BroadSoft Q1'16 Earnings Conference Call: Full Transcript

Operator:

Good day ladies and gentlemen and welcome to the BroadSoft Q1 2016 Earnings Conference Call. At this time, all participants are in listen-only mode. If you require operator assistance during the program, please press star then zero on your touchtone telephone.

I would now like to handover this conference call to Mr. Chris Martin. You may begin.

 

Chris Martin: Investor Relations:

Thank you, Operator. Good morning, everyone and thank you for joining us today's conference call to discuss BroadSoft's results for the first quarter ended March 31, 2016. This call also being broadcast live over the web and can be accessed in the Investor Relations section of the BroadSoft website at www.broadsoft.com.

With me today on today's call are Michael Tessler, BroadSoft's President and Chief Executive Officer; and Jim Tholen, BroadSoft's Chief Financial Officer. This morning BroadSoft issued a press release discussing its financial results for the first quarter ended March 31, 2016. If you’d like a copy of the release, you can access it on our website or the SEC's website.

We would you like to remind you that during the course of this conference call, BroadSoft Management may make forward-looking statements including statements regarding the Company's future financial and operating results, future market conditions, the plans and objectives of management for future operations, and the Company's future product offering. These forward-looking statements are not historical facts but rather are based on BroadSoft’s current expectations and beliefs and are based on information currently available to us. The outcome of the events described in these forward-looking statements are subject known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements, including but not limited to those factors contained in the risk factors section of the Company's Form 10-K for the year ended December 31, 2015 which was filed with SEC on February 29, 2016. All information provided in the conference call is as of May 02, 2016. Except as required by law, we undertake no obligation to update publicly any forward-looking statements made on this call, to confirm the statements or actual results or changes in our expectations. Also, in light of regulations, we advice you that it is BroadSoft’s policy not to comment on our financial guidance other than in public communications.

Certain financial measures we use on this call are expressed on a non-GAAP basis and have been adjusted to exclude the impact of non-cash stock-based compensation, non-cash amortization expense related to acquired intangible assets, non-cash interest expense on our convertible notes, foreign currency transaction gains and losses and non-cash tax benefit and expense. Collectively these items totaled $11 million in the quarter. Also, on this call when we use the term cost of sales, gross margin, operating expense, operating margin, operating income, or net income, we are referring to non-GAAP figures. Additionally, when we use the term EPS, we're referring to diluted non-GAAP EPS. We have provided reconciliations of these non-GAAP measures in our earnings release, which is available in the Investor Relations section of our website located at www.broadsoft.com.

I will now turn the call over to BroadSoft's President and CEO, Michael Tessler. Mike?

 


Michael Tessler: President and Chief Executive Officer:

Thanks Chris. Good morning, everyone, and thank you for taking the time to discuss our first quarter 2016 results. I am happy with our Q1 performance as we delivered against both our business plan and our strategic priority. Financially, we grew revenue in the first quarter by 31%, earnings by greater than 50%, and delivered strong operating cash flow as well. Jim will go through our financial results in more detail as usual later in our prepared remarks.

Regarding our execution on our strategy, one of the quarter’s notable highlights, is Vodafone Germany’s launch of its BroadSoft based One-Net service offering. Vodafone is the second largest mobile carrier in Germany. Its One-Net Business solution is a innovative offering targeting the tens of 250 users segment with truly converged fixed to mobile integrated service. It is the first communication service in Germany where users can have single phone number and voice mailbox that works for both their mobile and -- phone. We’re delighted that Vodafone selected our UC-One solution to power this important service. Critical to our selection was our ability to deliver an IMS-based mobile solution that supports our devices including 2G and 3G phones. Also important is their confidence in our ability to execute. This is a large and complex project implemented and the on-time delivery is testament to the hard work put in by the project team.

We are also excited as Vodafone Germany has put significant effort in to promoting this service. They launched One-Net in February Cebit which one of the world’s largest tech industry trade show and so it received a lot of attention especially from the local tech and business press. Importantly, BroadSoft was also the key participant in the launch marketing. Customers were impressed by how simple and seamless it’s like to move with communications across desktop to mobile handsets. We also collaborated a demo of our UC-One Hub product and I’ll remember going to a number of press briefings. These types of full marketing activities are the first step at the broad programming efforts from last quarter as part of our goal to standard yield and grow our sales.

This provides a great segway into our strategic priorities updates. As you recall last quarter we outlines four separate strategic priorities; continued innovation, expanding our BroadSoft footprint, adding new markets, as well previously mentioned improving yield of our markets and channel. These priorities are important in order for us to maintain and extend our leadership position in the market as well drive long-term growth. As I mentioned last quarter our goal was to provide updates as appropriate.

On continued innovation let me start by providing an update on BroadSoft. It’s being less than a year since the group perfection and at short time we signed several engagements with large Tier-1 service providers and continue to grow the pipeline. Many service providers have embarked on digital transformation initiatives with simplified or often manual customer facing processes. With our design capabilities, we’ve become an important enabler of these initiatives or their UC services. As an example we are working with one large North American customer that we imagine that our end-to-end customer driven, combined to administering their UC solutions into a simple, functional, and completely online process. It’s also worth noting that our broad innovation unified completion continues to be recognized by independent third parties. During the quarter, BroadSoft UC-One was selected as a recipient at TNC 2016 Unified Communications Product of the Year.

Regarding expanding our BroadCloud footprint, as we said in the past, we plan on selectively adding additional geographies in response to customer demand. I am excited to announce that we are extending our BroadCloud services brand. We stand at one of the largest — in the country as a customer which demonstrates a couple of important points. First the decline of the PDX market continues and those that are distribution chain is looking for new strategy to offset the decline. Second we are adding non-traditional turn projects to our mix of customers which BroadCloud enables us to do.

I also want to provide an update on Japan which most you already know is a new BroadCloud country as of last November. One of the drivers for pushing it to Japan is that we saw growing SMB demand for cloud unified communications in a huge untapped market. With BroadCloud we believe, we are first to market with a true service provider cloud solution and so we are very excited about NIFTY, a leading Japanese business ISP, for us at BroadSoft and UC-One for their new service. This service targets highly mobile and entrepreneurial small and medium sized businesses that develop and deploy services extremely quickly. Our host of UC usually solutions are perfect for this type of use case.

Our -- markets and channels are also increasing the breadth of solutions available to them. Hopefully you’ve all seen the announcement where Digicel is going offer a new range of our cloud and IP based communications services. As many of you already know, Digicel is a multinational mobile carrier with properties across Caribbean, Central America, and Asia Pacific. By leveraging our UC-One platform they are now able to provide their customers with complete solutions starting with fixed mobile subsscription, fixed mobile conversions, and unified communications that target, both SMB and large corporations. Digicel has been a terrific distribution partner for us and it’s a great example on how we are expanding across their footprint.

On increasing our sell-through, we had a great Q1 that’s representative of a higher global sell-through for our hosted products. While all geographies showed healthy results, strength in North America was a key drive of this record performance. New service launches by Vodafone’s One-Net should help drive further growth in future quarter.

Before I close out, I’d like to welcome aboard Jane Dietze and Eva Sage-Gavin our newest Members of our Board of Directors. Jane is a Managing Director of Brown University's Investment Office with significant financial and investment experience while Eve is the Vice Chairman of Aspen Institute’s Skills for America's Future and brings an extremely deep level of human capital expertise. We are extremely pleased that both of them have joined the BroadSoft team. Their expertise strengthens our Board of Directors talent. Their insights will be extremely valuable that we need to grow of BroadSoft business around the world.

As you can see, we had extremely busy and activity filled Q1 and our strong results are a testament to the hard work of the entire BroadSoft team. I want to take a moment of thanks them for their continued and invaluable contribution to our Company.

With that I'll turn the call over to Jim. Jim?

 

James Tholen:Chief Financial Officer:

Thanks Mike. We had a great start to the year with total revenue in the first quarter of $73 million up 31% than the year ago period. This marked our seventh consecutive quarter of greater than 20% year-over-year revenue growth.

Our strong revenue performance in the quarter which is driven by double-digit growth in all geographic regions combined with lower and expected expenses, led to non-GAAP EPS of $0.37 per share which represented 54% year-over-year growth. Software revenue of $31 million is up 35% over last year’s Q1. Subscription and maintenance and support revenue was $33 million up 30% year-over-year. Of this amount SaaS revenue was $12 million as compared to $ 8.7 million last quarter and $8.5 million in last year’s Q1. As a reminder the large sequential uptake was due to the inclusion of nearly two months of Princera revenue and a true-up amount from the resolution of a customer contract issue. For Q2 we expect SaaS revenue to be in the high 12 to 13.

For special services and other revenue of $9 million was up 25% year-over-year driven by our network transformation project. Total billing for $65 million, up 17% while software billings were down relative to Q1 last year, billings were actually pretty aligned with our internal expectation, pipelines continue to be strong and as Mike mentioned, we continue to see strong sell-through from our service provider customer.

Now, under margins and expenses, in Q1 we had gross margin of 76% which was flat with the year ago quarter. Software margin was 96% up from 91% year ago period driven by revenue growth. Subscription and support margin 73% up from 71% last year. This improvement was driven by increases in both maintenance and SaaS margin. Professional services margin of 21% down from the mid 40s in the year ago period. For Q2 we expect overall cost of sales to increase by approximately $2 million to $2.5 million. The increase is largely due to four quarter’s worth of Princera expenses and additional expenses related to investments in our cloud business.

Operating margin increased to 16% versus 14% a year ago. Operating expenses in the quarter totaled $44 million. While we are light on expenses relative to our expectations, we do expect to largely catch up on this investment trend through the rest of the year. Our expectation for Q2 is that OpEx will increase by approximately $4.5 million from Q1.

Moving to the balance sheet cash flow. Cash flow from operations was a very strong $19 million driven by receipts from our great Q4 last year. Net cash, cash equivalents, and investments totaled $345 million at the end of March. Account receivables were $93 million at the end of March down sequentially as is typical for a Q1. Deferred revenue declined sequentially by $8 million to $103 million roughly in line with normal Q1 seasonal trend.

Now on to guidance, as you may have seen in our earnings press release we expect Q2 revenue to be in the range of $76 million to $81 million and non-GAAP EPS be in the range of $0.25 to $0.40. For the year, our annual guidance remains for revenue to be in the range of $332 million to $340 million and full year EPS be in the range of the $1.90 to $2.10.

I wanted to provide a little more color on our annual guide and revenue reflecting the plan. As I noted last quarter , we expect 2016 to be a relatively back-end loaded year as is typical for us and our view remains unchanged. On EPS as I mentioned earlier, we wanted to maintained the budget dexterity to continue to do investment in our business and for long-term growth potential. We feel very good about the overall -- of our business and are guidance of continued revenue momentum of Q2 and the rest of the year.

Just a modeling note, at our closing share price as of last Friday, we are above the convergence price of one of our -- very close on the other --. We expect both offerings the net settled -- limited solutions even above these convergence prices. If our stock were to average $40 for the quarter, we would see about a half a percent in our full diluted share count used for non-GAAP earnings. At $40 we would see about a 2.8% increase in diluted share count.

So to summarize, we had a great start to 2016 and believe we are tracking well through our expectations and guidance for the rest of the year.

With that let me turn the call back over to Mike.

 

Michael Tessler:

Thanks Jim. Jim and I are now happy to answer any questions. Operator, will you please open a call.

 

Question & Answer

 

 

Operator:

Ladies and gentlemen if you have a question or a comment at this time, please press the star then one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

Our first question comes from George Notter with Jefferies.

 

George Notter:Jefferies & Company:

Hi there. Thanks very much guys. I wanted to kind of start out by asking about license billings and you know you had some comments in monologue that can you -- I think the number is down 6% year-on-year. Can you kind of walk us through again kind of what's driving that, is that seasonality and it sounded like your billings were pretty consistent relative to your expectations on license side but kind of walk us through that year-on-year comparison and what’s driving that. Thanks.

 

James Tholen:

Yes. Hi George. So a few thoughts, the software business can sense a lumpiness, just the first quarter, last first quarter was a little unusual where we actually had billings and excessive revenue. I think the business, George business looks good. We’ve been a pretty consistent billings grow on a year-over-year basis been in the 20% this quarter came in at 17%, pipeline was good, sell-through looks goods, we reaffirmed guidance so for seasonality quarter lumpiness.

 

George Notter:

Got it. Great. Okay and then I wanted to ask also about some of the project tempo initiatives coming out of last quarter and can you walk us through kind of where are you in terms of delivery of those pieces of the solution and then can you remind us how you guys are pricing that and I guess I am really curious about you can get a lift in ASPs and proceed license pricing as you layer in those features? Thanks.

 

Michael Tessler:

Joe. It's Mike. So I think, not what we're doing is we are in the process of growing out a select bit of data for customers and we've selected different customers in the different geographies to work with us on the hub data, and an important part of the data process is to evaluate exactly the utilization factors and the impact that the product will have on kind of the end user productivity. As you remember one of the big things here is to really drive the productivity elements of the end user through the introduction of hubs, the integration of a number of other applications and where to increase the relevance of unified communication stack for the end user obviously keep our partner’s brand more relevant to the end user and so part of the data process is to measure all of that of SaaS to both the US the integration etc and understand exactly the financial impact it will have on the end users in terms of increased productivity.

The goal obviously is twofold. One of them is to increase the overall velocity and yield of the our UC-one product. We’ll also be evaluating the modification of that itself and what’s facing models and also what ways to market you might actually sell versus UC-One. All of that will be evaluated through the data process along with our partners that are participating in our data program.

 

George Notter:

Got it and then when might that contribute to initial revenue?

 

Michael Tessler:

I think, likely to look at 2017 when we’d be rolling out hub into GA product so not this year.

 

George Notter:

Got it and I presume the deferred revenue would show up, earlier is that fair to say?

 

James Tholen:

Yes. I mean potentially, I think, contribution’s going to the been pretty low at the client, it’ll build over time.

 

George Notter:

Got it. Great. Thank you, guys.

 

Michael Tessler:

Thank you.

 

Operator:

Your next question comes from Jess Lubert from Wells Fargo Securities

 

Jess Lubert:Wells Fargo Securities:

Hi guys. Couple of questions. First can you tell us what the hosted dell-through growth was in the quarter? I think I heard you say it was record but didn’t hear the actual year-over-year number.

 

James Tholen:

Yes. So it was -- so we’re really referring to Q1. Last year was high 20 within we don’t say first quarter but I would say it was a very, very strong Q1.

 

Jess Lubert:

And so 20% plus, is that fair?

 

James Tholen:

Oh yeah.

 

Jess Lubert:

Okay. And then on the outlook, it appears you are guiding Q2 a little bit below consensus pretty much by the same degree Q1 came in ahead. I was just hoping to understand if there is some business or expenses that are pulled forwarding and confirmed a change in visibility or to manage revenue decision to be more conservative with respect the near term outlook?

 

James Tholen:

No, no, no. I think, look I mean we don't guide as you know on out quarters. So the consensus in Q2 was sort of wasn’t driven by us. I think the outlook for the quarter was strong the reaffirmation for the year I think is indicative of our feeling on the business. I wouldn't give us getting more conservative or the outlook being less robust for the quarter.

 

Jess Lubert:

And then things like the licensing business was pretty solid. Can you help us understand to what extent that was driven from -- how much of that may have been from realization of buy some sales and some of your network transformation projects and is there any update on the network transformation project in terms of how many you have the pipeline at this point in time and how many you think will convert to revenue this year?

 

James Tholen:

Sure, yes so, I will take the first part of that in, let Mike talk more broadly on network transformation project. I think the revenue in the quarter was pretty broad based. We had double-digit growth in all geographies. It was both a good posted and quarter from a revenue perspective. And there was definitely contributions in the quarter from several network transformation projects so I think you can see that also in the professional services revenue. These are big projects that are going to need revenue from many, many years. And I think as a general statement we yes, we continue to -- them. we continue to work and continue to deliver them on time and as Mike noticed in his prepared remarks, I think you saw the product announcements of Vodafone Germany which is Voda’s largest property. It’s a huge deal and I think again indicative of the qualities of the transformation projects. The pipeline was very solid I think these are very large discreet project.

 

Michael Tessler:

I’ll just say same plan I think the projects are delivering on time as the key was a Vodafone project some of them are starting to move from network implementation to service implementation or service launch. We will see more of those through the years. Overall the pipeline for the project continues to look very good and we’re engaged in and some of these projects and a number of phases aligned up of service modules so the launch of a particular product, a segment and continue to grow through and add more segment through the transformation projects. So lots of activities going on to biggest operators in the world. So I think surely, you see this desire by those operators to collapse and close down their TDM infrastructure, many of them already out the date for the down their PSDN and we’re certainly engaged with that on the business transformation side and many operators were also trying to transition from a number of pre IMS or older generation IP solution to a single solution and we're engagement number of both, re-architectures and reimplementation so they have single platform for all of their business services. It continues to be a very strong part of our business engages the fair amount in terms of continue development delivery and with the very, service launches like this half be this here throughout the year this year and in 17'

 

Jess Lubert:

Thanks guys.

 

Operator:

Our next question comes from the Dmitry Netis with William Blair

 

Dmitry Netis:William Blair:

Thanks gentlemen. Nice quarter there. I want to begin again on the license billings number real quick I mean it was down a little but how does that translate into the revenue license growth throughout the year can we still expect you to growth license which is commensurate with the revenue growth for the year. I guess we're looking at what 18% to 20% there?

 

James Tholen:

Yeah. So, absolutely, I mean that was part of, we're reaffirming again our guidance is the. I think it's Q1 lumping. It’s not more than that and it was definitely with this sort of internal expectations or Q1 that was building profitability in the year so I would take note of both guide for Q2 in the rest of the year indicative of how we used them a business for…

 

Dmitry Netis:

Okay thanks. Then maybe on the customer or transmission project front, with the Vodafone Germany now launching, does that sort of imply that most of that deferred you had kind of moves in to the P&L and it become -- based customer on boarding revenue recognition process from here on?

 

James Tholen:

So, I don't want be so specific on the revenue from Voda but is a general statement when we hit revenue milestones on the network transformation project then those projects do move into more of a normal revenue recognition phases. I’d say that's correct.

 

Dmitry Netis:

How do you define normal? Every quarter you get a bit coming in or was that semi-annual you can just kind of give us a little idea what that means?

 

James Tholen:

By normal I mean the revenue the software license revenue doesn't get -- so we never software license to order it build ship revenue in the same quarter, maintenance is no longer piling up on the balance sheet nor would professional services do. You know those things become on as formed or a ratable basis. So, it’s really what I meant by normal. It depends on the carrier buying habits on what’s that software license frequency is. I’d say the most likely is every couple of quarter, fewer and fewer carrier order a year in advance and some actually order quarterly but that can be operationally...

 

Dmitry Netis:

Okay. And maybe a one more if I may. On the BroadCloud if I could jump there, that's not back nicely in the quarter. You got any high qual $13 million for June I was just wondering at times like you may expect reacceleration in the back half the second half of the year for BroadCloud as well as you do to the rest of your business, is that fair and what's driving that? I mean is it some of the other projects you have with maybe Vodafone as you mentioned. And then also maybe talk about quickly on the margin side where the margins are and where do you think you’ll like margins by the end of the year. Thanks James.

 

James Tholen:

Sure, Dmitry keeping the eyes on the question so. Yes, I think it was a solid BroadSoft of Q1 obviously there was some M&A impacts with partial — Princera and you also see that in Q2 numbers. The back half we think that business will continue to grow nicely in to the back half driven by -- at a nice a really nice building pipeline it just so it’ll take a little while we also have good activity with our four BroadCloud customers and we should start seeing contribution from. In terms of margin for Q1 for SaaS we are in the mid 40 so that was up. I think that will that was a little of when but it could be in 40 for the rest year is my expectations.

 

Dmitry Netis:

Okay. Thank you very much. Keep up the good work.

 

Operator:

And next question comes from Rich Valera with Needham and Company.

 

Rich Valera:Needham:

Thank you. Mike you can talk about the competitive landscape and in particular what are your thoughts or if you have seen anything with respect to Microsoft business initiatives and their cloud PBX initiative among other things. Thanks.

 

Michael Tessler:

Yes, kind of competitive wise, things haven’t changed dramatically since the last update. I think the overall sales efforts by our partners doing very well. Not seeing a tremendous amount of change in their environment obviously which is what there type of the business would show up. I think generally the feedback is that especially on the hosted PBX side, so fairly young product missing lots of components, people are a little bit concerned about overall call quality and requiring a fair number of components to make that solution work or as solutions provided by us to our partners really a couple of everything that's the those customers. With the, at the same time we careful lie on all the competition that are customers space, out the market place obviously. More there is more took out there with cloud based solutions or plans for the cloud-based solutions and so we continued kind of watch closely what folks like Microsoft or Cisco are doing in that space and adjusting strategies with our customers, our partners to make sure that we have the most competitive thoughts out so they can win Windows deals for the enterprise business.

 

Rich Valera:

Got it. Thanks for that's for that and Mike could you just remind us that what you said on yourself sell-through comments for North America. You mentioned it pretty quick and I wanted just make sure I have what you said about the North American sell-through.

 

Michael Tessler:

I mentioned that while all the regions grew, North America really contributed in a outside way to the overall beat on the large size Q1 sell-through. So, we're seeing obviously North America being a very mature market for both of you seeing in many segments and so kind of full execution mode for delivery and then we're starting to see pickup in other markets Western Europe is picking up obviously, from a sell-through perspective. So as markets get more and more mature and the customers start and perhaps in a period of deciding whether or not to buy an additional PBX for other solution both of unified communications is becoming kind of a dominant choice and therefore we are seeing sell-through rates up throughout the very stronger base. So, that's a really good sign in the long term sign for strength of the business.

 

Rich Valera:

Thank you.

 

Operator:

Our next question comes from Paul Silverstein with Cowen.

 

Paul Silverstein: Cowen and Company:

Thanks. I want to come back to that competitive landscape question particular. I understand it’s a big world out there and you've got an accelerating market but very Grand Central which is now actually size of the larger look from the commentary and I am sure you guys do, they're talking about growth, organic growth in the 30s if I remember the numbers correctly and I am wondering Mike, are you all running into the more up market and any commentary there and then I’ve got a couple of questions after that.

 

Michael Tessler:

We don't typically run into them obviously directly into our main sales efforts, finding up more distribution channels or partners obviously our partners were one it for them pipeline. I don't think with, again comparing a retail company’s growth rate with an enabling technology growth rate is going be the same apples to oranges comparison. We are saying our partners do extremely well in the market place. I am sure they come across competition not only from other face providers the market is pretty robust, it’s pretty large while the deal flow I am not really concerned about the competition out there as really kind of gaining our ability to growth. In addition I think we obviously see that as a primarily US phenomenon may a couple other places, we are just fitting our products in 90 markets a lot of those markets where the competition is extremely light compared to North America so there is kind of a good portfolio factor of solution of our licenses globally

 

James Tholen:

And Paul I just add, the most robot part in the market is small and -- is on small land and we have several customers that are bigger than ring in terms of total fees and they are among our fastest growing sell through customers and you know those kinds of rates. I think you got our not only a software enabling revenue to retail service provider revenue but there is also a North American small business market segmentation side that we see a ton of accelerating in that part of the market too.

 

Paul Silverstein:

Got it. A couple of quick discrete questions. There were transformation deals will there, I know you announced Vodafone, were there any new awards in the first quarter or there any expected awards in the second quarter. And then on OpEx investment Jim where is the additional dollars going on employees retention, has there been any meaningful churn and then you ramp contribution statement, what type of contribution do you expect through the balance of this year?

 

James Tholen:

Alright, let's start with I guess network transformation. It wasn't a major transformation dealing Q1, pipeline was good I would think there will be more added throughout the year. I am not going to be specific to, but we are also that we want several the biggest one's in winning the world, so, you know those are in and continued at the driven and delivered by us its the trend -- no meaningful -- in played to -- on impact. I think the quite the opposite great team a really excited of having them on. And they have hit the ground running out with their customers and our service providers customers the interest level with the combined now -- contact center broadband -- BroadCloud is really promising so its all good on that.

On a -- again we take that year of the contract win this year will be in a market the actual meaningful revenue contribution will start -- if it is bad but there is a time of opportunity once we get through the regulatory powerful process for the revenue.

 

Paul Silverstein:

for investment --.

 

James Tholen:

Oops sorry. Forgot it -- so it a combination of full quarter expense there are R&D and sales.

 

Paul Silverstein:

thank you.

 

Operator:

Our next question comes from Catharine Trebnick.

 

Catharine Trebnick: Northland Securities:

Good Morning gentlemen my question mike you -- you said in your -- prepared remarks about trends, news some integrators that you launched in France is this change your overall strategy for long time you only sold directly these carriers that looks like in order to expand may be a dreadful market you are going after system integrators and the follow one question that is how is that impact in the carrier in some of -- that have send blue line on Broad Works for their solutions. Thank you.

 

James Tholen:

So, Catharine, I think the easy way to look at that does the entertainment and plans traditional business of then TBX distribution. Their desire frankly is to become a cloud service provider. So, I think we're not showing under brand to brand of solution by another partner and they you had desire their business, from equipment distribution to be cloud service, but not only distributing our products but essentially, other cloud service element to their -- customer base. So, I think in some cases, what we'll see traditional distribution hike businesses to know there end user very well obviously in to the solution market play both or seems to being service provider or manage service provider some sort and that's continuous to therefore we need to be whole seller to those party, not a retailer in the marketplace.

 

Catharine Trebnick:

Okay, then the follow on question is. North America was very, very strong can you give us, give a perhaps with the Board work obviously not flat record hosted or shift how was that waited for the quarter and there was a waited more towards Q1's or Q2 or cable operators?

 

James Tholen:

It was exactly pretty good quarter, as very low on consumer so hosted with so, revenues quarter, it was from the selling stand point more want from and specially in the US, cable with a Q4 cable quarter and kind of, so there is lot of caring some quarter every quarter is was not a strong cable quarter on the fell in but, back previous conversation, cable which tends to be below in North America is on a huge compensate. So really doing exceptionally good.

 

Catharine Trebnick:

all right, thanks Gentlemen.

 

Operator:

A next question comes from Tavis McCourt with Raymond James.

 

Tavis McCourt: Raymond James:

guys. Thanks for taking my question. A better feel them, first James with a 10% customers on a revenue in the quarter.

 

Michael Tessler:

Yes we had a 10% customer.

 

Tavis McCourt:

Got it and Mike the strategy I think specifically in relation to Vodafone. Any thing there is grow that strategy that would impact your solid on the investment margin structure with business

 

Michael Tessler:

No no. I think we are going with full marketing and -- branding activity is really working as amplify the messaging that or our partners are delivering some market price so I am not -- , its not big change on the -- structured in global margin. You really are -- believed this that these efforts will increase the quality the overall velocity of the service in the market place and overall -- that the service -- in terms of -- so I think we are not getting margin impact to the business as we move from a corrupt and low branding a environment to the n users QA a marketing cum brand involved.

 

Tavis McCourt:

okay and then two had a quick ones. First I think -- mentioned earlier that there was some network -- revenue rack in professional services in the quarter was there any in license software and then Mike on your deal with the traditional PBX distributor in France is that a situation will there also reselling cloud solutions from a -- Cisco as well or if they change strategy completely -- white label solution and are you seeing any movements in that regard as a related to a that substantial North American traditional PBX resellers. Thanks.

 

Michael Tessler:

yes, I will jump on the second question and then answer the first, so quickly on the PBX reseller, they were predominantly a single brand if they were reselling in March to them. I did on agent almost the brands can be access but there will well know kind of dominant share in a particular brand the there view as the make a single branded solution using hair brand so that will reselling somebody else is solutions and in there market place. What was saying as I mentioned the really a Company looking for reposition from part distribution to sustaining a cloud as refereeing a recurring revenue company.

As I mentioned it for it is likely they made sales and accelerating forehead that's the other thinks as they moved from the-- harder distribution to a manage service by a provider. Also probably said that this particular company is more mid-market centric extend as then we, kind of there leveraging, there integration delivery, holding structured for years to support of the business.

The support is kind of the cloud business that there launching with and your last question is around with the other I do think we are saying the next-generation of the lot of distribution based companies looking at should they changed the business model. Few that are reselling other branded posted solutions. I think many of them are considering not whether they should make more dramatic business, a business changes. We do have few smell on that have TVX bases in US that are have already kind of migrate their business to manage service at professional see more of that through 17 of 18 and I think as Jim said is hosted market move from fast to medium and the big medium market what they called 100,000 to 500,000 see, we will see more of those PBX distributors have this decisions about shifting into the market place.

 

Michael Tessler:

And yes software revenue line have a definitely had revenue recognition from transmission project in a.

 

Tavis McCourt:

Great, thanks so, much.

 

Operator:

And the next question comes from Mike Latimore with Northland.

 

Mike Latimore:Northland Securities, Inc.:

Thanks. On the professional services line, do you expect that to be stable this year relative to balance how do you think about professional services for the year?

 

Michael Tessler:

Yes. So, my expectation on CS is you'll see well through the year on PS and I guess, my view, I don't expect Q4 in '14 to be in the magnitude of '15, which was pretty offside. So, I'd expect quarterly growth generally the after share.

 

Mike Latimore:

Okay got it. Then on the trunking is the trunking what percent of revenue you're looking with part?

 

Michael Tessler:

So it was it just a quarter but if it was actual lower hired its -- to be in the high key invent it was actually in the --.

 

Mike Latimore:

And it is last on trends there are -- playing everything out there what size -- are coming the pipeline it is just 20 to 50 seats -- 100 seats kind of the mix how do you see the pipeline on the size of context is -- out for that.

 

James Tholen:

We are actually as we gone out -- acquisition and sorry to -- and distribution partners we seeing actually a worldwide variety of yield we -- some what I was -- solve deals -- sub 50 around a 50 seats area and -- some of the channel lining up to looking at those let me call 25 to 100 seats segment. We also identified a number of very large -- in the -- may be a balance sheet and above in the pipeline.

So were we actually seeing a product which will satisfied with being able to scale from very small we have the very specific product use and packaging in the very small at the medium to very large -- context -- and the products with -- competitively is being very strong our people feel as a very strong placement for there very large contacts that are. -- of there is as everybody understand this you know a process to win our few thousand -- contact center and actually doing from the -- is quite lengthy so like we talked about network transformation deals from our carrier side, large contacts -- will have a fairly link the -- and then implementation our strike also helping to see in the pipeline moves here is a good -- of the longer term deal or the larger deals that we may close and then start implement on and then a number of our distribution partner being effective in the what I call the smaller 25 -- which -- any internet in a much faster time line.

 

Mike Latimore:

Okay, thanks.

 

Operator:

Our next question comes from the Vijay with Deutsche Bank.

 

Vijay: Deutsche Bank:

yeah thanks, hey Good morning quick question is around how should we look at the new customers and also repeat orders from current customers and when I am coming from this -- you have been a pipeline of -- network transformation projects recently, so help us understand the in recent quarters what is being the trend in terms of getting repeat business incremental business from some of these early wiped transformation projects and in any given quarter how should we look at toughly what's -- makes between net new opportunities net new customers versus -- business from the current customers. Thanks.

 

James Tholen:

yeah I am reminded of the $1 -- about our target at the beginning of the -- conflict was a we don't have, they are not that many new carrier customer that we have and I mean continued to work those and win those but most of that business comes from our distinct customers, its welling to that of any quarter and most of that is really from projects that are in market for obviously shares are adding like a Vodafone term announcement. In our new applications of the inter delivered every quarter so is definitely focused predominantly from existing customer, I am sorry -- what was the other question.

 

Vijay:

The other question is any given quarter how should we looked at, repeat business form current customers versus net new business I think where I was coming from is understand the prepancity of these of customers to buy incrementally or is it just you get an initial base line award from one of these customers and then its relatively difficult to get incremental business in customers. Like I was --

 

James Tholen:

Was the opposite.

 

Vijay:

are you mostly in kind of working on the based line set of projects or you are also working on repeat orders from your current customers.

 

James Tholen:

Is it specifically on network transformation or just general?

 

Vijay:

Its specially on network transformations so want to understand once your kind of exhaust or the based line does of network transformation. What is the prepancity of getting additional orders from these network transformation projects. Thanks.

 

James Tholen:

Sure. I think, as a general statements of the honor, overall business that, -- I can't take any customers that have, that order so much of have we don't that there is a working that kind of not and i would not getting follow on want there in the market. I mean this days carriers want to tie up capital in capacity here inventory.

On the network transformation deal I mean what pretty early fall on in the deals, I mean which just regarding we're just starting say, I see revenue recognition on a I would say at this point we have not seeing reorders is general statement on the network transfer mission deal we're saw lot of times is go in the balance sheet. In term of the balance sheet, their firm, up front software or got the software order through the neighbor I take that for revenue but we're early enough from the first one yeah we've gotten softer orders but those were kind of at the head of class early-early on.So, just a couple of

 

Vijay:

Okay, Thanks Jim.

 

Operator:

Ladies and gentlemen that's conclude today's question-and-answer portion, I would now like to turn the call back over to our host.

 

Michael Tessler:

Well, thank you all for being on the call and for your kindly support. I will look forward to updating on the progress in the coming month and with that, have a great day.

 

Operator:

Ladies and gentlemen that's conclude today's presentation. You may now disconnect and have a wonderful day.

Posted In: EarningsNews
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