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ClickSoftware Technologies, Ltd. (NASDAQ:CKSW)

Q2 2008 Earnings Call

July 23, 2008 9:30 am ET

Executives

Moshe Benbassat – Chief Executive Officer

Shmuel Arvats – Chief Financial Officer

Analysts

Nick Pajwani - Roth Capital Partners LLC

Matthew Weiss - Maxim Group Inc.

Jack Spears - Capstone Investments

Michael Martin – Small Cap Report

Operator

Welcome to the ClickSoftware Technologies, Ltd. second quarter 2008 results conference call. (Operator Instructions)

I would like to remind you that during the course of the conference call, the Company will be making expressed or implied forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 and Section 21-E of the Securities Exchange Act of 1934.

These forward-looking statements include but are not limited to those statements regarding future results of operations, visibility into future periods, growth and rates of growth, and expectations regarding future closing of the contracts, receipts of orders, recognition of revenues and deferred revenues.

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

The forward-looking statements contained in the press release are subject to other risks and uncertainties including those discussed in the risk factors section and elsewhere in ClickSoftware's annual report on Form 20-F for the year ended December 31, 2007 and in subsequent filings with the securities and exchange commission.

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

I would now like to turn the conference over to Dr. Moshe BenBassat, Chief Executive Officer. Please go ahead, sir.

Moshe Benbassat

Thank you. Good morning, everyone, and thank you for joining ClickSoftware's earnings call for the second quarter of 2008. As usual, I shall start with a brief overview of the financial results and then proceed to describe some of our significant operational achievements.

Shmuel Arvats, our Chief Financial Officer, will then provide you with the details of the financial results for the quarter. We shall then give guidance and summary comments and finally take your questions.

Let me start with highlights of the Q results. Our revenues in the second quarter were $11 million representing 5% year-over-year growth and 4% sequential decline. As we state in the earnings press release while the timing of certain transactions was pushed forward into the third quarter and therefore impacted our second quarter financials. We shall recognize those revenues in the second part of the year.

Together with the $11.5 million we generated in Q1 of 2008, we have a total of $22.5 million for the first half of 2008 which is roughly 45% of the full year target of $48 million or 47% if we look into the opposite, 45% if we look into the $50 million target or the lower range, 47% for the $48 million. This is well within the range of midyear results that will enable us to get to the targeted annual revenues of $48 million to $50 million.

In terms of operating expenses, we broke even and naturally this is a direct result of the lower revenues. The weak US dollar also had a negative impact. Our cash position declined slightly and we finished the quarter with $24.9 million compared to $25.9 million at the end of the last quarter.

In terms of backlog, the second quarter was quite productive in terms of booking specifically in the area of new booking as opposed to repeat orders. Order bookings from new customers were twice as high relative to the first quarter of 2008, and almost three times higher than the amount we booked in the same period last year. This resulted in an increase of $1.7 million to our backlog and deferred revenues at the end of the second quarter for a total amount of $19.4 million.

I shall now proceed to provide details on key transactions of the second quarter which were quite productive in terms of signing new deals, as I said before.

The first is Downer EDI Engineering, a subsidiary of the Downer EDI, a top 100 company in Australia. Downer EDI Engineering provides comprehensive engineering and infrastructure management services across Australia, New Zealand, Asia Pacific, and into the United Kingdom. This order is for deploying the ClickSoftware solutions for several hundred engineers in its telecommunications business in New Zealand.

In North America, ClickSoftware has won a large insurance company. The Company's subsidiaries is licensed to provide property and casualty insurance along with related services to drivers, homeowners, and small and midsized businesses in all of 50 states in the United States. The goal of this project is to automate the scheduling of field examiners and independent shops to service policyholders who suffered an accident or loss on their insured vehicles.

In addition to ClickSchedule and ClickAnalyze, these customers will also be deploying ClickMobile as well as ClickLocate for location-based services and another nice win for our unique concept of the real-time service enterprise.

In Europe, ClickSoftware signed Scottish Water for software licenses for the 800 member field workforce. Scottish Water is the largest clean and wastewater services company in Scotland and fourth largest such company in the United Kingdom. Having conducted an extensive review process under the official journal of the European Union, ClickSoftware was selected as the best partner to deliver into the transformation program.

Our channel program was also quite productive selling its ClickIMRS product, and one example is one of the nation's largest financial holding companies that operate when extensive banking network primarily in the East and Midwest. The core business of this bank is commercial and retail banking, mortgage and financing and services, and consumer finance and asset management. The bank purchased ClickIMRS with ClickMobile to be used with their internal IT department to schedule and manage the IT service organization.

Other winners and repeat orders from our installed base include the following: Konica Minolta Norway, so building on the success of the deployment by Konica Minolta in both Germany and the United Kingdom. Konica Minolta Norway invested in Click with the intent to deploy nationally for its copier IMR Service Force using the Sintenel template we developed in Germany.

SSE offering boiler and other gas and electricity residential installation and maintenance in England and the Wales continued to grow in the reduction of our products and ordered a few more services.

Finally, CNC, Beijing Olympic Telecommunications Center placed an additional order for ClickSchedule licenses. I had a chance to look at the software in Chinese of course, and it is really impressive specifically the use of interface with all the Olympic venues in it. In terms of our partnerships, we continue to make excellent progress with our key partners. UN had big business with IBM, Accenture, and SAP-related accounts contributed significantly to our revenues in the second quarter.

A new addition to our list of partners is Trimble that as you may recall acquired @Road some time ago. This leading company in the area of location-based technologies and services formed a partnership with us to provide a comprehensive field service optimization solution to companies worldwide. The collaboration between Trimble and Click forms a unique partnership that is capable of offering a one-stop solution for a real-time field force automation and optimization. Trimble will leverage ClickSoftware's industry leading optimized scheduling solution by combining it with their own global positioning system, wireless and mobile field service capabilities. Conversely, ClickSoftware will be able to offer Trimble's location-based and mobility technologies to their customers.

Professional services, our professional services department continues to deliver excellent performance both in terms of successful project deliveries as well as financial performance. Based on the contract that have already been signed and those in the pipeline, the backlog for our professional services’ revenues is robust. In terms of highlights from the field, let me just point out that two companies went live with our new mobile solution.

In product development, our research and development group has just released on time new 7.7 -- 5.7. This version provides many new enhancements to our suite of products including ClickMobile, ClickForecast, and ClickPlan. Two specific infrastructure developments include VMWare certification. This will enable us to provide a true virtualization offering functionality that is currently in high demand in the market. In parallel, our new web user interface for ClickSchedule is a significant addition to our best-of-breed user interfaces and the work on Version 8 continues as planned.

As for marketing results, let me start by noting again our prominent position in Gartner's Magic Quadrant. For those interested in the full report, it may be accessed from our website. The second quarter was very productive from a lead generation perspective. We exceeded our targets and produced strong results across a number of KPIs including a number of new leads, new opportunities, search engine referrals and the cost per list. I shall now return the floor over to our Chief Financial Officer, Shmuel Arvats.

Shmuel Arvats

Thank you, Moshe. Revenues for the second quarter were $11 million up 5% year-over-year but down 4% compared to the first quarter. As Moshe said, certain revenues that we had expected to book and recognize during the second quarter have been pushed forward into the second half of the year and therefore, impacted the results for the quarter.

The delays have been caused mostly by negotiations and legal processes which have stretched out longer than we forecast. However, we have good reason to believe that we will be able to sign and recognize those revenues in the second half of the year giving us a strong second half. In fact, the book to bill ratio, that is the ratio between orders booked and revenues for the quarter was well above one, increasing our total backlog and deferred revenues as of the end of the quarter by $1.7 million to $19.4 million.

Revenues for the first half of 2008 were $22.5 million. As you recall our revenue guidance for the full year is $48 million to $50 million. So at this level, we have achieved 45% of our target if you look at the high end or 47% if you look at the low end. This is within our normal pattern at this stage of the year so we are on track according to our plan. This together with the strength of our sales pipeline makes us comfortable that we will be able to achieve our 2008 goal.

The geographic breakdown of our sales for the second quarter was as follows. North America accounted for $4.1 million representing 37% of our revenues. Europe accounted for $3.9 million or 36% of revenues. Asia Pacific accounted for $3 million or 27% of revenues. Asia Pacific was unusually high this quarter reflecting a new license deal as well as the large ongoing implementation project that we are carrying out in the region.

Revenues from software licenses were $3.1 million or 28% of total revenues down 31% year-over-year and 23% down compared to the first quarter. License revenues, as a percent of the total revenues were below our long-term model, which we expect to improve in the second half of the year.

Service revenues were high again this quarter $7.9 million or 72% of total revenues up 31% year-over-year and 6% compared to the first quarter. This reflects our continuing implementation of some very large scale projects which increases the overall proportion of professional service revenues in our sales mix.

Gross margin for the quarter was 61% down compared with 64% in the second quarter of 2007, but up compared sequentially with 60% in the first quarter of 2008. The reduction on the year-over-year basis reflects the change in revenue mix towards services, which generate lower gross margins than license revenues but still contributes very nicely to the top line.

Operating expenses for the quarter were $6.7 million up 10% year-over-year and up 1% compared to the first quarter. This reflects two factors. One, our plan for scaling up the Company which we continue to carry out; and two, fluctuation in currency and exchange rates particularly the weakness of the US dollar against European currencies and the shekel. This has increased our expenses as expressed in dollar terms. Due to the low revenues and higher operating expenses for the quarter, we have reported a marginal operating profit of about $14,000.

Net profit for the quarter was $124,000. This was $0.00 per share on a GAAP basis and $0.01 per share on a non-GAAP basis, which excludes share-based compensation. This compares to $964,000 in the same quarter last year and $340,000 in the first quarter.

During the quarter, we added one new employee bringing us to a headcount of 220. We still have a number of openings that we are trying to fill especially in the professional services department, which we continue to expand in line with our long-term strategy.

During the second quarter, we used $900,000 for operations and invested $190,000 in fixed assets. In parallel, the exercise of stock options by our employees generated $93,000.

The net effect on our cash reserves, that our cash, cash equivalents, and investments decreased by $1 million. However, for the first six-month period, cash flow from operations was up by $522,000 giving us cash reserves of $25 million at the end of the quarter.

Our balance sheet remains strong. As of the end of the quarter, we had $20.4 million in working capital, $38.4 million in total assets, and shareholders equity was $17.7 million.

DSOs were 77 days, which is slightly above our target trend of 60 to 70 days. This is mainly due to the timing of bookings during the quarter.

To conclude we continue to feel well-positioned to achieve our goals for the year and look forward to a much stronger second half. With that, I will return the call to Moshe.

Moshe Benbassat

Thank you, Shmuel. So let us proceed to summary guidance and questions and answers. While revenues in the second quarter were somewhat weak, booking of new customers was strong, as I mentioned before. And this gives us comfort to reiterate our annual guidance. That is, we project revenue growth of approximately 20% to 25% over 2007 reaching approximately $48 million to $50 million in revenues for 2008. We can now proceed to questions and answers. Operator?

Question-and-Answer Session

Operator

Ladies and gentlemen, at this time we will begin the question-and-answer session. (Operator Instructions). Our first question comes from Nick Pajwani from Roth Capital Partners. Please go to your question.

Nick Pajwani - Roth Capital Partners LLC

Thank you. A handful of questions for you here. If you could help us understand the delay in the deals, what was the dollar amount of the delay of the deals?

Moshe Benbassat

You mean those deals that were delayed?

Nick Pajwani - Roth Capital Partners LLC

Yes.

Moshe Benbassat

Since I do not have a final contract, it is very difficult to say. Also as far as the distribution, but I would say it is in the area of several million dollars.

Nick Pajwani - Roth Capital Partners LLC

Okay. Have you managed to close any deals as of today from which the ones that slipped back from the end of Q2?

Moshe Benbassat

We will make some announcements in the next few days, I hope.

Nick Pajwani - Roth Capital Partners LLC

Okay. Shmuel, if you could help me quantify the hit due to the FX pressure here, on the EPS or in dollar amounts?

Shmuel Arvats

Yes, the overall impact, the net impact on our financials for the quarter is $400,000 if we compare this quarter to the same quarter last year.

Nick Pajwani - Roth Capital Partners LLC

Okay, it seems like Europe was weak and it was down both year-on-year and on a Q-on-Q basis. What gives you the confidence, I am assuming that some of these deals that were pushed back were in Europe. What gives you the confidence that they were delayed? If you could go into detail and explain the reason for the delay? Thank you.

Moshe Benbassat

Generally speaking, as we have clarified several times, we cannot give quarterly results and ensure that quarter-over-quarter we will show sequential increase because of the size of the deals that we sign. We look always, though, into the annual plan. As far as the annual plan, we maintain a very detailed list of the accounts that already have been signed. Certain amount comes from backlog. Certain amount comes from those that we plan on signing and we assess the possibility of signing them.

Nick Pajwani - Roth Capital Partners LLC

I am assuming you have quarterly planning and quarterly targets. Did you meet your own targets for the quarter?

Shmuel Arvats

No, but as I said before, that can always slip. You make the target because you (cross talking).

Nick Pajwani - Roth Capital Partners LLC

Okay, could you do us an update on the IMRS side? It seems like you did get a deal on that end at least the deal that you spoke about in your commentary. What was the impact in terms of total revenue in dollar terms from IMRS?

Shmuel Arvats

The revenue impact of IMRS, is still relatively minimal because keep in mind that in IMRS the deal size are relatively small due to the fact that we are addressing the midsized market. So in the IMRS business it is going to be a numbers game and they were now building the network and the first referential customers.

In this area, we are making very good progress. In fact we did sign a few more partners to distribute this product because this product is going to be sold primarily via channel partners and not directly. We signed a few more partners this quarter. We continue to develop the pipeline of partners to be signed, as well as referring to them some contact that come to us from our own marketing activities.

All in all, I believe that we will, you and us, should be tracking our progress in the IMRS field, the midmarket area because I believe that it will contribute significantly in 2009 and beyond. But it is now in the building stage and every new customer that comes in is great.

Nick Pajwani - Roth Capital Partners LLC

Okay. Also, Moshe, could you give us an update on the product that you expect to launch in I believe in Q1 2009? Is that on target? Do you have any customers in beta yet?

Moshe Benbassat

You are talking about the Version 8?

Nick Pajwani - Roth Capital Partners LLC

Yes.

Moshe Benbassat

To clarify for everyone, while we continue to issue small releases of Version 7 because of the existing installed base and the immediate demand that exists in the market, we continue to develop Version 8. Now, Version 8 is for the long-term plan and it is based on service-oriented architecture. The plan continues as we planned from time to time, we switch priorities, but all in all we still expect it to be within 2009.

Nick Pajwani - Roth Capital Partners LLC

Okay, also how many sales reps did you have and how are they slotted across enterprise versus IMRS?

Moshe Benbassat

Okay. The IMRS do not have salespeople. The IMRS have, I believe, about four people who are doing the channel development.

Nick Pajwani - Roth Capital Partners LLC

Okay, so they do not have quotas.

Moshe Benbassat

They do have quotas. They certainly have quotas, but they are supposed to generate this from the channel system.

Nick Pajwani - Roth Capital Partners LLC

Okay, so how many sales reps do you have in all?

Moshe Benbassat

The total we had 22 salespersons at the end of the second quarter.

Nick Pajwani - Roth Capital Partners LLC

Okay. Lastly if you could give me the split across the professional and maintenance, how much is maintenance?

Shmuel Arvats

Okay. Did you mean the split of employees?

Moshe Benbassat

Well, Shmuel, the question was asked about the split between revenues for maintenance and services. The answer is on a quarterly basis. We do not disclose the distribution between maintenance and services and will report them as one number. However, on an annual basis we do give the portion. Last year the portion was 24 point something percent of maintenance services of our total annual revenue of last year and roughly this portion continues in 2010.

Nick Pajwani - Roth Capital Partners LLC

Okay. Thank you, I will let somebody else hop on.

Operator

Thank you. Our next question comes from Matthew Weiss from Maxim Group. Please go to your question.

Matthew Weiss - Maxim Group Inc.

Good morning, gentlemen how are you?

Moshe Benbassat

Thank you. Good morning to you.

Matthew Weiss - Maxim Group Inc.

A couple of follow-ups to the previous questions. First on the ForEx, you guys have any hedging instruments in place? Or if not, is that something you expect considering? Then also I know you guys do not give any specific EPS guidance but maybe you could talk to us about what you have built into your internal models as to ForEx impact for the back half of the year.

Shmuel Arvats

In terms of hedging transactions, we are entering those transactions from time to time. Obviously the pricing right now is…, the base price right now is very low and we are trying to take advantage of some picks in the market and to have some of the future transactions. We have a strategy and we work based on the strategy.

Regarding the EPS, I do not think we would like to refer to it. It is our policy to guide topline but rather not guiding the EPS. However, we expect our operating expenses to continue to grow as we are building the Company in many directions, R&D, marketing partnerships, and the like. And as I said, we expect the operating expenses to continue to grow in line of topline growth that we anticipate.

Matthew Weiss - Maxim Group Inc.

Okay, so that $400,000 ForEx impact you had mentioned, adverse year-over-year. Was that about the $0.01 hit this quarter on the EPS line? Is that fair to say?

Shmuel Arvats

Yes.

Matthew Weiss - Maxim Group Inc.

Okay. And then just from a macro perspective, I mean from a sales cycle, can you talk a little bit about if these are elongating a little bit. The number of RFPs you guys are getting, is it decline, increasing? Last quarter you had talked, that you were not seeing any significant slowdown in business. Again, it seems more like a timing issue rather than necessarily a fundamental or execution issue. But maybe you could just talk a little bit about what you are seeing from a macro perspective, please.

Moshe Benbassat

First regarding the data on new leads, new prospects, we keep track in this numbers very carefully and as I mentioned during my call earlier today, we do see an increase in the number of leads and part of it has to do, of course, with more efforts on our side. Then part of it has to do with the fact that companies are looking for solutions for workforce optimization.

It could also be that the increase in gas prices is also contributing to higher demand because at the end of the day we offer quantitative return on investment on buying our product by showing sometimes 20% or so reduction in the mileage that a technician travel during the day.

Similarly, the location-based solution when integrated into the optimization algorithm provides further savings. Having said that, it is very difficult to quantify the impact of the global economy, but I would say that from time to time we see hesitation, like a company who is already talking to you and is already negotiating with you. The approval process takes an extra step and maybe another executive needs to look at it.

So while we do not see…, I would say a decrease in the demand for the product, it would be fair to say that maybe there is somewhat of a slowdown in the processes of approval that could be maybe a fair way to describe the situation in the market.

Matthew Weiss - Maxim Group Inc.

Okay, in the length of the sales cycle are generally, what, six months up to a year?

Moshe Benbassat

It is interesting. Some of them are getting shorter specifically by the way with the IMRS. Some of the IMRS deals are being closed within weeks, I would say. The last ones have the normal pattern. If it is an RFP, it is a large company, a multimillion dollar company, it normally goes through an RFP process and then it would be 9 to 12 months until they finish all the internal process of evaluating the responses, comparing them, going through the internal committees, and so forth. But all in all, we did not see much change in the typical sales cycle.

Matthew Weiss - Maxim Group Inc.

Okay, that was helpful. Also a follow-on on the sales organization. You were at 22 reps. Are you planning to make any structural changes there, either personnel wise or from a compensation standpoint?

Moshe Benbassat

Why would you think we need to do so?

Matthew Weiss - Maxim Group Inc.

I do not think so. I am just asking if it is in the plans.

Moshe Benbassat

No. We have a certain annual plan that we perceived. It is a short-term and long-term. In fact as we are now getting into the second part of 2008, we are building the revenue forecast for 2009. Once we decide on this number, we need to look if we have enough sales capacity to develop these numbers and accordingly we may decide to hire in a certain territory. But it is a very disciplined process of checking the performance of each individual salesperson and the total number of people we have in the group.

Matthew Weiss - Maxim Group Inc.

Okay. And then on the revenue mix, obviously that was slanted given some of the license shortfall, but you said you are still on track to get back to the 40/60 split in the back half of the year?

Moshe Benbassat

I believe so. I believe so because professional services typically are associated with licenses and at any given quarter, this may shift up or down, but all in all this license revenues will come in.

Matthew Weiss - Maxim Group Inc.

I think you spoke last time about how you had expected license revenue growth in 2008 to exceed that of services revenue growth. It does not necessarily look like that may hold anymore. It looks like services may end the year up growing faster.

Moshe Benbassat

Let us wait and see. While I am positively pleased also, with the increased demand in professional services, this means that the customers are happy. They are asking for upgrade to better versions. Once they upgrade to a better version, they typically can buy more new products that we have. And all in all, between selling to the installed base and selling to new customers, the license revenues will catch up.

Matthew Weiss - Maxim Group Inc.

Okay. A couple quick other ones. The backlog deferreds in total were up $1.7 million. Deferreds were down a little bit sequentially, though. I noticed that because that happened last year also. Is that a seasonal weakness in deferreds or was there something there that we should be aware of? I know in total that would imply the backlog was actually up $2.3 million, but with the hits to deferreds, is that seasonal weakness or is that something we should be building into the model?

Moshe Benbassat

Shmuel, do we see any…?

Shmuel Arvats

I do not see any trend. I think it is only timing of booking and collections. Overall the backlog was up by $1.7 million. And I think this is the important parameter that should be followed.

Matthew Weiss - Maxim Group Inc.

That is backlog and deferreds together were up $1.7 million, correct?

Shmuel Arvats

On deferreds.

Matthew Weiss - Maxim Group Inc.

Okay. Then refresh me again. I am sorry, on the cash from operations number, I missed that.

Shmuel Arvats

Yes. The cash flow from operations was, this quarter, negative by $900,000; however, in the first six months it was positive $500,000.

Matthew Weiss - Maxim Group Inc.

Okay. And then as a follow-on to that, I mean, obviously you guys have a pretty sizable cash balance here standing at almost $25 million. Given where the stocks at, have you guys debated internally or gone to the Board with respect to potential buyback at the current levels?

Moshe Benbassat

It was being discussed internally. No decision was made as yet.

Matthew Weiss - Maxim Group Inc.

Okay. And that one last one. I was wondering if you could, maybe this is something that you can give us on future calls if you are not necessarily prepared to now, but maybe you could give us some better metrics to understand the traction that you are seeing at the IMRS level and with the attached rates of complementary modules. I know in the past you have talked qualitatively about it.

If you care to do that again, please do so. But maybe you give us some type of quantitative way to analyze how these offerings are ramping to IMRS? And again the complementary modules maybe if you could speak to attach rates on ClickMobile, ClickLocate, the number of times are coming in on new deals and the number of times you are selling them into the installed base that would be helpful.

Moshe Benbassat

Okay, we will try to look into this, and as I said with IMRS, the numbers are relatively small so the statistic would not be very significant. But I believe in the quarter or two we should be able to see the trend and the rate of adoption and so forth. Maybe one last comment about the sequence of questions you had about the revenues. I had like to remind all of us that we have a very substantial backlog and deferred which means that part of the revenues, a significant part of the revenues in any given quarter is secured from the existing orders and the amount that we have to add for the quarterly plan, if you wish, is relatively reasonable. But still slippage could happen. All in all, the annual amount that we believe we would generate is consistent with the guidance we gave.

Matthew Weiss - Maxim Group

Okay, I guess I will ask a follow-up then, since you brought that up. What type of visibility on a percentage basis maybe if you can quantify? Do you have into two half 2008 revenues? If you can give us some companies speak to sort of the percentage of visibility they have on a quarterly basis. Maybe you could give us an idea of the visibility you have into the second half.

Moshe Benbassat

I would hate to do this formally, but you can do it yourself. It is quite simple. The number that we gave you as backlog and deferred is the backlog and deferred that we plan to recognize within 12 months, because sometimes there is some long-term like a company will pay five years in advanced maintenance. What is beyond the 12 months is typically not including what we give you.

So if you take the amount that we have in terms of backlog and deferred, you can just distribute it over the numbers we still have to make and you can see what is the visibility. But again, any given quarter by itself, the amount you can recognize from the deferred and backlog is a function of the progress of the projects we are deploying and sometimes you may have a customer, due to internal reasons, pushes a milestone or something like that in this pushes the revenue recognition. But all in all, it is a very substantial amount of backlog more than $20 million.

Matthew Weiss - Maxim Group Inc.

Okay. Thank you for taking my questions.

Moshe Benbassat

It is a pleasant always. Matt.

Operator

Our next question comes from Jackson Spears from Capstone Investments.

Jack Spears - Capstone Investments

Good morning, Moshe. Could you give us an update on the competitive landscape across the world? Particularly in light of the fact economy is pretty adverse around the world, has that led to any price cutting or any changes in your win ratio?

Moshe Benbassat

The price cutting does not necessarily come or price competition does not necessarily come from competitors, it just comes from the fact that the buyers are now negotiating harder because they know the economy is tight. But in any event the competitive landscape has not changed. We do not see any major direct competition emerging. As I mentioned on past calls, the competitor that used to compete head-to-head with us, a number of them went down and at the present time we have the same competitors I described in the past. If you want, I can repeat some of the names. But there was no significant change in the competitive landscape.

Jack Spears - Capstone Investments

Do you still have about a 40% market share on overall utility?

Moshe Benbassat

I believe so, yes.

Jack Spears - Capstone Investments

Could you give us a feel for your mix of revenues from your direct sales force and your partners? Which of your partners are making the biggest contribution to your new orders?

Moshe Benbassat

Okay. So you are talking about the partners who contribute today to the major stream of revenues, not to the small IMRS, I assume.

Jack Spears - Capstone Investments

Correct.

Moshe Benbassat

So, over here we have a sequence of partners, some of them globally, some of them locally. The three major ones are IBM, SAP, and Accenture. Between the three of them, I would say that about 50% or more of our revenues are influenced from these relationships. I am using the word ‘influenced’ because the arrangements with each one of the partners is different. Sometimes it is referral fees. Sometimes it is just joint selling and sometimes it is reseller fees. But all in all, these partnerships are a win-win arrangement by which joint winning of a certain deal contributes to the success of all three of us.

Jack Spears - Capstone Investments

Your tax rate seemed unusually high in the second quarter. Could you explain why? Should we re-compute what we expect for the full year tax rate?

Shmuel Arvats

We see a range of $50,000 to $100,000 every quarter. It is not necessarily related to our operating profit or topline in some territories. It is based on the cost-plus method and the like, so in small amounts, it is very difficult to assume a percentage of revenues or percentage of operating profit. It is more a nominal number or a number that is not related to topline, as I said.

Jack Spears - Capstone Investments

Lastly, Moshe, you answered the question on stock buybacks. If you are not using cash for a stock buyback, what other uses do you envision for cash over the next 12 months?

Moshe Benbassat

We are evaluating some acquisitions possibilities, but have not yet made any decisions.

Jack Spears - Capstone Investments

Do you find the prices going up or down on acquisitions due to their lack of money and you are sort of a bank with $25 million in cash?

Moshe Benbassat

You mean the price of the acquisition?

Jack Spears - Capstone Investments

Yes, the price. Yes, sir.

Moshe Benbassat

Well, naturally within today's market you would assume that the prices are down relative to where they were maybe a quarter or two ago. But at the end of the day it is the one or two transactions you will be doing and then the question is whether you succeed in negotiating a successful deal or not.

Jack Spears - Capstone Investments

As I understood, the currency effect on the quarter was about $400,000 because you are booking in dollars and some of your costs are in Israeli currency. So the dollar has been hurting versus Europe and throughout the world. The currency effect on expenses was about $400,000, is that correct?

Moshe Benbassat

Shmuel, are you going to answer this?

Shmuel Arvats

Yes. Could you repeat, please?

Jack Spears - Capstone Investments

What is the currency effect with the dollar so weak versus other currencies on the revenue side and expense side? What did that cost you in terms of…?

Shmuel Arvats

The net impact was about $400,000, as I said. Top line, the top line was positively impacted by $0.5 million and expenses were negatively impacted by $900,000.

Jack Spears - Capstone Investments

Thank you.

Operator

Our next question comes from Michael Martin with the Small Cap Report. Please go to your question.

Michael Martin – Small Cap Report

Thank you. My questions have already been answered.

Moshe Benbassat

You are so kind. Thanks a lot. Thanks for calling.

Operator:

Thank you. (Operator Instructions).

Ladies and gentlemen, at this time I would like to give participants a final opportunity to ask any additional questions. (Operator Instructions).

Management, at this time, there are no further questions. Please continue with any further remarks that you would like to make.

Moshe Benbassat

Thank you all for joining our earnings call for the second quarter and I look forward to seeing you all on our next call. Have a great day.

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Source: ClickSoftware Technologies, Ltd. Q2 2008 Earnings Call Transcript
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