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David Roy - VP of IR
(call in progress) includes forward-looking statements for purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.
They are subject factors that could cause actual results to differ materially from those in the forward-looking statements.
In addition, new factors emerge from time to time and it is not possible for the Company to protect all such factors.
All forward-looking statements speak only as of the date on which the statements are made.
The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unplanned, unforeseen or unanticipated events.
Statements express the beliefs and expectations of management regarding future performance or circumstances that are forward-looking and involve risks and uncertainties, including but not limited to quarterly fluctuations in results and other risks.
Additional information concerning risks and uncertainties is set forth in our press release and in the section entitled "Factors That May Affect Future Results" in the Company's periodic reports filed with the Securities and Exchange Commission, including the Company's most recent Form 10-Q.
The Company believes that pro forma results described in this call are useful for the understanding of the Company's ongoing operations because GAAP results include expenses unrelated to the Company's ongoing data integration business, as well as non-cash charges associated with the amortization of purchased intangibles and stock-based compensation.
Management of the Company uses pro forma results to compare the Company's performance to that of prior periods for analysis of trends and to evaluate the Company's financial strength, develop budgets, manage expectations, and develop a financial outlook.
However, pro forma results are supplemental and are not intended as a substitute for GAAP results.
Relative to GAAP, all pro forma results exclude the following items net of associated taxes -- amortization of purchased intangibles, in-process research and development, amortization of stock-based compensation, nonrecurring acquisition-related and transition expenses net of any associated credits, a litigation settlement, and revenues, expenses and other items related to divested business operations.
Now let's turn the call over to Mr. Peter Gyenes.
Peter?
Peter Gyenes - Chairman & CEO
Thanks, Dave, and good evening, everyone.
Thank you very much for joining us.
We're pleased to report very good results for the third quarter.
License revenues and services revenue were nicely up sequentially and year-over-year, and that is both with and without the direct effects of last year's acquisition of Mercator.
Productivity metrics, profitability metrics, partner impact, product and services performance worldwide were mostly at or above expectations.
Pete Fiore and Bob McBride will elaborate on these results and comment on the outlook, and we will do our best to allow plenty of time to fully address your questions afterwards.
I would like to focus just for a moment, though, on 3 specific topics as prospective on the quarter and on the outlook going forward -- first, the environment around spending and fundamental demand; second, the competitive landscape; and third, our spending levels and effects on operating margins.
So, first, on the environment around spending and fundamental demand, we do not believe the environment around customer spending has really changed much.
We perceive customers' process for spending to be just as disciplined, just as a cautious and just as elongated as it's been all year.
And so we don't really see sales cycles particularly shrinking.
We do, however, see the fundamental demand for data integration continuing to rise and to expand; continuing to reach into enterprise scale areas, and therefore providing more and more opportunity for us to show our offerings and to show them as superior value to other alternatives.
This has provided growing working set or pipeline of opportunities during the first of the year.
And it's helped us achieve the levels of revenue and productivity that we think are noteworthy in our market space, even within an environment of conservative spending and relatively lengthened sales cycles.
Second, the competitive landscape -- and as you will recall we've commented on this during the year, that the competitive landscape has expanded beyond the traditional few to include some from neighboring technologies like EAI, database, business intelligence, even some applications vendors who have certain components of functionality that may address data integration needs of customers.
We think this is good.
This is what happens when a market starts to look like it's big, robust and expanding.
We think data integration is indeed a very big and sustainable market.
It's not at all only about EPL or about data warehousing; it's about a pervasive issue that requires a pervasive solution that affects all operational and strategic areas of business process and of enterprise strategy.
We are the first that have brought to market a suite or platform of end-to-end data integration solution.
And we think we stand out amongst this crowd with a superior solution offering and superior wherewithal to be deployed pervasively around the enterprise.
We think our results with each passing quarter demonstrate this differentiation.
And again this past quarter, as you'll hear from Pete momentarily, there are plenty of examples.
But it is still early in this market opportunity and in its evolution.
It's not about only a 2 or 3 horse race, as perhaps it was some years ago.
This opportunity is extremely large because it deals with the enterprise crown jewels of data and information and the ability to leverage data and information pervasively throughout the customers' operations, both intra-enterprise and in inter-enterprise.
And right now, we see this market as increasingly fragmented by numerous offerings of all shapes and sizes seeking to get some share of mind from this expanding focus on data integration.
But we view this extreme fragmentation as temporary.
We think customers will eventually more strictly turn their attention to those who provide more complete and pervasive solutions to data integration in a way that can promote the standardization and simplification that most CIOs want and that we hear about from most of our customers.
So the issue is really to get above the noise and win and retain customers based on sustained innovation and sustained delivery of superior value, and then build on that foundation more and more scale and critical mass to capture share of this expanding market, and then to create the economies of scale that produce leverage and that ultimately drive shareholder value.
We believe this market will become de-fragmented as some rise above the noise.
Our customers and our partners tell us that we have become a real factor with them and within the integration market sector because of our sustained innovation and delivery of superior customer value.
We have recently received a major endorsement of this at our customer conference, AscentialWorld, earlier this week.
We had over 700 customer and partner attendees from about 20 some odd countries all around the world.
This is more than twice the size of participation from a year ago.
And I would invite you to seek out direct feedback from these attendees as to their view of the conference, their view of the turnout of the conference, and what they believe it means in terms of the marketplace's view of Ascential Software, and of course their view of the content and the enrichment they received during the conference.
We believe that we have the franchise and the means to be a top contender for continued growth through the process of de-fragmentation, which we believe customers are anxiously looking forward to.
And this is why, as we have discussed with you in previous conference calls, we have maintained our program to expand our resources this year, even though our revenues, in particular our license revenues, were below original expectations in the first half of this year.
We've done so because of our conviction of the market potential, of the expanding customer demand, and of our ability to capture continuing market share, just as our revenues in quite a few quarters now have now indicated.
We're not assuming any immediate or especially rapid change in the overall environment that we operate in.
We aren't predicting immediate de-fragmentation either.
So we are expecting operating leverage in the second half of 2005 from these investments rather than more immediately.
But we do expect that these investments will continue to drive our differentiation and market share progress, even in the short and medium-term, as we see that they've done in the third quarter as well.
And all this we expect to further strengthen our position as the environment transitions out of its current state.
Before turning over to Pete and to Bob, I just want to comment that I do realize that the question has been asked is our performance in the third quarter the return of a good trend or is it merely the effects of leftover deals from the first half of the year.
We think that our results in the third quarter indicate the continuation of 2 key trends -- 1, more focus on data integration as a strategic topic; and 2, more selection and adoption of Ascential's approach as we expand our reach and our coverage.
We believe both of these trends are affected by the sustained focus and execution on our part.
But we're optimistic about our positioning to continue driving these trends, and therefore to continue growing in this expanding market.
So Pete and Bob will now elaborate further on these points of perspective in their comments.
Pete, please go ahead.
Pete Fiore - President & General Manager
We were very pleased with the results of the quarter and the positive impact we're seeing from our increased investments in our field operations and in product development.
And as Peter just mentioned, we just returned from AscentialWorld, our annual users and partners conference, where our attendance more than doubled from last year to over 700 customers and partners from 25 countries around the world.
As you may recall, we had 77 quota-carrying reps on board at the start of the first quarter of this year, of which 68 were productive, meaning they were on board in or beyond their second quarter in the territory.
At that time we had the objective to increase sales and services headcount to increase market coverage and respond to increase demand for our product and services offerings.
In Q3, we ended the quarter with 91 total reps and 79 productive reps.
We are now beginning to see the impact on license revenue as the number of productive reps increases each quarter.
License revenue per productive rep in Q3 was $344,000, in line with second-quarter productivity levels and up from $310,000 in the third quarter of last year.
We have now entered the traditionally seasonally stronger fourth quarter with 93 reps, and of those 85 who are now in their productive zone.
We plan to be at approximately 95 quota-carrying sales reps as we enter 2005 and are recruiting selectively in specific regions for additional salespeople.
We have also increased our investment in product development, which has allowed us to expand our development capacity through increased headcount from the establishment out and engineering center in Hyderabad, India with our acquisition of the assets of our existing development partner, iNuCom.
We also established a multimillion dollar enterprise test facility which allows us to replicate the extremely complex, large-scale enterprise environments we are seeing more routinely in customer deployment, and helps to ensure that our products and technology meet the reliability, availability and scalability requirements of the most demanding enterprise data integration application.
This quarter release 7.5.1 of the Ascential enterprise integration suite will begin shipping, and features parallel processing execution on the IBM's zSeries, Microsoft Windows and Suzan (ph) Linux servers.
It also includes completely new reporting capabilities across the complete suite, additional certifications for SAP, updates for the latest HIPAA and SWIFT industry standards, and performance improvements of up to 40 percent as compared to previous release.
AT AscentialWorld we also previewed our next generation platform code-named Hawk, which will enter active beta testing in Q1, and which we expect to begin shipping to customers later in 2005.
With this release we begin a new product cycle, introducing new capabilities that will focus on simplifying the complexity of large-scale enterprise data integration projects.
We believe this release will further extend our competitive advantages through multiple technology innovations, including the introduction of the completely new user interface, the availability of a new version of our data profiling offering, a new metadata services architecture, and plug-and-play connectivity.
All this while extending our product leadership and reinforcing our thought leadership in enterprise scale integration.
Down in the overall market and what's going on out there, for several quarters now we've been talking about the expanding number of strategic business objectives that are enabled by complete end-to-end platform approach to enterprise data integration.
In an AscentialWorld poll, 75 percent of the respondents indicated their data integration initiatives were in support of strategic enterprise-visible business initiatives, such as improved operational efficiency, lowered overall operating costs, increased top-line revenue growth and enhanced customer service.
This, along with the growth in traditional business intelligence and data warehouse applications, is driving the overall growth in this market.
Industry research from IDC in a July report estimated aggregate spending on data integration is a $9 billion market with a multi-year forecast of about 9 percent per year.
Of the total spending in this market, 85 percent of the spending is on internal hand coding (ph), contract programming and systems integrators.
Because data volumes continue to grow rapidly, and the number of different data, sources and systems and applications continues to proliferate, and access to information about business events is required on-demand, these in-house approaches are proving to be bottlenecks, driving the opportunity for Ascential's end-to-end solutions.
Additionally, in a customer survey we commissioned we found that the customer view towards integration is moving in our direction, and our revenue results support this.
Q3 license revenue coming from customers who purchased our entire suite or who added additional components of the suite to their existing investments at about 50 percent of the license revenues.
During the quarter we had 206 license transactions, of which 143 were expanded relationships with existing customers and 63 were with new customers.
We closed 4 transactions with $1 million or more in current quarter license revenue, 11 transactions with license revenue over $500,000, and 31 with license revenue in excess of $250,000.
This compares to the third quarter of last year where we closed 1 transaction with license revenue greater than 1 million, 5 greater than $500,000, and 24 transactions greater than $250,000.
The trend toward more enterprise-level work for us is reflected in these growing transaction sizes.
In the third quarter, our average license selling price for new business was $253,000, up from $246,000 in Q2 and up 15 percent from $220,000 a year ago.
Blended average selling price, which includes license, maintenance and services contracted for the time of sale, was $353,000 in the quarter, up 13 percent compared to $313 in Q2 and up 28 percent from $275,000 a year ago.
Blended APS for transactions greater than $100,000 was $489,000 in the quarter.
In the third quarter we closed and reported license revenue, as I mentioned, on 4 customer transactions, each slightly in excess of $1 million. 1 of those transactions was 1 that didn't closed in time for Q2, but did close in Q3.
The other 3 were in our pipeline and successfully closed during the third quarter.
Our solution does not require up-front investments in the high 7 figure or 8 figure range to get tangible value, which we believe is a good and popular feature with customers.
We do have several other similar sized opportunities as we closed in the third quarter currently in our pipeline for Q4.
However, it's important to note that achieving our Q4 guidance is not dependent upon closing any 1 of them, but rather (indiscernible) entire set of opportunities, we're working on it.
A few examples that highlight how customers are using our products and services to address their enterprise data integration needs include The Limited Brands who purchased Ascential for their Insight project (ph), a strategic initiative to improve brand management, sales and cost control through previous in procurement, merchandise planning, inventory, demand forecasting and financial reporting.
This was a very competitive win where Limited Brand chose Ascential based on our strong partnerships with PeopleSoft and Teradata, the superior performance and scalability of our products, and our overall product strategy, especially in the area of data profiling.
We also won a significant business with Canadian Tire, one of Canada's best-known and most successful retailers, who purchased the full Ascential suite to improve business intelligence reporting and to provide company-wide access to operational data.
This was an account where we teamed up with IBM and with Cognos to win this competitive business.
Canadian Tire selected Ascential because they found technology platform and enterprise vision a better match for their high scalability needs and long-term strategic enterprise data integration plans and requirements.
Another enterprise level customer win in the quarter was with the Royal Bank of Canada.
Royal Bank of Canada were long time users of Ascential DataStage TX and Ascential QualityStage.
In this quarter the bank purchased our entire enterprise integration suite as the bank's enterprise standard for all future enterprise data integration process.
The initial projects where they use our technology include Basel II, enterprise data warehousing and real-time risk management initiatives.
This is an account where we displaced the competition to become the enterprise standard.
We are also very pleased with the productivity of our partner relationships in the quarter.
Partner-influenced business was approximately 60 percent in the third quarter, in line with the second quarter and up significantly from 35 percent in the third quarter last year.
Establishing and leveraging relationships with global technology partners has been a major area of focus for us as it expands our market reach and drives significant new business opportunities.
Our IBM relationship continued to be very productive in the quarter as our pace of activity with them continues unabated.
During the quarter we won significant projects with IBM at leading organizations such as the Australian Tax Office, Canadian Tire, the State of New Jersey, Wachovia, and Work Cover Authority (ph) of new South Wales.
Our working set of opportunities with IBM continues to build as we position the full range of our products to be resold by IBM's BCS, as well as the IBM software group.
Our PeopleSoft relationship continues to progress very well.
Hundreds of PeopleSoft EPM customers are implementing or converting our solutions as part of the OEM relationship we began with PeopleSoft in January of this year.
The substantial customer up-take illustrates the strength of the Ascential/PeopleSoft partnership and the value our solutions bring to PeopleSoft EPM customers.
We're also on track with PeopleSoft to extend the capabilities enabled by our technology with the inclusion of our metadata offering in PeopleSoft's upcoming release 8.9.
Furthermore, in October we announced that PeopleSoft will also OEM our DataStage products for embedding into PeopleTools, the technology at powers all PeopleSoft enterprise application upgrades.
With this new relationship we will broaden our exposure within the PeopleSoft customer base potentially 12,000 of the PeopleSoft existing customers.
We also experienced increased activity levels with our network of global and regional systems innovators and won new business in conjunction with Accenture, Bearing Point, CSC, EDS, and IBM BCS, as well as with a number of regional integrators.
From an industry sector standpoint the financial services sector was again a strong vertical market for us, comprising slightly more than 30 percent of our license revenue in the quarter.
Federal government was very strong for us in Q3, with government business in the 15 to 20 percent range as a percent of license revenue, followed by the telco, information services, health care, retail and manufacturing sectors.
We're especially pleased with our progress in the federal market as our initiatives to capitalize on the investment that the US government is making in better integrating and sharing their data is beginning to now pay off for us.
During the quarter we won business with the US Department of Agriculture, the Department of Treasury, the Transportation Security Administration, and the Workmen's Compensation Board.
Overall we're pleased with our progress and the impact we're having on the market.
Our product advantages and the growing importance of and demand for data integration combine to position us for continued growth and improving profitability in Q4 and 2005.
Our additional investments allowed us to ramp up revenue so far this year, but we have also added to our expense levels.
Going forward we believe our current level of investments and resources will enable us to accomplish our fourth quarter and 2005 objectives, and we will continue to exercise prudent expense control.
I will now turn the call over the Bob McBride for his discussion of the Q3 financials.
Bob McBride - VP & CFO
Our bottom-line performance in Q3 of 2004 was a GAAP net income of 2.3 million or 4 cents a share.
This represents a 7 cent per share improvement from last year's Q3 and 2 cents a share sequential improvement.
As I make reference throughout this discussion to both GAAP and pro forma results, please refer to our description of pro forma and reconciliations of GAAP to pro forma in our earnings release this quarter and in the investor section of our website at www.ascential.com/investors.
If you refer to the schedule attached to our press release and the information posted on our website, you can see the items that reconcile our GAAP results to pro forma.
On a pro forma basis our third-quarter net income was 4.4 million or 7 cent a share, which represents a 1 cent a share improvement from last year's Q3 and a 2 cents per share improvement sequentially.
Our GAAP operating income was $300,000 for the quarter, representing an improvement of 5.1 million from Q3 a year ago and $0.5 million improvement sequentially.
Q3's pro forma operating income of $2.7 million represents an improvement of $700,000 from Q3 a year ago and $700,000 sequentially.
Ascential Software's total revenue in Q3 was 67.6 million.
This represents a growth of 47 percent from Q3 of last year and is up 4 percent sequentially.
This is our ninth consecutive quarter of year-over-year total revenue growth.
License revenue in Q3 was 27.2 million, representing growth of 22 percent from last year's Q3 and up 9 percent sequentially.
Given that September 12th of this year was the 1 year anniversary date of the Mercator acquisition, we can compare Q3 '04 revenue to the combined Company's revenue in Q3 a year ago.
On that basis, if Mercator had been part of Ascential for all of Q3 last year, our total revenue growth in Q3 '04 would have been 14 percent over the combined Company's total revenues a year ago.
And license revenues would have been 13 percent over the combined Company's license revenues of a year ago.
Geographically, North America revenue contributed 52 percent of our worldwide revenue and the balance of 48 percent was generated internationally.
This reflected a 10 percent sequential revenue growth in North America and international revenue that remained flat despite the traditionally weaker third quarter vacation season.
GAAP service margins of 56 percent were the same as reported a year ago.
GAAP license margins remained flat from Q3 of last year at 83 percent.
Because service revenue in Q3 grew more year-over-year than license revenue, that mix results in GAAP total gross margin of 67 percent for Q3 of 2004, 2 percentage points below a year ago.
Pro forma service margins improved from a year ago by 1 percentage point to 58 percent.
Pro forma license margins were constant year-over-year at 88 percent.
Again, because service revenues grew more than license revenue, the mix resulted in pro forma total gross margin of 70 percent for Q3, 2 percentage points lower than a year ago.
Our license revenue in Q3 represented 40 percent of our total revenues for the quarter, slightly higher than Q2.
We expect continued slight trending upward in Q4 and 2005 approaching 45 percent license revenue in Q4 '05 and reaching 50 percent in 2006 as we see the increase in our fully-productive sales reps and continued product differentiation drive progressively-higher license revenue.
As this more favorable revenue mix materializes we expect our gross and operating margins to commensurately improve from current levels.
Our total combined headcount at quarter-end was 934, consistent with last quarter.
At the end of Q3 we had 329 employees in sales and marketing, 242 in services and support, 245 in R&D and 118 in G&A.
We anticipate headcount levels in Q4 to be relatively steady with the exception of the addition of 60 to 70 R&D engineers added as a result of the previously announced acquisition of the assets of iNuCom, a system developer in Hyderabad, India.
We have had a contract development relationship with iNuCom for over a year, and this transaction effectively transfers the employment relationships of these developers to Ascential.
As our press release indicated, our Q3 tax provision adjusts our estimated annual effective rate to 24 percent as compared to the 30 percent rate that we've guided to previously.
Just a brief explanation of the process.
We accrue our tax liability for any given year based on estimates.
After we go through our annual tax return filing exercise worldwide, we true-up our prior year actual liability relative to our prior-year estimate and apply the difference -- in this case it was favorable -- to the current year's effective rate.
This factor, along with our year-to-date and projected worldwide Q4 net income, allows us to calculate an updated 2004 anticipated tax rate.
Applying this process during Q3 results in an adjustment of our effective tax rate estimate to 24 percent for the year.
This adjusted 24 percent annual rate results in a Q3 effective rate of 12 percent.
Cash and marketable securities totaled 471.5 million at the end of Q3.
As we indicated in our press release, the Company was cash flow positive during the quarter, even after including 1.3 million of legacy payments related to the 2001 sale of assets of the database products and 2.7 million of cash outflows associated with restructuring actions from the acquisition of Mercator Software on September 12th of last year.
These combined outflows are consistent with what we've announced previously, and are expected to be approximately 4.5 million in Q4 and decrease to a run rate of approximately 2 million per quarter in 2005.
Going forward, excluding any stock buy back, we expect our cash to build in Q4 and throughout 2005, barring unforeseen circumstances.
Accounts receivable at the end of Q3 was 47.3 million, reflecting a DSO 63 days as compared to 64 in Q2.
Going forward we anticipate being within our targeted range of low-60s for DSO.
Our expectation for the fourth quarter for total revenues is to be between 69 and 72 million.
We indicated during our Q2 conference call that we expected the rising contribution from our newly-hired sales reps to offset much of the usual historical seasonality of the third quarter.
That did occur, and we anticipate additionally previously hired reps to become productive -- additional previously hired reps to become productive in Q4, supporting our guidance for the Q4 revenues.
Constant expenses in Q4 are expected to be slightly higher than Q3 due primarily to variable costs associated with expected increases in revenue, the AscentialWorld customer conference, and additional expenses related to activities revolving around our Sarbanes-Oxley Section 404 process.
Included in these expenses are amortization of purchased intangibles and stock-based compensation and legacy expenses related to divested business operations, all together estimated to be less than 2.5 million in the quarter, barring unforeseen circumstances.
Interest income, based on recent rates and expected balances, is estimated to be approximately $2 million per quarter.
And as I indicated earlier, our estimated effective tax rate for Q4 is 24 percent.
For 2005 we currently anticipate revenue to be in the range of 285 million to 295 million as compared to a current estimated range of 263 to 266 million for full-year 2004.
Total constant expenses are expected to range between 68 and 71 million per quarter.
Included in these constant expenses are amortization of purchased intangibles, stock based compensation, and legacy expenses associated with divested business operations, all together estimated to be about $2 million in the first quarter of 2005, declining to approximately $1 million by the fourth quarter of 2005.
Interest income, based on recent interest rates and cash balances, is expected to be approximately $2 million per quarter.
The estimated effective tax rate for full-year 2005 is expected to be 30 percent.
As Pete mentioned earlier, we had made increased investments this year in expanding our sales and services, our marketing, and our R&D resources.
Although we expect the cost effect of those investments to make earnings per share comparisons less favorable in the first half of 2005, we do expect to see the operating leverage from those investments within the second half of 2005, thus showing more positive year-over-year earnings comparisons as the year progresses.
I will now turn it back to Peter.
Peter Gyenes - Chairman & CEO
Thanks a lot Bob and Pete.
Operator, we'd like to open it up for questions please.
Operator
(OPERATOR INSTRUCTIONS) Charlie Chen.
Charlie Chen - Analyst
To what do you attribute then the increase in large deals, or the return of large deals?
A number of other vendors have expressed similar dynamics and the environment has not changed much.
I'm just wondering if you to provide some color there.
Peter Gyenes - Chairman & CEO
We've seen more and more projects are either enterprise scale projects in the sense that they're ready to be deployed around an enterprise program or they are departmental projects, but those that are looked at for ultimate expansion into the enterprise where the vendor being used is perhaps a candidate to become a corporate standard for this kind of capability.
And so these seven figure transactions, if you will, or these larger transactions, were all in that vein.
You know, big 7 figure transactions, like 7, 8, $9 million transactions or 8 figure transactions, we don't see that fitting into customers' buying patterns and buying processes nowadays, certainly not in our marketplace.
If they do occur, I think they're more anomaly than standard.
As Pete pointed out, customers can get a good tangible value from our approach to data integration solutions with meaty but not overwhelming investment levels.
And they can work their way into more and more deployments and more and more pervasively deployed solutions.
So I think it is great that we had a few $1 million dollar.
Again, they were slightly over $1 million.
They weren't multi-million dollars.
For us the real metric here that is a meaningful indicator of the expansion of the market opportunity and of the expansion of Ascential Software's impact is just an ongoing collection of meaty but sort of mid-6 figure transactions that reflect continued deployment of our technology in projects that are important to customers and that collectively represent strategic importance to customers.
Charlie Chen - Analyst
Can you clarify the assumptions on large deal contribution relative to the 4Q guidance?
And looking out to 2005, would you expect that you might still have a couple of 7-figure transactions that might land in each quarter?
And would you expect the average deals size metrics to continue along the same trend?
That's all I have.
Thanks a lot.
Peter Gyenes - Chairman & CEO
I would say -- and Pete you might want to comment here.
I would say that in the environment as it is today -- and again, we're not going to make any assumptions about it radically changing in the short term, particularly -- we would expect to continue to see these type of 7-figure deals like the type that we closed in Q3 showing up in our working set and progressively maybe even increasing in number in our working set.
The predictability of precisely what quarter they close in I think will fluctuate.
I think we expect to achieve our fourth quarter guidance based upon the overall content of our working set.
And there are some 7-figure deals in the working set.
Maybe we will close 1 or 2 of them during a quarter, maybe not.
But we think that we have a large enough working set with enough of an aggregation of active prospective projects with a mix of prices that are in the zone of mid-6 figures and up that it's an appropriate mix, and with an appropriate close rate applied to the deployment of salespeople that we now have and people (indiscernible) productivity zones, so they have been here for 2 quarters or more, that all of that it is appropriate for the current environment for our guidance.
I would expect in 2005 under the current environment that we would have a sprinkling of 7-figure transactions throughout the year.
Maybe it will be in each quarter; maybe it won't.
But I'm certain that we will have our share of those transactions in the mix.
Pete Fiore - President & General Manager
I would also add that we do see over time the ASPs in that business continue to trend up.
We do have -- the market is moving towards more enterprise-level, enterprise-visible transactions, and those transactions generally carry a slightly higher price tag, deliver more value.
And over time we would expect that to continue trending that direction.
Operator
Nathan Schneiderman.
Nathan Schneiderman - Analyst
It is Wedbush Morgan Securities.
A few questions for you.
Could you give us the consulting and maintenance breakdown?
Peter Gyenes - Chairman & CEO
Can you repeat the question?
Nathan Schneiderman - Analyst
Bob, I was wondering if you could give us in terms of the services trend could you give us the separate breakdown of consulting versus maintenance.
Bob McBride - VP & CFO
Maintenance was approximately 24 million and consulting professional services was 16.5.
Nathan Schneiderman - Analyst
Bob, can you talk about the sequential increase in G&A, what drove that increase, and whether you expect that level of G&A to continue?
Or is that just a short time Sarbanes issue or does it continue running into not only Q4, but also to '05?
Bob McBride - VP & CFO
Primarily the increase that you see is the Sarbanes-Oxley process and the costs associated with that.
And we would expect to see that continue through Q4 and into Q1 as well.
It's becoming evident as well that through next year Sarbanes-Oxley is going to continue to cost us money.
We don't really at this point to know how much.
I guess the reason I'm saying it is because this is not a 1, 2 or 3 quarter phenomenon.
I think Sarbanes-Oxley is going to create a new paradigm to some extent next year for cost-related Sarbanes-Oxley.
Nathan Schneiderman - Analyst
Finally, on the partner relationships, I was hoping you could speak to not only the PeopleSoft relationship, but the new reseller agreements with Sybase and Teradata, and let us know just how from a financial prospective what sort of revenue contribution on a quarterly basis incremental revenue contribution do you think is reasonable to think about from these different relationships.
Bob McBride - VP & CFO
First of all, these are both important new relationships.
Obviously Teradata operates kind of in the sweet spot of what we do, if you will.
Their customers are -- as I described in 1 of the wins we had last quarter, Teradata customers are generally very high-end, very large volume, enterprise data warehouse oriented projects.
And that's exactly the place where we can really demonstrate the superior scalability and performance of our products.
So we think that's going to be an important relationship.
We've got a lot of customers that we've done jointly with Teradata over the years.
Teradata takes a very solutions-oriented approach to their customers, and they like to have the capability to bring an end-to-end solution in their own right to the customers, including data.
They view our capabilities in this area to be a very good fit with their focus on large-scale projects.
With respect to Sybase, this is really, as we mentioned, I think, in the last call this is an opportunity to expand our market cost coverage not only here in the US, but particularly in areas where they have a lot of feet on the street relative to us in places Latin America and Asia Pacific we they have got a good, strong presence.
So we would expect these partnerships to have more meaningful contribution each quarter and over time.
As you know, we haven't broken down the specific contribution of any of our partnerships unless they've been over 10 percent.
So I think the net impact here is more opportunities for us to get into and to demonstrate the capabilities of our offering, which creates more opportunities to win more business.
Nathan Schneiderman - Analyst
Maybe to put some meat on the bones, or to ask the question a different way, would you expect the combination of Sybase and Teradata and the change in the PeopleSoft relationship to contribute more than 2 million a quarter as we move into 2005 incremental?
Peter Gyenes - Chairman & CEO
I think the way you need to look at it is less about incrementalizing each relationship and more about incrementalizing our total opportunity.
As you know, our strategy here is very focused on these type of enterprise scale complementary solution and systems and services providers, because, first of all, this whole collection of partners collectively they're in every IT shop everywhere in the world.
And their core business offerings in our view depend upon -- the success of their core business offerings are enhanced in the customer environment by being associated with a good enterprise scale data integration platform.
And so by continuing to expand this partner ecosystem, if you will, it significantly expands the reach of our capabilities, and therefore expands our opportunities overall.
We have plenty of situations where there are multiple partners involved in a transaction.
Nathan Schneiderman - Analyst
Thank you very much.
Peter Gyenes - Chairman & CEO
And as we keep expanding these relationships happen more frequently.
It's really more about optimizing around the overall opportunity than it is about incrementalizing on individual relationships.
Operator
Mark Murphy.
Mark Murphy - Analyst
(technical difficulty) clarify something in terms of the productive rep headcount.
Should we be under the assumption that you have 85 -- effectively 85 productive reps here as you begin Q4?
And then would that compare to something along the lines of 65 maybe or 68 as he entered Q4 of 2003?
Bob McBride - VP & CFO
Yes.
I think that's probably -- it is 85 going into Q4 of this year.
Last year we had productive reps -- it was probably in the mid-60s range.
Peter Gyenes - Chairman & CEO
Last year in Q4 we also had a whole bunch of reps with I think were included in those numbers from Mercator. (multiple speakers) was the first full quarter of combined operations.
Mark Murphy - Analyst
So it is roughly a 25 percent type of increase in terms of the productive rep count.
And it sounds like -- from what you're saying it sounds like there's stability if not improvement in terms of the license revenue per productive reps.
I guess I'm wondering if we can correlate that and project that type of dollar value, license revenue growth in the fourth quarter.
Bob McBride - VP & CFO
I'm sorry, Mark.
You just broke up toward the end.
Mark Murphy - Analyst
I guess what I'm trying to say is if you have 25 percent more productive reps, should the license revenue growth correlate to that 25 percent?
Peter Gyenes - Chairman & CEO
You're saying is our guidance that we're going have 25 percent more license revenue in Q4 from Q4 a year ago.
Is that your questions?
Mark Murphy - Analyst
Yes.
That's what I'm trying to get at.
Peter Gyenes - Chairman & CEO
That's not our guidance, Mike.
Mark Murphy - Analyst
So we are looking for some type of degradation then in the license revenue per productive rep?
Peter Gyenes - Chairman & CEO
What we're looking for is -- let's go back to what we have said now for the last couple of conference calls.
We're dealing with the current environment -- not the environment of last year, but the current environment.
And in the current environment our approach is that we don't want to count on any particular significant sequential increase in productivity.
But rather we want to count on getting more coverage of market opportunities sequentially from expanding our reach in the marketplace.
Just like you saw in Q3, we didn't really have significantly more productivity from Q2 to Q3, but we did have more revenue because we had more people creating business.
That's the strategy that we embarked upon after the observations and results during the first half of the year, and that's the strategy we're pursuing, and that's the basis of our guidance for Q4.
Now, could it get better?
Sure it could get better.
But in the current environment, with the economics of the current environment, and with the fragmentation that's out there around the space at the moment in the short term, if we get the upside we'll get the upside.
But I'd rather focus on what we can get our arms around as being tangible in the short term.
Mark Murphy - Analyst
Thank you, Peter.
Just as a follow-up for Bob, can you tell us in the year ago, the Q3 of '03, how much of Mercator license revenue were you able to recognize after the close of the transaction?
And then how much -- what would that total amount of revenue have been if Mercator had been in there for the full quarter?
Bob McBride - VP & CFO
The full amount for the quarter, if we had taken what we affectionately call the stub period along with the period prior to our acquisition would have been about $4 million of license revenue.
We recognized, I believe, a little over 1 million, maybe 1.5 million.
Close to 2 I guess -- close to 2.
So about half of it.
Mark Murphy - Analyst
Thank you and congratulations on the quarter.
Operator
Mark Verbeck.
Mark Verbeck - Analyst
Citigroup.
You made some comments about the strategic increase in the number of customers that are looking at strategic solutions.
And first I'd like to know what is it that creates a sense of urgency to solve that problem.
I know for kind of the more tactical deployments there's a often some other project driving the demand.
But for these strategic things, what drives the demand?
And secondly, what kind of changes have you made in terms of either the partners, or where you're working with partners, or your sales process to try to address that different type of sale?
Pete Fiore - President & General Manager
I think The Limited Brands is a great example.
Their Company, they had strategic CEO-level objectives about improving the overall efficiency within their Company to get more impact from the merchandising systems towards driving the overall top-line revenue growth of the Company.
So there's a sense of urgency in that there is a fundamental driver for improving the Company's business metrics and overall revenue growth is dependent upon their ability to integrate their data around better view of customers, better view of the suppliers, their partners and so forth.
And we're seeing -- and this is good news because these are projects where there is tangible but really significant ROI associated with the outcome.
So these are projects where the investment being made up front is normally in our full suite, and also normally includes reasonable amount of our professional services organization to help the customer implement the project, along with sometimes our systems integration partners.
And this is -- we're seeing this more and more often as the case rather than I've got a departmental data warehouse or data mart I want to get up and running where sometimes the level of scrutiny is much much higher than an initiative that the CEO or someone high-level line of business executive is determined is a critical initiative for the company.
Mark Verbeck - Analyst
Do you find that they have -- in those types of deals, though, they have more flexibility in terms of when the exact quarter that the transaction closes when you're kind of the dog instead of just the tail?
Pete Fiore - President & General Manager
I think oftentimes those projects have the exact same sense of urgency as a departmental or other kind of project that is also looking to get funded.
But I would submit perhaps maybe these things are viewed more critically, viewed more urgently because of the expected benefit.
Mark Verbeck - Analyst
Thanks a lot.
If I could make comment, I think a lot of us in the audience would appreciate it if you guys could put a cash-flow statement out with your earnings.
I don't know if that's possible.
But along those lines, if you could, can you tell us about any repurchases during the quarter?
Peter Gyenes - Chairman & CEO
We didn't have any repurchases during the quarter.
Mark Verbeck - Analyst
Could you comment on then just the use of cash sequentially?
Bob McBride - VP & CFO
Basically the major outflows were, as we expressed in the press release, the normal legacy expenses that were payments that we have for real estate left from the sale of our database business to IBM, and then the severance and real estate payments that we made from the acquisition of Mercator.
The Mercator payments were about 2.7 and I think IBM payments were either 1 or 1.3.
Mark Verbeck - Analyst
Thank you.
Operator
Brent Williams, KeyBank Capital Markets.
Brent Williams - Analyst
A couple of things. (technical difficulty) PeopleSoft deal, is there any sort of change in those customers that you're talking to in the up-sell of the embedded versions to full license versions?
Or are they just typically doing what they have always done, just kind of hanging out and like that?
Is there any change there?
Pete Fiore - President & General Manager
I'm not sure if I understand the question.
We are seeing -- in addition to the adoption of our DataStage as part of their EPM customer base, we're seeing some uptake in terms of up-sell to the full product suite.
And we expect as more and more customers implement and deploy the EPM version of the product that we will have more and more opportunities to up-sell the entire suite.
The other really important impact here is that this is has opened up a door in terms of the PeopleSoft customers because of the strategic nature of our relationship.
We're finding the PeopleSoft customers that are making investments elsewhere in their organization around data integration are oriented towards doing it with Ascential rather than anybody else, because they view PeopleSoft as an important element of their IP infrastructure, and essentially they want to standardize on a common set of tools that come from a smaller set of more strategic vendor relationships.
So they're basically leveraging the investment in PeopleSoft has made in their own decisions around what data integration infrastructure they go forward with.
Brent Williams - Analyst
Nextly, (technical difficulty) jump in the blended ASP, higher percentage (technical difficulty) where is that coming from?
Is that coming from consulting, labor to get people ramped up?
Is it coming from expanded maintenance programs or what?
Pete Fiore - President & General Manager
Blended ASP -- having a little bit of a problem because the line is breaking up here.
But the increase in ASP is generally driven -- is generally being driven through the professional services component of the transactions.
Our maintenance component is 15 to 18 percent on average of license revenue, and so the remainder is really all about using our people to engage them in best practices in industry-and-application-specific domain expertise to help the customers get up and running and implement it as quickly as possible. (multiple speakers) significant percentage of our overall professional services comes through our systems integration partners, like IBM BCS or Accenture, who subcontract us as part of their engagements.
Brent Williams - Analyst
So then does that imply if you're doing things like best practices or if you're (technical difficulty) vertical market expertise, does that imply that billing rates are going up?
Or is this really a numbers game of how many (technical difficulty)
David Roy - VP of IR
Brent, could you pick up your handset?
Brent Williams - Analyst
The professional services expansion, is this driven by billing rate increases as you're going to more vertical focus, more industry expertise?
Or is this really still just a game of how many people you can field?
Pete Fiore - President & General Manager
2 comments. 1 is when we do get into a kind of engagement where we are being used because we have specific experience -- we have, for example, great experience in doing things like Basel II implementations or more generic risk management applications.
We've got great experience in master data management and SAP instance (ph) consolidations.
In those areas we get higher billing rates.
We get very good billing rates when we are the subcontractor to people like Accenture and BCS because their billing rates are quite high.
So on those gigs we get -- our billing rates are higher than are they are on average.
On the other hand, a lot of the growth is driven by more billable hours of consulting work.
Brent Williams - Analyst
Last question.
Any particular place that you're getting sales reps from a little bit more these days than maybe prior sources in the past?
Pete Fiore - President & General Manager
I'm sorry.
I just missed the last end of your question.
Brent Williams - Analyst
Where are you getting sales reps now from that you weren't hiring from in the past?
Pete Fiore - President & General Manager
Within the last year we've been getting them, I think, from the same kinds of places.
We've been getting them from some of the other enterprise application integration companies.
We've been hiring people also maybe more recently a little more frequently from some of the enterprise application software companies (inaudible) have experience on a large-scale enterprise-level selling.
Brent Williams - Analyst
Okay, thanks.
Operator
(OPERATOR INSTRUCTIONS) Nino Diana (ph), UBS.
Nino Diana - Analyst
Most of my questions have been answered, but in terms of the larger deals, some of the CIOs I peak with have mentioned that the reason that they are signing these large deals is that they're able to negotiate longer-term maintenance contract, obviously at a discount.
Are you seeing within the your large deals, are you seeing these CIOs or CFOs or whatever pushing towards that with you guys?
And what kind of discounting -- is a typical deal is 15 to 18 percent of maintenance, of license revenues, what is a discounted deal?
Peter Gyenes - Chairman & CEO
The environment nowadays I think is not what it was years ago when discounting would drive the size of the deal a lot.
Our view is we want customers to invest in our products and in us based upon identified need, based upon value.
Now of course customers are sensitive to price, and of course that's all part of a sales transaction.
And if it's a large transaction its absolutely part of a conversation.
But in our case what is driving the size of our transactions is the content and the deployment.
It's not about building shelfware.
It's not about trading one financial metric for another.
It's customer need and customer pace of deployment.
Nino Diana - Analyst
So it's fair to say that they're asking for the same -- even though they're asking for the same discounts, you haven't changed your pricing scheme, for example, this year versus last year?
Pete Fiore - President & General Manager
Our maintenance charges is in line with our standards for (indiscernible) specific objective evidence of value.
And that's a set of parameters that we stay consistent with because it is in fact the appropriate metric of associating value with the item of providing support for a product.
Of course remember that under those agreements we provide customers with recurring updates and new revisions of the products that they've deployed.
Nino Diana - Analyst
1 quick question on the PeopleSoft relationship.
Obviously it's been becoming more strategic for you, but within customers already running Informatica from the previous agreement does the recent press release from Informatica signal that it is basically hard to rip out CTL's (ph) technology or that it's not worthwhile for those but more important for you all is new deployment and moving forward with these newer kind of (technical difficulty)
Pete Fiore - President & General Manager
No, and the reason is the following, that when PeopleSoft releases 8.9 they're going to release with that product a whole new metadata capability that's going to provide significant functionality to the 8.9 user.
And getting that benefit from that metadata capability that they are introducing in 8.9 is dependent upon the customer using the Ascential DataStage product for the EPL component of EPM.
So in other words, if you use Informatica at 8.9, A, you don't get the benefit of the metadata council that they are providing; and at 8.9, even if you use Informatica you still must use Ascential for the part of the EPM application that populates the analytic data marts that are essentially what the customer is buying when they buy EPM.
So we expect that existing EPM customers by and large will continue to migrate to our product if they intend on moving to 8.9, which so far we've seen strong evidence that that's when they will do, because there's a lot of significant new functionality in 8.9.
Nino Diana - Analyst
Okay, thanks.
Pete Fiore - President & General Manager
(technical difficulty) supplied information for those that are interested on the conference call that we held with PeopleSoft, with Chris Leon (ph) who is their vice president of product management and strategy and with Brian Wasserman (ph) who is their director of product management for EPM, where you can hear firsthand what their objectives were with the relationship that they announced with Informatica and their strategic intent going forward with Ascential.
David Roy - VP of IR
If anybody wants that call in number, just let me know and I will get that to you.
Operator
John Torrey, Adams Harkness.
John Torrey - Analyst
Just a couple of quick questions for you.
Historically I guess last year it was you had described that roughly 80 percent, 80 to 90 percent of the time your business was coming from traditional BI related projects.
And more recently you have described that that is less of the case.
Can you update that percentage and just give us an idea of where that is today?
Pete Fiore - President & General Manager
Certainly the traditional BI data warehouse market and piece of that that represents our revenues is still a fairly significant piece. 1 thing I would say is we don't kind of view this as a 0-sum gain.
We don't view our revenues moving from data warehousing to other application types.
We still see good growth obviously in enterprise data warehouse applications and in business intelligence.
And that's an opportunity for growth for us.
And in many respects data warehousing and BI shares a lot of similarities with some of these other application areas in that it is increasingly becoming kind of an on-demand or real-time requirement.
The distinction between BI as an analytical capability and BI as kind of operational is also beginning to blur.
So all of that is (indiscernible) all this, but it's still a driver for us.
The added dimension here is that enterprises, as I mentioned, recognize that there's a whole slew of other areas that require data integration as the IT underpinning, if you will.
So we expect that to kind of increase the level of total revenues for the Company.
It is interesting, we took a poll at AscentialWorld that asked our customers what they were doing outside of data warehousing for data integration.
And I think about 45 percent of the customers mentioned that they had a master data management initiative of 1 sort or another in their enterprise.
And that happened to be an area where we have already a significant number of customers.
We've got a product set that by definition master data management requires data profiling and data quality in addition to ETL, if you will, in order to have a successful implementation.
That's a great growth area for the Company.
John Torrey - Analyst
Bob, perhaps for you;
I understand significant levels of investment in sales distribution and development.
But just running through the model for next year, based on your guidance we're not obviously getting back to the 17 to 24 percent type model that you talked about at the start of this year in '05.
Can you give us an idea of when we start to see that leverage in your model?
Is that '06 (multiple speakers) license mix you have described for '06 earlier in this call?
Bob McBride - VP & CFO
Yes, I think it is in '06.
I think it will come from a combination of higher revenues and an increase in the mix of license to service.
John Torrey - Analyst
Thanks very much.
Bob McBride - VP & CFO
Yes, I think will see that in a '06.
Peter Gyenes - Chairman & CEO
Operator, is that it?
Okay.
Thank you all very much.
Thanks a lot for joining us.
I also would like to thank those of you -- there were several of you who did join us at AscentialWorld and participated with us, and we appreciate it very much.
And we look forward to speaking with you next quarter.
Thanks a lot and good evening.
Thomson Editor
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