Wind River Systems, Inc. Q2 2009 Earnings Call Transcript

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 |  About: Wind River Systems Inc. (WIND)
by: SA Transcripts

Wind River Systems, Inc. (WIND) Q2 2009 Earnings Call August 29, 2008 5:00 PM ET

Executives

Ken Klein - Chairman, President and Chief Executive Officer

Ian Halifax - Chief Financial Officer

Anne Marie McCauley - Vice President of Investor Relations

Analysts

Matt Petkun - DA Davidson & Company

Michael Huang - Thinkpanmure

Aaron Schwartz - JP Morgan

Richard Williams - Cross Research

Nabil Elsheshai - Pacific Crest

Brent Williams - Benchmark Company

Operator

Ladies and gentlemen, good afternoon, and thank you for joining the Wind River Systems' Q2 Fiscal Year 2009 Earnings Conference Call. After prepared comments by management, the company will host a Q&A Session. At this time, I will turn the call over to Anne Marie McCauley, Vice President of Investor Relations at Wind River Systems. Ms. McCauley, you may begin.

Anne Marie McCauley - Vice President of Investor Relations

Thank you, Anida. Good afternoon and welcome to Wind River's Q2 fiscal 2009 conference call. Joining me today is Ken Klein, our Chairman, CEO, and President; and Ian Halifax, our CFO.

Before we start, I’d like to remind you that this call is being webcast. The webcast and a second quarter update presentation can be accessed on the Wind River Investor Relations' website at www.windriver.com. A replay will also be available shortly after the conclusion of the call and will remain available for approximately one year.

The purpose of this call is to revise you with information regarding Q2 FY '09. However, some of our comments and responses to your questions will include forward-looking statements such as statements regarding our estimated revenue, GAAP net income per share, non-GAAP net income per share, and estimated expenses, margins, and cash flows for the upcoming quarter or full fiscal year 2009, direction of commentary on expected financial performance for fiscal year 2010, potential design wins, market opportunities, and expected business and market growth and development, new business models, expected new products or product features, and the benefits of new products, and the return on investments we have made in our products, sales organization, and alliances.

These forward-looking statements are based on certain assumptions and are subject to a number of risks and uncertainties. Actual future results may vary materially. I encourage you to read the risk factors described in the company’s annual report on Form 10-K for the fiscal year ended January 31, 2008, as well as other reports filed with the SEC after that date, including our Form 8-K filed today.

I’d also like to point out that results discussed today include certain supplemental non-GAAP financial measures. We provide these non-GAAP financial measures because we believe that they provide important supplemental information about our core operating results. These non-GAAP financial measures have not been prepared under any comprehensive set of accounting rules. All non-GAAP financial measures should be read in conjunction with the comparable GAAP information.

For a description of non-GAAP financial measures and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of Wind River’s earnings release issued today entitled “about non-GAAP financial measures” and supplemental information posted on the Wind River Investor Relations' website at www.windriver.com.

With that, I’ll turn the call over to Ken Klein.

Ken Klein - Chairman, President and Chief Executive Officer

Thanks Anne Marie and good afternoon everyone. We are pleased to report that the momentum we saw in our Q1 business continued into Q2. The quarter was again marked by solid execution on all fronts driving return on the investments we made over the last year. Wind River is making excellent progress across all product lines and all targeted vertical markets.

Revenue for the quarter was $91.9 million, an increase of 9% over anomalously strong Q2 last year. The combination of deferred revenue and services backlog was approximately $163 million, an increase of 20% over Q2 last year. Q2 GAAP net income per share was $0.11, an increase of 120% over Q2 last year and non-GAAP earnings per diluted share were $0.17, an increase of 42% over a very strong Q2 of $0.12 last year.

Our focus this year is on execution and return on investment. Our Q2 results clearly demonstrate our ability to execute consistently. We believe that the investments we have made in products, sales and alliances along with our alignment by product division and vertical market focus has fueled our momentum in the first half of fiscal year 2009. We are also encouraged by robust sales pipelines for Q3 and beyond.

Let me take a few minutes to review Q2 highlights and describe the key market trends that are benefiting us. Our increased focus on a named accounts sales model supported by geography based sales teams is enabling us to sell higher and more broadly into customers' organizations. As a result, we are seeing a higher frequency of larger transactions.

This quarter we had eight deals greater than $1 million and 155 deals greater than $100,000. These transactions are spread across all our target vertical markets, with a strong design win quarter surpassing 250 wins in Q2. Also we had groundbreaking wins this quarter in our MILS, industrial and mobile segments.

From a product line perspective, VxWorks 6 bookings were up 21% year-over-year. Results were very solid in our aerospace and defense vertical market. We are seeing increased demand resulting from our investment in VxWorks for the MILS, Multiple Independent Layers of Security architecture.

MILS enables our defense and commercial customers to build systems with certified high assurance that can securely and concurrently process classified or commercial data for multiple sources. With several wins in the quarter for the MILS architecture including one with a major defense prime. Our pipeline contains additional MILS opportunities we hope to capture in the second half of the year.

We extended our position in the avionics market with bookings for our ARINC 653 solution up 27% over the quarter a year ago. This platform provides customers with a proven safe and reliable solution for their safety critical control systems.

Customers in Q2 for the VxWorks 653 platform were geographically dispersed across the Americas, Europe and Asia. We also delivered certification evidence to several customers this quarter. Our VxWorks based business in the industrial vertical market grew 50% over year ago quarter. During the quarter, we had a large industrial win in Europe with Bosch Rexroth were the customers like our VxWorks based industrial platform for use in motion control systems.

The key driver for this design was our comprehensive software support of their multi-core hardware environment including both our VxWorks symmetric multiprocessing solution and associated development tools.

During the quarter, we announced Wind River Multi-Core Software, the industry's most comprehensive multicore and virtualization technologies. As part of this announcement, we introduced a scalable hypervisor allowing multiple operating systems to share underlying processing cores, memory, and other hardware resources.

While the early access release for our hypervisor is just now becoming available, we have already seen an early virtualization win as part of a large automotive customer transaction. We believe that our multicore software and virtualization technologies will be applicable across a broad range of vertical markets including networking equipment, automotive, industrial and medical.

To extend our solutions and market presence, we continue to collaborate deeply with the leading multicore silicon companies including Cavium, Freescale, Intel, and Raza. For example, we announced a close development partnership with Freescale on their new core IQ multicore chip family. We will innovate our VxWorks and Linux operating systems as well as our tools with our new simulation technologies. This will uniquely enable our joint customers to more easily migrate existing projects or start new development projects in advance of hardware availability.

In Q2, we got another excellent Linux quarter as bookings grew 115% over last year. At current levels, we are rapidly approaching $100 million in run rate. The execution of our strategy in the mobile handset and mobile Internet device vertical is progressing well. Our unique position in the open handset alliance i.e. Google's Android and Intel's Mobilin and in LiMo has significantly increased our Linux sales pipeline.

Each of these Mobile Linux consortia is taking a different approach to consolidate the fragmented Mobile Linux market. Regardless of which approach the market embraces, we are well aligned with a key hardware and middleware providers, handset manufacturers and mobile operators to benefit. During Q2, we had services led Android space design win with a major mobile operator.

Within LiMo, all five LiMo OEMs began using our Linux build system and tool chain to make up contributions to the LiMo platform. We also had a design win with Kyocera. We are helping them develop a next-generation consortia based smart phone. Wind River intends to provide Kyocera with Linux and proprietary technology, development tools, and customization expertise.

We are further strengthening our Mobile Linux capabilities with today's announcement agreement to acquire MIZI. MIZI is a Korean based company founded in 1999 with 65 employees focused on the development of mobile software for embedded Linux. This acquisition will provide us with incremental expertise in Mobile Linux. We will also benefit from their customer relationships and capabilities in telephony, user interface design, and multimedia. We expect to leverage this expertise in developing IP for use in consortia projects including OHA, LiMo, and Moblin.

We also announced a groundbreaking partnership this quarter in the broader mobile market with Intel. With support from Intel, we will introduce a commercial Moblin based Linux platform for the Mobile Internet device for mid market. The platform will be application ready and optimized for the newly Intel Adam processor. We intend to drive per unit fees for mid customers tied to their production volumes.

We also saw strength in our Linux consumer device solutions outside the mobile segment. We had a new design win in the high end digital television space. The manufacturer is creating a new family of Internet connected Linux based products and will rely on Wind River to be the software systems integrator cording across multiple vendors.

In addition, we saw further adoption of our Linux solutions in the automotive infotainment market. Leveraging work we have done with BMW, Intel and others, we had a design win with a customer building a second generation telematics platform. We will service the systems integrator for this program integrating our Linux solutions with our new virtualization technology based on hypervisor. At the Intel IDF or Developer Forum last week, BMW and Intel demonstrated our new Linux for automotive infotainment platform on main stage to over 2,000 attendees.

We had continued success with VxWorks, Linux and Tools in the important networking vertical. In Q2, every major network equipment provider purchased our networking solutions including Alcatel-Lucent, Cisco, Ericsson, Huawei, Motorola, NEC, Nokia, Siemens and Nortel. We are seeing a number of these providers adopt our Wind River Linux platform as they start their 4G wireless designs including both LTE and WiMax.

In the device management business, we recently announced Test Management. Wind River's first solution targeted specifically at the QA department. This application enables our customers to automate the test process and will help our customers shorten their testing cycles, lower product development costs, and achieve faster time to market for devices.

Before I turn the call over to Ian, I would like to summarize.

To reiterate, our focus this year is on continuous execution in driving return on the investments we made last year. We have started the year on a strong note. Given our investments, vertical market focus, and targeted strategic initiatives, we believe we are well positioned to build on the momentum of the first half of FY '09 as we head into the second half and beyond. Thank you very much.

Ian Halifax - Chief Financial Officer

Thank you, Ken. Good afternoon. I would now like to review our second quarter fiscal year 2009 financial performance and highlight key metrics for the first half of FY '09. additionally, we will review guidance for both the third quarter and full fiscal year 2009 and provide some directional commentary on fiscal year 2010.

Before discuss our Q2 performance, it's important to remind that Q2 last year was very strong from a revenue and earnings perspective due to anomalous one-time event. For the second quarter of fiscal year 2009, net revenues were $91.9 million, reflecting a 9% increase over the strong second quarter of fiscal year 2008. This brings revenues for the first half of fiscal year 2009 to $179.8 million an increase of 11% over the first half of fiscal year 2008.

Subscription revenue for the quarter was up 8% year-on-year to $32.5 million. Product revenue, including project-based perpetual and term licenses as well as production licenses was $34.9 million up 9% compared to $32 million in the second quarter of fiscal year 2008.

Perpetual and term licenses contributed $13.6 million to product revenue, reflecting rapid adoption of our recently implemented term license model. Going forward, we anticipate product revenue to trend above last year’s run rate due to our shift to term licenses for large multiple element arrangements.

Services revenue, including maintenance, professional services, and training was $24.5 million, up 9% compared to the same quarter a year ago. Deferred revenue for the quarter ended at $134.2 million, representing a 16% increase over the second quarter of fiscal year 2008.

At the end of the second quarter, we had services backlog of approximately $29 million. This represents an increase of over 37%, compared to the same quarter a year ago was driven by large services led engagement wins in the quarter. The combination of deferred revenue and services backlog this quarter is approximately $163 million, representing an increase of 20% over the same quarter a year ago. As a reminder, this metric is intended to provide a gauge of the overall demand for our products and services.

VxWorks revenue for the second quarter of fiscal year 2009 was $65.6 million, an increase of 9% compared to the second quarter of fiscal year 2008. Linux revenue this quarter was $10.1 million, an increase of 60% compared to the same quarter a year ago.

Other revenue, including revenue from non-core products designed services tools and device management for the second quarter of fiscal year 2009 was $60.2 million, a decrease of 11% compared to the second quarter of fiscal year 2008.

In terms of geographers, the Americas represented 47% of total revenue for the second quarter. EMEA contributed 29% and Asia Pacific, including Japan, contributed 24%.

In terms of bookings, some of the top customers in the quarter included Alcatel Lucent, Oski, Bausch, Intel, Lockheed, Motorola, Northrop Grumman, Rafeon, Ricoh and Siemens. We had 155 deals, greater than $100,000 during the quarter. We had 8 deals greater than $1 million during the quarter.

Our bookings profile by end market for the quarter was as follows: Network Infrastructure accounted for 29%; Aerospace and Defense, 22%; Industrial and Automotive, 20%; and Digital Consumer, 29%.

Gross margin on a non-GAAP basis for the second quarter of fiscal year 2009 was 79%, a slight increase over the second quarter a year ago. This was driven primarily by improved services margins. As anticipated, non-GAAP operating expenses decreased in Q2 from Q1 levels to $58.4 million. This sequential decrease of $2.4 million or 4% was due to lower sales and marketing program spend and lower professional services fees. We remain very focused on margin spend, anticipating non-GAAP operating expenses to reach well in excess of $60 million.

Non-GAAP operating income in the second quarter was $13.7 million compared to $9.7 million in the same quarter a year ago. This translates into second quarter non-GAAP operating margin of 15%.

Interest and other income on a non-GAAP basis was $1.7 million for the quarter. The impacts of FAS 123 are expensing of stock-based compensation in the quarter was $4.2 million.

Net income on a GAAP basis in the second quarter of fiscal year 2009 was $8.8 million compared to net income of $4.3 million in the same quarter a year ago, an increase of 104%. Non-GAAP net income in the second quarter of fiscal year 2009 was $14 million compared to $10.5 million in the same quarter a year ago, an increase of 53%.

On a diluted share basis of 79 million shares, GAAP net income per share in the second quarter was $0.11, an increase of 120% over the same quarter a year ago. On a diluted share base of 80.3 million shares, non-GAAP earnings per share in the second quarter were $0.17, an increase of 42% over the same quarter a year ago.

For the first half of fiscal year 2009, GAAP net income was $9.3 million or $0.11 per share. Non-GAAP net income was $21.7 million or $0.26 per share, an EPS increase of 63% over the first half of fiscal year 2008.

Q2 FY '09 ended with $201.6 million in cash, cash equivalents, and investments. Cash flow from operations were $9.9 million for the quarter. This brings cash flow from operations for the first half of fiscal year 2009 to $39.5 million, an increase of 69% over the first half of fiscal year 2008.

During the second quarter of 2009, we repurchased 2.2 million shares for a total amount of $18.6 million. On June 17th, we announced an additional $50 million share repurchase program and as such we currently have a balance of $65 million available to buy back shares.

The account receivable balance as of July 31, 2008 was $65.6 million. Day sales outstanding was 65 days compared to 74 days last quarter.

Depreciation in the second quarter was $2.3 million. Capital expenditures were $1.8 million, including approximately $0.8 million for internal use software projects.

At the end of July, our total headcount was 1,512, including sales headcount of 405. We had roughly 160 quota-bearing sales personnel at the end of Q2.

Now, let me take a moment to welcome the 65 employees from MIZI who will be joining our team. This group will bring extensive mobile expertise and services capability to Wind River. As we stated in the release today, we expect to put up to $60 million in cash to acquire substantially all of the outstanding shares of MIZI. Subject to customary closing conditions, we expect this acquisition to close in Wind River's fiscal third quarter. We expect that the acquisition will not have a material impact on GAAP and non-GAAP earnings per share in FY '09. We anticipate to be accretive to GAAP and non-GAAP earnings per share in FY '10.

I would now like to review the financial outlook we included in today’s earnings press release. We are providing guidance for Q3 for the first time and are raising our earnings per share projections for the full fiscal year 2009.

As a brief reminder, guidance for the upcoming quarter and for the year are set with a focus on sales forecast and pipelines, the conversion of orders into revenue, and our ability to carefully manage expense. A key challenge is projecting the quarter in which large deals will close and convert to revenue.

In Q2, we saw a further rapid adoption of the term licenses model as well as a number of large transactions close earlier than originally forecast. Hence, for fiscal year 2009, we continue to anticipate revenues in the range of $365 to $375 million dollars. GAAP net income per share is now projected at $0.17 to $0.19 and non-GAAP net income per share is now forecast to be $0.50 to $0.52.

In the third quarter of fiscal year 2009 we anticipate revenues in the 88 to $90 million range. GAAP net income per share of $0.01 to $0.02, and non-GAAP net income per share of $0.08 to $0.09.

It's important to highlight as the GAAP profitability increases and becomes more predictable, we maybe in a position to release our valuation allowance related to our US deferred tax assets. The release would result in a one-time significant benefit to a GAAP tax charge in the quarter in which the release occurs. While we are unable to predict, if this release will occur late in FY '09 or in FY '10 the impact will result in a change to the GAAP tax rate. We do not expect a material impact to the non-GAAP tax rate this year. We are in a process of assessing longer term tax practice to match our overall effective tax rate.

We continue to be encouraged by positive momentum in our business. As we are looking to FY '10 we believe that from a current FY '09 target we can grow revenues in a range of 10 to 14%, while expanding operating margins by further careful management of our cost infrastructure. If we accomplish this we will achieve continued bottom line leverage resulting non-GAAP earnings per share growth in the range of 20 to 25%.

Wind River has demonstrated solid execution in the first half of fiscal year 2009. Given our investments, organizational structure, vertical market focus, and target strategic initiatives, we believe we are positioned to build on our momentum. Continued and consistent execution will be key in translating our business opportunities into revenues and earnings per share in the fiscal year 2009 and beyond.

At this point, Ken, I would like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). So our first question comes from Matt Petkun of DA Davidson & Company.

Matt Petkun

Hi, good afternoon, nice quarter. A few questions, primarily on the continued use of this term deals, I find that interesting, can you guys continue to comment as to why you are moving more away from the subscription and towards the terms deals with your larger contracts?

Ken Klein

Yeah, sure. Let me make two or three points. Now the first is its not a wholesale migration from one pole to another, about 3% of revenues in Q2 came from terms licenses. Mostly two to three year deals have 30% maintenance components. And the reason we have adopted this approach is really, you know, it's a couple of reasons. One is they make accounting for multiple element arrangement which include services and other elements rather simpler. We believe we will see improving yield rates and easy renewals with this model and we believe that although timing will increase sales run rate to pursue new design wins. So those are the main reasons.

Matt Petkun

Okay. And then, if I look at the bookings number and obviously we never get a perfect insight into this, but looking at the change especially in the short term subscription deferred revenue and the total subscription deferred chase, it would look like at least from a bookings perspective, you saw a meaningful decline in subscription bookings activity. Can you comment on that?

Ken Klein

Yeah. So Matt, it's Ken. I will give you the overall bookings picture and then Ian can talk about subscription bookings in particular. So as you know we don’t talk about bookings in general but I will tell you several things. One is that in Q2, bookings obviously exceeded revenue. Secondly, the bookings growth rate overall was actually substantially exceeded the revenue growth rate. And again the thing I would call your attention to is what we mention in both of our prepared remarks that be combination of deferred revenue and services backlog was $163 million with increase of 20% over our Q2 last year.

Matt Petkun

Okay, great. And then, when we look towards Q4 kind of we now have Q3, so are able to guess of roughly where Q4 should shake out, where do you see the real pick up then from a revenue perspective because we already have a good sense of roughly what the subscription run rate should be headed into those quarters. So if you had to weigh up between real pick up in services, the production run time revenue or perpetual term deals, where is the biggest pick up coming to get you closer to that 100 million run rate?

Ian Halifax

Yeah. I think there is no single element which will drive the pickup. Once I think we said on -- I don’t know like Analyst Day in the recent calls, we do expect the product line to grow more quickly than subscription. So expect that to be one driver of growth along with services which we have a very good quarter and we expect further momentum there albeit Q3 and Q4.

Matt Petkun

Okay. Then just one final question for me. Ian, the nice tick up that we saw in the services backlog we are now annualizing when you first started giving us that number. Was there one specific renewal that helped drive that kind of $9 million increase or is it just kind of the aggregation of the total business?

Ian Halifax

There was at least one large deal in that but it wasn't just one deal, it was several deals.

Matt Petkun

But a deal that was renewing from a previous contracting backlog?

Ian Halifax

No, this is new business.

Matt Petkun

Okay. Nice quarter.

Ian Halifax

Thanks.

Operator

Your next question comes from the line of Michael Huang of Thinkpanmure. Sir, your line is open.

Michael Huang

Thanks very much. Good afternoon guys.

Ian Halifax

Good afternoon Michael.

Michael Huang

The first -- the theme that you getting some strong services work around Linux across verticals which is encouraging. Could you help us understand, I mean, is this a leading indicator for subscription deals or licensees down the road? And then kind of per the license deals that are subscription or license, what percentage of these deals right now are attacking some form of unit pricing.

Ken Klein

Sure. Hi Mike. In general, these are services led engagements and we talked about a handful of them including the transaction with Intel, Moblin and basically enabling the Adam processor for MIZI, which -- so they are NRE upfront and the way the business model work it's a combination of that plus technology access, fee associated with that, per developer fee, and then per unit fees to track with customer volumes later on when these devices enter production. So a lot of the services led engagements we are doing in mobile and in automotive, our structure is exactly this way. It's very similar to what we have already been able to do successfully in networking equipment. So in fact we believe that is to be a leading indicator of follow on product now, that product again as Ian mentioned depending on how we structure those they could be done as term transactions or subscription depending upon to what make sense for that people or customer.

Michael Huang

Okay. And in term of your royalty compliance program I know that you guys had focused quite a bit on that totally last year. I was wondering whether or not did that contribute to Q2 performance on the royalty line and are we pretty much all caught up there?

Ian Halifax

Yeah, really because truly we had some help from compliance in Q2 this year, as to the last year also. But I think as a -- it’s a very decent pipeline for compliance activity going forward.

Michael Huang

Okay. And then last question for you guys. So with respect to device management, we have been hearing some encouraging feedback on that. Can you talk about which verticals are the ones that are earliest embraced that product area and just from the magnitude side, as sampling tells, help us understand how optic that opportunity is?

Ken Klein

Well its fairly -- its still pretty early days with device management and by the way, we are really focusing on this -- device manager as a life cycle quality management. And as we have seen from our announcements now we are really focusing on this QA opting which we think to be very, very large and we are very excited about that. In terms of early adopters, it’s no great surprise that the networking equipment is probably the segment where we are seeing the most traction and also aerospace and defense and surprisingly. On a go forward basis we believe that test management which is really the newest addition to the device management portfolio will have cross vertical applicability ie, it will be just as relevant in other verticals such as industrial and consumer.

Michael Huang

Okay. Thanks very much guys.

Operator

Your next question comes from the line of Aaron Schwartz with JP Morgan. Sir your line is open.

Aaron Schwartz

Good afternoon. I had a question about the revenue guidance. You talked about a very strong pipeline and the revenue has really been the function of the timing of closing transaction out of that pipeline. It certainly have seen better close rate here in the first half, is that really how we should think about it for Q3 that you would assume sort of that same base line premise and if you happened to see an acceleration in close rates or similar transaction that would be upside to the revenue guidance that you provided?

Ian Halifax

Yes, just sort to involve the Q3 guidance, Q3 has been -- so it was last year in my first two, three the seasonal quarter. If you look at the data from last year we saw about $3 million dropping revenue from Q2 to Q3. So we are sensitive to that. I think that is the major best of the guidance. Of course if we see similar very, very strong execution in Q3, obviously from Q2, there could possibly some upside, but I will not claim nor I sign up for that right now.

Aaron Schwartz

Okay, fair enough. And then in terms of the mobile handset, initiative obviously you have invested heavily in that segment. Is it fair to assume that in FY '10 that we should start to think about some of the production license coming into where its starting to be meaningful and obviously that carry so much higher margin. Is that the right time for him to think about?

Ken Klein

Aaron, yeah that’s right. That’s our intention. Obviously, we are not waiting around to monetize this before that time, because there is -- we have opportunities with us -- services led and array technology access fees and developers say it’s the -- yeah we would expect to see per unit fees manifest in FY '10. I can't give you a lot of granularity on that right now because that’s obviously a lot it has to do with the uptick of our platforms and how quickly they make their way into production with high volume devices. But again we have a lot of irons in the buyer right now with Moblin, with LiMo with Google android and obviously we are putting even more wood behind the aero in terms of our capacity to deliver on this with the acquisition of MIZI which we announced today.

Aaron Schwartz

Okay. And that’s actually related to my last question. Obviously that you put some commentary in the release that they shouldn’t be all that material to your margins targets here, but does that push out the profitability target just on your Linux business?

Ken Klein

No.

Ian Halifax

No, not at all.

Aaron Schwartz

Okay, terrific. Well congratulations on the quarter and thanks for taking my question.

Ian Halifax

Thank you.

Ken Klein

Thanks Aaron.

Operator

You next question comes from the line of Richard Williams with Cross Research. Sir your line is open.

Richard Williams

Can you hear me guys?

Ken Klein

Yes.

Richard Williams

Okay. Congratulation on quarter.

Ken Klein

Thank you.

Richard Williams

I wonder if you could give us some color on the different geographies to start with.

Ken Klein

Yeah, this quarter I mean again – depending on the quarter we see fluctuation but the stars were the Americas and Asia Pacific.

Richard Williams

Okay. And also I may have missed it before, I apologize if I did, but what were the uses of cash flow because it was such a strong top line and bottom line quarter, it seems like cash flow was little bit late?

Ian Halifax

No, one fact we did drive cash-flow to $9.8 million. We did see a drop in deferred revenue, in fact it was the main driver. But if you look at the half year metrics, cash flow for the half year was very, very strong indeed and we feel very good about that.

Richard Williams

Sure. And what was your full year target or did you give that?

Ian Halifax

We didn’t tell them of course like last quarter we said in excess of $60 million and I think we are still comfortable with that.

Richard Williams

Okay. And let’s see, can you give us anymore color either on the handset side or the infotainment any events upcoming, any interesting developments beyond what you have already said? And thank you.

Ken Klein

Well, I think that -- again I don’t want to allude what we have already said here. I mean the fact that we have announced a major Android operator. When? At this time, we can’t reveal who that is. I think that’s quite material because we think that operators are very much like market makers and they can influence the entire supply chain all the way down through OEMs down into actually to silicon. And so very much the way we saw this manifest itself with our win at BMW, we are making a market for Linux based infotainment systems. We think this is kind of the clear path to do that. I think the other thing I had mentioned with MIZI, MIZI brings to us customer relationships and operator relationships as well including China Unicom where in fact there is a special edition, Olympics handset actually distributed by China Unicom built by or designed and with IP from MIZI. And so these kinds of relationships, the business model that we put in place we think is a quite exciting. On the telematics side, again I think we certainly see an uptick and in terms of our pipeline based on the success that we have had so far that we are able to – I would just say Intel and BMW were able to actually demonstrate our Linux Infotainment platform in front of 2,000 attendees at the Intel Development Forum is important and we think that’s gong to be help us continue to grow the pipeline.

Richard Williams

Have you at least which car models are going to have that infotainment system available first?

Ken Klein

Well, what we can say is that there is a 3 Series BMW on stage that’s all we can say.

Richard Williams

Fair enough. Okay. That’s it for me. Congratulations and good luck for the coming quarter.

Ken Klein

Thank you.

Ian Halifax

Thank you.

Operator

Your next question comes from Nabil Elsheshai of Pacific Crest. Sir, your line is open.

Nabil Elsheshai

I think you just answered my question. I was wondering if you can talk a little bit about MIZI and what it brings that you guys didn’t have already, is it mainly the development, is it services and the region, just a little more color there?

Ken Klein

Yeah, so I think at the end of the day it brings us tremendous credibility beginning with expertise and capability around mobile devices specifically the kind of expertise we are going to need in order to execute on our strategy with the key consortia that we talked about Google, the work we are doing with Intel around Moblin and Limo. Clearly that’s number one. Number two, they have IP that we believe we can look into our platforms that will be differentiating for us. And number three, customer relationships, not only OEM relationships such as LG and Samsung as you might expect being a Korean firm, but also relationships with some of the large operators like China Mobile and China Unicom.

Nabil Elsheshai

Great. And then what I presume most of the costs there will be in the R&D line or they are spread out a little bit.

Ken Klein

No the comps will actually be in the professional services line.

Nabil Elsheshai

Okay.

Ian Halifax

So its cost to revenues for the most part.

Nabil Elsheshai

Okay, great. Thank you very much.

Ken Klein

Thanks welcome.

Operator

Your last question comes from the line of Matt Petkun of DA Davidson & Company. Sir your line is open.

Matt Petkun

Just a quick followup question. Ken, help me understand why those operator is selecting Wind River that’s a change in how we think about product development a little bit?

Ken Klein

Sure. Well, I think one of the trends that we have been talking about all along is this one of just inter mediation where operators are starting to really want to -- really differentiate their offering and they really want -- in order to do that they need better control of the entire supply chain, which cannot actually mean and include the audience or others some work and so forth. So what we are generally hearing is that if they can mandate the software stack that they can develop software services that are differentiating for the specific operators. And so I think that’s the motivation is really want of control and want to differentiation rather then being holding to if you will the design schedules that the multiplicity of OEMs or ODMs. So I think that’s the reason for it. And what's grate for Wind River clearly is that we are at the kind of the head of the stream on that. We can do things once and then monetize the entire supply chain across multiple OEMs, ODMs and SIMI.

Matt Petkun

Yeah that’s fantastic. And then one other question I had Ken. So you commented from a bookings kind of overall perspective that the bookings were nicely ahead of revenues this quarter. The old math that we used to use of change in deferred plus the revenue number is not working like it used to. Clearly the cash collection cycles have changed a little bit partly with the term deal on and maybe just overall. So can you help us understand that a little bit, I mean we obviously saw that the drop in deferred this quarter, but I am just trying to understand a little bit more how we should be thinking about that?

Ken Klein

Well, I think your math is partially right, but you are missing those another variable in equation, which is the off balance sheet services. And so if you add that to in the delta and those off balance sheet services to change in deferred to revenue and look at that quarter-over-quarter than you would see that, Q2 '09 is substantially higher than Q2 '08.

Matt Petkun

Okay. And so your comment from a broad perspective is really talking about the total package including services?

Ken Klein

And that’s how we go to market today.

Matt Petkun

Exactly. Thank you.

Operator

Your final question comes from the line of Brent Williams from Benchmark Company. Sir your line is open.

Brent Williams

Hi guys. Let see any sort of change in the mix in the automotive market of revenue coming from design starts or project starts versus deployment related revenue. I mean is it still pretty much unchanged as you know the production forecast have been bouncing along the line?

Ken Klein

Yeah, we are still early in the curve -- on the curve here. So the monetization that we are experiencing there is well in design starts. I mean that the models -- many of models that we are talking about are 2012 models. And so we are not being affected by the fluctuations in the overall automotive market right now. I mean right now you are seeing automotive manufactures looking to at differentiating features and a lot of that is based on software and you are right, if you will in the nexus of that trend you know, differentiate cars based on software and software and services capabilities. So again whether car sales go up or down has no impact on our business whatsoever.

Brent Williams

Got it, okay. Can you give us some color on -- of the APOs over a million was the largest coverage unusually large or were they all kind of a million and a bunch or were they like I would say one giant deal?

Ian Halifax

No. There are number of deals in the several million dollar range, (inaudible). Couple of quarters now we have seen deals in the high number of millions. Now we were that.

Brent Williams

Okay. Now one of things can you talk about the services backlog, are you guys at all deliver (inaudible) services right now just growing, just because its going, I mean how are you dealing with that sort of supply demand balance?

Ken Klein

Yes. We have 8 service centers around the world including our service centre in -- I mean that’s why is the reasons we acquired MIZI was to be able to deliver on the demand that we have in the mobile space. And so again that’s what one of the key reasons we did that. We do by the way have an ecosystem of partners that have various vertical expertise that we can complement our in house consultants. And so that we are always keeping it through our buffer of consultants that we can basically flex the demand.

Brent Williams

Okay, great. And I think all my other questions have already been asked. Thanks very much.

Ken Klein

You are welcome.

Ian Halifax

Thanks Brent.

Anne Marie McCauley

With that there are no more questions so we thank you very much for joining us today.

Operator

Thank you for joining us today. We look forward to speaking you on our Q3 FY '09 call in December.

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