甲骨文 (ORCL) 2004 Q4 法說會逐字稿

Good morning, my name is Katy and I will be your conference facilitator today.

I would like to welcome everyone to the Retek conference.

All lines have been placed on mute.

After the speakers' remarks there will be a question and answer period.

If you would like to ask a question during this time press star then the number 1 on the keypad.

To withdraw your question press star then the number 2 on the keypad.

Thank you.

I would now like to turn the call over to Al Galgano.

Please go ahead, sir.

Thank you, operator.

I would like to welcome everyone to Retek fourth quarter conference.

I'm Al Galgano.

With me in the room today are Marty Leestma and Gregory Effertz.

Please be advised today's call is being taped and will be available for replay for a period of one week.

The replay can be accessed in the U.S. and Canada by dialing 1-800-642-1687.

Please use the number 3308982.

Also this call is being webcasted and will be archived on the Investor Relations page of our website at www.Retek.com.

Now on today's call, after a brief presentation by management, we will open it up to your questions.

But before we begin, please be advised that statements made during the course of this conference call that are not historical are forward-looking statements in nature including statements regarding the company's future growth and financial results, as well as any statement containing the words "believes", "anticipates", "expects" and similar such words.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results to differ materially from these statements.

For a detailed discussion of these risk factors and uncertainties, please see the company's filings with the SEC.

With that I would like to hand the call over to Marty Leestma.

Marty?

Thanks, Al, and good morning, everyone.

I'll make a few remarks on the fourth quarter results and then Greg will take you through financials in more detail before I come back with some commentary on the market and our 2005 outlook.

The bottom line is that I'm very pleased by our financial results for the fourth quarter.

This was a solid quarter for Retek.

This quarter we continued to demonstrate the leverage of our model, as well as ability to generate record levels of performance in what continues to be a challenging environment for software sales.

During the quarter we reported $0.07 of operational earnings per share.

This exceeded the high end of our previous guidance and marks our third highest quarter since becoming a public company in 1999.

We produced an excess of $16 million of free cash flow during the quarter, resulting in cash balances of nearly $103 million and we booked nearly $16 million of growth contract revenue.

When you couple this performance with the strength of our balance sheet, the power of our new technology platform, and an organizational structure that supports a more effective go to market strategy, I believe it points to a model that can sustain solid levels of profitability and is highly envied in the market.

From a technology standpoint, we are happy with the traction that we are seeing from version 11 of our application suite, which we call Retek Xi.

As you may remember, the three original development partners for this product were Gap, Galeries Lafayette in France, and Tesco in the UK.

Since then, other new clients that are using components of Xi include Best Buy, Office Depot, Argos and William Sonoma.

Most recently, we have signed new Xi agreements with Jean-Louis Partnership -- the largest department store chain in the UK -- hub distributors and Matahari, an Indonesian retailer.

Acceptability for this application suite is growing and we would expect it to accelerate over the coming quarters.

With our new application suite and the alignment of our organization into a solution unit structure, we believe we are well positioned with the right go to market strategy and the right product foot print to be successful.

We are already seeing solid traction from the solution units in terms of size and quality of the respective sales pipelines.

For example, our store and multi-channel retailing solution set has been in place for less than a year and has seen a 4 fold increase in its pipeline over that period.

The unit has closed 3 large deals, the most recent being a multimillion dollar transaction with Best Buy in which they purchased our point of sale offering.

In late October, we announced the Armani group, a world wide industry leader in the luxury fashion sector with over 304 stores, had chosen to expand its relationship with Retek.

The Armani group is currently engaged in a global invitation of the Retek point of sales solution.

During the fourth quarter we signed deals with five new clients.

We are happy to announce that this performance exceeds the combination of the prior three quarters.

Four of the deals we signed during the quarter had a contract value that is greater than $1 million.

We are excited by this performance and are hopeful that we will continue to see this type of traction as we move forward into 2005.

And a final note, I'd like to say how pleased and excited we are to have the technology and assets of Syncra Systems to the Retek application suite.

In order to extend our supply chain management offering, in November Retek acquired the assets and liabilities of Syncra.

Syncra is the leading best of breed provider of CPSR technology which allows retailers to work with suppliers on promotion planning, consumer demand forecasting and inventory management.

The acquisition of Syncra extends the reach of Retek's suite of supply chain solutions, allowing to retailers to incorporate the insights of their suppliers to create better plans and forecasts and more effectively respond to changing conditions.

Retek has packaged Syncra Solution into three solutions which are available immediately.

They are Retek Syncra Exchange which collects, transforms, manages and analyzes supply chain and demand chain data, Retek Promotion Planning which manages the life cycle of promotion, store openings and new product introductions, and Retek Co-Managed Inventory, a highly flexible web based planning engine that allows retailers and manufacturers to work together to improve order, planning and delivery.

In addition, Syncra Systems brings a strong relationship with the world wide retail exchange.

Retek is committed to continuing this support and relationship and offer a hosted solution based Retek Syncra technology.

Retek promotion planning is currently powering the WWRE's collaborative planner solution.

We look forward to the leverage that this product set will give us with both current and prospective clients.

With that I'd like to turn it over to Greg for a review of the financials.

Thanks, Marty and good morning, everyone.

Let me take a moment and echo Greg sentiments regarding our financial results.

For the fourth quarter, our non-GAAP earnings per share totaled $0.07.

Along with this marking our ninth quarter of sequential improvement, we have also recognized positive earnings in each of the quarters of 2004.

Our operating income, excluding non-cash and nonoperating charges, increased by more than $22 million on a year-over-over basis.

On a GAAP basis, our EPS totalled $0.08 for the quarter.

This is the highest since becoming a public company.

Revenue totaled $39.8 million in the fourth quarter, composed of $21.7 million of license and maintenance, and services of $18.1 million.

License and maintenance revenue breaks down as follows, maintenance of $11 million, funded development of $1.5 million and software was the balance.

While license and maintenance revenues was down sequentially, the fourth quarter represents the second consecutive quarter that signed contract values exceeded recognized license revenue, thus resulting in an increase of backlog for the quarter of over $5 million.

We anticipate that we have seen the low end of revenue levels in the fourth quarter and we expect improvements throughout 2005.

With improved license revenue visibility, we are anticipating total revenues to be in the range of $41 to $44 million for the first quarter with software license revenues in the $23 to $25 million range with an expected licensed revenue to be $3 to $5 million.

For the quarter, gross margin levels held up well, exceeding 50 percent for the third consecutive quarter.

Our services business continues to record strong results by leveraging our internal resources, displacing third-party contractors and maintaining high utilization rates.

Also, license and maintenance gross margins continue to improve sequentially, driven by strong margin performance in maintenance and funded development revenues.

On an absolute basis, operating expenses declined slightly in the fourth quarter with an increase in G&A cost related to Sarbanes-Oxley compliance and year end accrual adjustments being offset by declines in research and development cost.

We anticipate sales and marketing expense increases over the next several quarters as we augment our team within the go to market solution unit, as well as launch the marketing programs in the near term.

On a reported revenue basis, slightly over 60 percent came from North America with the balance to international.

From a customer perspective, over 50 percent of licensed revenue was driven by a strategic customer base, 45 from tactical customers and other customers comprise less than 5 percent for the quarter.

Head count during the quarter declined to 532 at the end from 551 as of September 30th.

As we have previously discussed on other calls, these declines are the result of our realignment into our organization into solution unit structure.

As we transition through this process, we identified areas of redundancy as well as areas that required headcount addition in order to augment the team.

During the quarter, the number of quota carrying sales reps increased to 34 from 32 at the end of the prior quarter.

From a cash flow and balance sheet perspective we had an exceptional quarter.

During the quarter, we generated more than $16 million of cash flow to close out our second consecutive year of positive operating cash.

As of December 31st, cash and investments totalled nearly $103 million, a $14 million increase from the third quarter and for the first time our cash balances exceeded $100 million since becoming a public company.

This performance is particularly impressive since it included a cash outlay of nearly $5 million for the purchase of Syncra during the quarter.

Deferred revenue increased nearly $4 million to $42 million as of the end of the fourth quarter.

To repeat, our guidance for the first quarter of 2005, total revenue of $41 to $44 million, based on that top line performance, services margins at or slightly less than 30 percent and an increased spend in sales and marketing, we are expecting operational non-GAAP EPS to be in the 4 to 6 range for the quarter.

With that I'd like to turn it back over to Marty for some additional comments.

Thanks, Greg.

Before we get to the question and answer section of this call, let me take a few minutes to give you my perspective on the environment as we move into 2005.

In general, my management team and I are gaining confidence from what we are seeing in the marketplace.

We believe the signs are pointing towards an environment in which retailers will increase their IT spend.

We maintain our philosophy of cautious optimism and feel that the environment will modestly improve each quarter in 2005.

While this holiday season was not the across-the-board homerun that the marketplace was anticipating, it did show pockets of strength good enough in the end, when what turned out to be a solid 2004 for many of the retailers that we work with.

We believe that as retailers step off into 2005 their sentiments regarding IT investment will be driven by the confidence that they gained from their performance last year and their desire to drive similar levels of year-over-over growth.

While many of the industry analysts have said that IT spending has hit a budget inflection point, we prefer to take a more cautious approach in predicting the magnitude of this inflection.

Though I do not endorse the exact numbers that some of the analysts are putting out there, I do believe directional the thesis is correct and increased spending will result from a significant pent up demand after what has been a long period of under investment in IT.

For a great many retailers -- to a great extent many retailers have not been investing in technology since Y2K in the tech boom.

Because levels did improve last year and year-over-year growth was less of an issue, there was less emphasis on technology investment.

But the landscape is changing and we believe that there are several drivers of the new demand for IT investment.

Certainly, excess retail capacity, replacement cycles in stores and the supply chain, as well as the emergence of science and intelligence in retail decisions are key drivers of the growth cycle that we are entering.

But let's not discount what we refer to as the "Wal-Mart factor" and the pressure that they put on retailers to change business practices and set new standards.

Also evident is the emergence of disruptive technologies and standards.

RFID is a case in point.

While we believe that many were too optimistic about the amount of time and effort it would take to implement RFID technologies, this is a standard that we believe will change the landscape over the next 3 to 5 years.

Our industry thesis that retailers will start to increase their spending on packaged retail applications in 2005 and beyond was very evident last week at the NRF conference, with a sharp increase in attendees and exhibitors from the previous years, as well as a significant increase in private meetings with customers and prospects.

From what I saw, I believe that Retek had the largest sales presence and greatest number of new products at the conference.

In many respects, last week's conference was a very successful re-coming out for our Xi best of rate enterprise products along with many of the existing critical parts of the solution set.

We are hopeful that the interest we saw will translate into additional revenues for us over time.

But where do we believe the opportunities are in the near term?

If last week's NRF conference in excellent New York City was any indication, the store was one of the big focuses on the show floor.

With the recent introduction of Retek store and multichannel solutions, we believe that our more effective go to market strategy and the power of our product foot print align well with the demand that we are seeing from the marketplace.

We believe that the point of sales and customer management applications will continue to offer us growth opportunities.

Other products that we believe will offer expanded opportunities and will be accretive in fiscal 2005 revenues and earnings, are analytical solutions, such as mark down optimization, assortment planning and space optimization.

Until now, this sector has been mostly served by small, private companies that have lacked the scale to be effective in this market.

As a result of our solid technology base and the leverage of our business model, we believe this space opens new opportunities for Retek.

The growth in our pipeline over the last few quarters supports this thesis.

Supply chain and warehouse management will also offer opportunities in 2005 as retailers look to streamline operations and focus on expense management.

We believe that the key areas of focus will be advanced inventory planning, labor and warehouse management, as well as inventory optimization.

A recent acquisition of Syncra rounds out our offerings in CPFR and gives us leverage with both new and existing clients.

On a final note, let me reiterate our growing confidence from the opportunities that we see in our business as we step off into 2005.

We believe that we have taken the right steps to bring a fully integrated quality set of products to the market and deliver on what others in the industry are still only talking about.

Internally, we have created a business model that has the scale and leverage to be successful in any type of business environment and we have organized a team of associates that can assure success.

Externally, we believe there are several drivers that stimulate demand for retail package software applications and increase IT spend levels.

Recently, an AMR analyst said in a research alert that Retek Xi changes the game.

While this is true, I believe that we have changed the game in many more respects as we continue to reset the playing field and set the new standards in the industry.

I appreciate you all listening and now I think we are ready to open up for questions.

Operator, before we open up to questions I would like to remind everybody to please limit their questions to two parts, one question and a follow-up and then please go back into queue in the interest of making sure that everybody gets a chance to ask their questions.

So again limit it to only two parts to the question.

Operator, we're now ready to take questions.

[ Operator Instructions ] Your first question from Robin Roberts.

Hi, Marty.

You talk about the demand in the marketplace has been picking up.

Can you give us some quantity -- quantitative measures in terms of how does your pipeline look compared to same quarter, same time last year and also sequentially in terms of size and/or the stages of the deal in the pipeline?

I think I mentioned that in my comments, Robin.

If I compare it to a year ago, even the last two quarters, we are seeing significant increase in the pipeline.

The number of folks that we get that are inquiring and want to come in and visit us is also growing as well.

I'd say 2 to 3 times of where we were a year ago at this time.

Okay.

And also along those lines you started to say that the market has been picking up in September quarter and also second half of '04 you released Xi.

So when you put the two factors together plus your average selling cycle is about 9 to 12 months, does that mean that in looking forward starting in the June quarter we're really going to see acceleration in your revenue and also contract bookings?

I don't know that I would agree that our cycles, there is an average of 9 to12.

It really depends on what products we are seeing.

In some of the in-store applications we are seeing cycles that are faster than that.

So the real challenge is going to be what are retailers going to do in terms of spend.

A year ago people thought we were overly conservative when a lot of the market was saying that 2004 was the year that tech was really going to take off.

We are seeing the same cautiousness from all our customers and prospects that we saw last year.

They certainly have money that they're budgeting but it's not been approved to spend.

So we're going to have to monitor that over time and see if they start unleashing some of these funds to spend over the course of the year.

So we do believe that it's going to increase.

I just can't nail down exactly when and in what quarter we think people are going to get enough confidence to do more things and spend more money.

Thank you.

Next question from Phil Allings.

Hi.

Phillip here at Bear Stearns.

Just wanted to get a better sense on expectations for the gross margins going forward you had.

An improvement in the gross margin line particularly with respect to software licenses.

How should we be modeling that going forward?

As I talked about we saw some good improvement around maintenance, as well as the funded.

On a modeling basis we've kind of always given guidance in something to the low 70's.

So 70, 71, maybe next quarter, slightly increasing going forward.

And then looking at services margins again, around 30.

So you saw an increase in your deferred revenue this quarter.

In the past you've sort of given a sense of where you thought that was headed going forward.

What can you tell us at this point as far as deferred going forward?

Again, what I would anticipate around deferred is we, something around $40 million, somewhere in the range of the high 30s to the low 40s.

I think we're within that range where we'd expect it to be.

Bounce around $4 to $5 million, around that number.

So you're not expecting it to be up in the next couple of quarters?

No.

No.

Again it's driven by cash collections ahead of revenues.

So I would anticipate it again being somewhere right around $40 million.

All right.

Do you have any sense at this point where head count may end up at the end of the year?

Hey, Phil?

Can I ask you to please just go back into queue?

That was the second part.

We'd like to make sure we get more people on the line.

Fair enough.

Thanks.

Thanks.

Your next question comes from Andre [Glucal].

Yes.

Thank you.

Two questions.

Greg, was the focus being for '05 on point solutions, do you anticipate the average duration of average time over which you work as a contracter to go down?

We're certainly not seeing it in the near term, talking about 3 and 4 Q. We continue to see probably on average the items that are recognized related to the spread around 5 quarters.

Okay.

And then, secondly, now that the Xi is out, do you expect the funded R&D will keep growing as a percent of rating and as a percentage of booking?

Again, on that it has more to do with the relation of deals that were signed in nearing the end of 2004 and 3 and 4Q and the reason we're expecting a pickup in $3 to $5 million next quarter is related to deals signed earlier in the year.

Most of the business signing 2005, that would be queued up and delivered late in '05 into '06.

Operator, next question.

Your next question comes from Peter Coleman.

Mr. Coleman, your line is now open.

Thanks, guys.

Marty, just sort of following up on the gross margin question, not necessarily talking about the numbers per se, but how much of that can you contribute to your ability to sort of walk away or manage some of the projects in the past that might have not been as profitable and sort of what are you seeing generally speaking in the marketplace from a pricing perspective?

Well, Peter, I think I made it pretty public when I came on board a couple years ago that I believe that Retek had gotten into some areas that were really outside the core confidence.

We were taking on some of the bigger integration engagements and we were primed.

Where we are right now is that, if it's a big deal we have strategic partners we work with.

So I believe we've got this aligned into the space where we should be.

Our involvement is around product configuration, product expertise, deep retail deals, those kind of things.

I'm comfortable with where we are at.

What I'm seeing in the market is that people are continuing to break up into smaller chunks.

Where 2 or 3 years ago they would swallow a $25 or $30 million project.

Right now they are breaking up into buying cycles.

It's more of a $5 to $10 million mentality.

That doesn't mean they're not going to add multiple phases to this that eventually get there to the $25 or $30 million number.

It's just that they're putting in a piece of the time and looking for a, kind of a 6 to 12 month pay back and I would anticipate that discipline to continue to be there for quite some time.

Okay.

And then just a quick follow-up.

I don't remember if you mentioned on the call anything about your efforts into the mid-market and how that may have looked in the quarter.

The mid-market was solid and we continue to push into that.

We are not making a change there.

That's a long term and as a team that's focused and dedicated to going after it, we believe it's good business for us.

We've had some very successful announcements with engagements like the Gymboree.

So that continues to be part of our focus and will be moving forward.

Okay.

Thanks.

Your next question comes from Brad Whitt.

Good morning.

I guess getting back to Andre's question a little bit.

Marty, you mentioned the three areas of near term opportunity and those sound mostly like point solutions.

Is it correct to assume you'll be recognizing more of what you book during the quarter?

Over the next couple quarters?

It really depends on the size of the overhead and what kind of stuff that we're being asked to do in addition to that.

So you know if it's a pure stand alone where they take our stuff and run it off the shelf, we would recognize in the quarter there are some, I think, some sensitivities now with the Sarbanes-Oxley stuff that are more conservative when auditors look at what we're doing.

If we continue to kind of do significant engagements even though it's around a point solution, we may also have to spread it.

I don't think there's an assumption that says because we're just selling a point of sale deal or a supply chain planning deal, that we're going to take it as point.

It really comes down to what we're doing around it, what kind of enhancements we are doing and customizations we're doing and that's going to dictate whether we spread it or take it as a point.

Okay.

And then another question, I know you said your book to bill was positive the last two quarters of this year.

But year-over-year it looks like your bookings are down about 45 percent.

I'm just curious do you have, what is the backlog going into this year look like compared to going in last year and since revenue did decline or software revenue did decline sequentially every quarter in '04, I'm curious as to how do we get to a positive increase in '05 quarter over quarter?

We talked about that.

We anticipated, as we had into the end of the year that based upon contract value and recognizing those revenues that we would kind of hit the bottom trough in 4Q.

We believe that's where we are.

Regarding the year-over-year comparison, on a year-over-year comparison actuals, we have backlogged about $8 million.

I'm sorry.

You're off about $8 million?

About $8 million from where we ended up.

So $8 million less in the backlog as you enter the year?

From a year ago?

Correct.

And then we talked about the trend in the recent quarters that obviously have all been positive to that.

Okay.

Thank you.

Your next question comes from Mark Verbeck.

Thank you.

Can you give us a little more color in terms of the specific products that you are selling?

Which versions -- are people all going with Xi at this point or previous -- are some people still going with the previous version?

You mentioned Best Buy buy POS.

What other kinds of applications are we seeing selling in the quarter?

We still continue to sell big portions of our suite.

We still had sales in merch.

If you're asking me what appears to be hotter and I base that on pipeline, I would say definitely the in-store stuff.

So point of sale, absolutely.

We believe we're on the front end of a replacement cycle there.

Most of the people that are out in the retail market, their solutions are 15-20 years old.

They're generally old IBM or NCR application.

So we look for traction continued there.

For folks that have kind of made a foundation part of the business investments over the last couple years, things like inventory management and PO management, those guys are more interested in the optimization suite.

So we get into that markdown pricing, shelf optimization, some of the demand forecasting.

That's the next thing on their agenda.

So I'd say those would be areas that we see growing pipeline.

Supply chain and merch kind of remains steady and that stuff we predicted a year ago, that demand was going to be there but was going to be steady.

We didn't think we would see big percent increase and the demand going up.

And so far, that's pretty much played out.

Okay.

And then specifically, what are you seeing in terms of RFID?

You know, we see a lot more pilots.

We're involved in some of the pilots.

I think the hype that was released 18 to 24 months ago, people have gotten beyond that and the reality has set in.

RFID is a great technology but still a ways off from people really using it in driving forward.

Frankly, because the infrastructure requirements to put in RFID are huge.

So if we have suppliers and retailers that want to go on a pilot, it's pretty easy if we pick off a few thousand items and then we can manually do things as needed for RFID.

If I take that into situations where I'm blowing it out from 100,000 to millions of SKUs, you've got to think through systems where every place they have a UPC number they now have to put an EPC.

And we're talking for big clients thousands of programs in their current legacy that are going to have to be adjusted.

That's still way off.

We are coming out with some offerings over the course of the next 12 to18 months that will ease burden and try help with the transition to the foundation.

But that's still the big chore.

The technology is great.

The price is coming down.

It's going to have to come down a little bit faster and quicker before people really take off and can afford this to do across all their SKUs.

Okay.

Great.

Thanks a lot.

Your next question comes from Catriona Fallon.

Ms. Fallon, your line is now open.

Excuse me about that.

Just had a quick clarification question on the funded R&D?

Did you say that for the March quarter you are expecting that to be between $3-5 million?

Correct.

Okay.

And just a quick follow-up and then I have a question on the competition.

Percent of the deferred revenue that is product revenue.

So the percent of the $42 million in total deferred that actually comes out in product revenue?

Approximately 40 plus percent.

Okay.

Great.

And then my last question just around what you're seeing competitively.

So I know on The Limited deal that SAP and Manugistics won, and I think JDA had a piece in there as well.

It was my understanding that you were also talking to The Limited and I'm wondering what was it about that deal that either made you walk away or you've seen price competition and then specifically on SAP, how are you seeing them go after the retail space and how are you fighting that off and do the point solutions help you there?

I'll be glad to address that.

Everybody knows that we don't comment on particular customers, clients, or prospects.

So you have to ask The Limited.

I'm not aware of any announcements they made there.

Our view on the marketplace, it continues to be very aggressive out there.

Continues to be a buyer's market.

We're seeing some shake out out there.

The little guys are finding it hard to make money and continuing to take market shares.

So I think you'll see consolidation there.

On SAP in general, they continue to say they're going to focus on retail.

This is nothing new.

This is something that we've been -- had a competitive landscape for the last 8 or 9 years.

Those kind of things are going to continue to be out there.

I would suspect the market will continue to shake out.

You'll see more of the little guys falling by the way side.

There will be more consolidation as people find ways to leverage their cost base across greater revenue.

So I don't expect that to change.

I expect it to kind of, that's what we're seeing over the course of the next 24 to 36 months.

Great.

Thank you.

Your next question from Alan Weinfeld.

Hi, guys.

Can you talk a little bit about the optimization area.

I heard something about optimization time.

That's a business where seniors competitors do a good deal of business with older solutions.

What kind of opportunities do you see there towards longer term?

Sure.

Like I mentioned earlier, if you've made some investments where you're already replacing a lot of what we call some of the foundation merchandising systems, the optimization suite is where you go next.

The reason we're excited about it, Alan, is the fact that we bring integration there.

So if we go into things like assortment optimization or markdown optimization, we feed that back into the our pricing solutions and PO solutions and take advantage of what other people, of what customers have already installed.

When the smaller guys come in, there's certainly some good players that have some good solutions out there but tend to focus just on an area, markdown optimization as an example.

When you really look at improving the bottom lines of a retailer, it's not just about markdowns and many people get caught up in that.

Our approach is broader based than that.

We actually start with pricing optimization and try to remind people although there's good money to be made in markdowns, the first goal is to get the number markdowns down before you start figuring out how to not mark it down as much.

Things like price, promo and markdown have got to be taken together along with inventory optimization to make sure we have not so much product on the shelve that markdowns is a huge deal.

So we are actually bringing more of an integrated suite and then feeding that back to purchasing so that we don't overbuy.

We really believe that's the edge that we have over these other guys that just have isolated solution sets that they are selling as one off.

Question for Greg.

There's 5 percent solution this quarter and I'm just wondering what solutions could become such a large number that it's really going to hurt recognized revenues -- lower recognized revenues in '05.

Can you talk to what percentage you think point solutions get up to by the end of '05 and how that impacts the revenue recognition?

Thanks, Allen.

First let me clarify.

When I talked about 5 percent coming from our other customer base, that's not strategic or tactical customers.

That other, when I talk 5 percent represents customers that are not -- I'll call nontraditional retail tech customers.

On a point solutions basis for the quarter, I think the number we took was somewhere between 10 and 15 percent of total -- of licensed revenues in the quarter and we were given guidance that said we anticipate the number moving around and being anywhere between 10 and 20 percent.

We're right in the middle of that range again.

We would anticipate a similar type number going forward.

Thank you very much.

Thanks.

Your next question comes from Edward [Hamilglan].

Hi, Marty.

Just had a question that relates more the relative proportion now that you're seeing selling into new customers versus your existing customer base.

Where are you see more activity at and what would be your desired percentage?

Sure.

There's a huge opportunity for us in our current customer base.

Even you hear great talk about strategic customers which means they are using a bigger part of our foot print.

We have 29 sellable solutions.

The average customer has 8.

So we certainly see a big opportunity and we're going to continue to harvest that.

It's my belief though that we've got to continue to add new customers to the pipeline or eventually not having new customers is going to catch up to you.

Our internal goal is to be at at least 50 percent to 60 percent new customers compared to old customers.

Now the last quarters we didn't meet that.

I think that was the sign of some of the toughness out there in the industry, which is why we are so happy about what we're able to post this quarter.

But at a minimum what we are really shooting for is a 50/50 mix.

Do you feel I guess the last few quarters or maybe the last year you've seen kind of like less in the way of the larger core merchandising systems.

Do you think that's -- you need to see an environment that's good for those to start getting more penetration or do you think you're going to get more penetration and new customers from just the point solutions?

I don't think we need merch to take off to get new customers, if that's what you're asking.

In fact, it's the other way.

As we re-jiggered the organization and went after more of the solution unit approach, specifically going after new customers was one of the main drivers of this.

Because I felt there were lots of opportunity that weren't tied to merch that we weren't getting invited to for a couple of reasons.

One we weren't getting out there and telling people about what we had in the strength of our offering here.

So I would actually say that focusing on some of the other non-merch areas should hopefully yield more customers for us than if we were just focusing on merch as the primary selling target and then if things like point of sale or fell off of it, going and seeing if we could get this business.

Today we have teams that are motivated and quoted based on selling their solution units produces.

So for me, that should drive up our opportunity to bring on more new customers.

Thanks.

Your next question comes from Richard Williams.

Hi.

Good quarter.

I wonder if you could give us sequential currencies impact on top line and bottom line?

No, I don't have that data.

Hey, Rich?

I don't have that in front of me.

We'll have to get back to you off line on that.

Okay.

And secondly, any color on how some of the smaller competitors, potential competitors are doing now?

We could probably spend all day on it.

Let me just comment in general on a few big ones that over the last 18 months people have asked me about.

The smaller guys that we refer to as kind of the ankle biters, some of them are kind of doing okay, others are not.

Certainly a year ago at this time people were pointing out what they thought with the bonds and their announcement around Staples is going to be a competitor to our more traditional merchandise offerings.

My understand is that they are struggling quite a bit and they've had layoffs.

Guys like ProfitLogics and Manugistics.

Manu is struggling.

Guys like Itu are struggling.

ProfitLogics seems to be doing just okay.

I don't think any of them are seeing some of the headlines and boom!

They were a year ago when they were focused on just gobbling up market share and were doing it at the expense of cost and profitability -- or price and profitability.

These guys matured more.

We knew it was just a matter of time before they had to start making money and we think here in the last 3 quarters that reality set home and it's a much different landscape for those guys.

So they have challenging times moving forward.

Just as the data points relate to NRF.

Anything else besides NRF pointing to a trough at the current quarter?

A trough?

Yeah.

Just NRF seemed to kind of brighten people's spirits.

I was just curious if there's anything else that would corroborate that?

The -- where people ended up in the holiday times was after a good Thanksgiving weekend things really fell off hard and people started to panic.

We felt in the last couple weeks of the holiday season it did come back fairly strong and we ended up with a pretty good holiday season.

So that's another thing we bank it on.

What's the attitude of the business people and the executives moving forward and they're generally upbeat.

They now have a challenge on their hands, obviously.

And some of the reasons for our opinions moving forward is that in 2004 they were comping up against very weak 2003 and 2002.

Because what we believe 2004 will end up being a very solid year for most people.

They're going to be under pressure to again grow their businesses and it's going to be comping up against a pretty good 2004.

So to some extent people get to kind of take a breather in 2004 and 2005 the pressure is going to be back on on each of these teams on what they're going to do to grow their business.

Thanks a lot.

Good luck!

Again, to ask a question please press star then the number 1 on the telephone keypad.

Your next question comes from Jim Yin.

Yes.

Thanks.

Do you think your booking number for the last quarter was at any reflection of a budget flux at your end?

If it is, do you expect this quarter booking number to be sequentially increase or decreasing as of last quarter?

Thank you.

To answer the first part of the question, I guess the question is more on seasonality and we traditionally have not seen seasonality.

That fourth quarter for us is traditionally higher than any other quarter.

Regarding the forward-looking on contract value, we don't provide that type of guidance going forward.

Operator, we'd like just one more question, okay?

Your next question is a follow-up question from Robin Roberts.

Hi.

When you look at your pipeline and a lot of different solutions unit, which solution unit do you think will be the major contributor of license or contract booking growth going forward and will you quantify that?

I think earlier I talked about where my motion comes from and that's based on pipeline.

So the in-store areas to our point of sale and customer or management areas, we expect will continue to grow.

And then the planning and optimization solution unit again because of what I talked about, the need of people to really start figuring out not just what they'll mark down, how they're going to mark it down, how they're going to originally price it.

So those two would be the ones where we would expect to see the bigger increase in pipeline and deals.

Right.

Marty said over all pipelines are 2 to 3 times bigger now than same time last year.

So does that mean POS and demand planning, their pipelines are actually, let's say 4 to 6 times bigger than last year?

You can't throw those comparisons.

They had stronger growth and we'll leave it at that.

Okay.

That's it.

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