kaplan

Yes, yes.


And ladies and gentlemen, with that we will conclude today's conference call and we would like to thank you for your participation.

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