新思科技 (SNPS) 2004 Q2 法說會逐字稿

Good day everyone and welcome to the Nassda Corporation second quarter 2004 earnings conference call.

Today's call is being recorded.

For opening remarks and introductions, I would like to turn the call over to Ms. Tammy Liu, Chief Financial Officer for Nassda Corporation.

Please go ahead ma'am.

Thank you, Sherry.

Good afternoon ladies and gentlemen.

Welcome to our earnings conference call for the quarter ended March 31, 2004, which was also our second quarter of fiscal 2004.

Before we start reviewing the results, I would like to give the following Safe Harbor regarding forward-looking statements.

During the course of this conference call, we will make forward-looking statements.

Those forward-looking statements are subject to risks and uncertainties that may cause actual results to be differ materially.

These forward-looking statements include, but are not limited to, statements with the words like expect and anticipate target to, plan to, continue to, may, potential, will, or the negative of those terms.

For discussion of the relevant risks, please refer to the risk factors section of our most recent SEC filing, our annual report on Form 10-K for the fiscal year ended September 30, 2003, and our quarterly report on Form 10-Q for the quarter ended December 31, 2003.

I will start by reviewing the financial results for the quarter.

Then Sang Wang, our Chief Executive Officer will give you his views of the general economic environment, the status of our R&D efforts and business outlook.

Through today's discussions, we will refer to the quarter ended March 31, 2004 as Q2, and December 31, 2003 as Q1, and so on.

Even though there seems to have been gradual improvements in the EDA industry, we have not experienced material changes in customer's purchasing behavior in calendar 2004 so far.

Customers remain cautious in their spending and negotiate intensely for discounts and special payment terms; often using competitor's aggressive pricing and bundling as leverage.

We continue to be very flexible in both licensing structure and payment terms and ASPs have been decreasing.

Even though the environment has been challenging, we have remained focused to deliver both revenue and earnings results meeting market expectations.

Many have predicted a better economy in the second half of calendar 2004, and we certainly hope we will be able to confirm that a quarter from now.

Let's start by providing you with analysis of our bookings in Q2 by geographic location.

Domestic was 48% of our total bookings, Europe 11%, Japan 25%, rest of Asia 16%.

Domestically we continued to experience better results in west, though weaker in east.

Internationally, as we all know, March was the fiscal year end for Japan and seasonally a good booking quarter for the territory.

As a result, Japan accounted for 25% of our overall bookings.

Rest of Asia also did well.

Europe, however, was weaker for the quarter.

By licensing type and as percent of total bookings for Q2, Perpetual accounted for 30% of our total bookings, TBL was 35%, Maintenance 35%.

The percentage of TBL was substantially lower than we had expected, especially compared to Q1 which was our highest level.

There were several reasons.

First, we had received several large orders, particularly from U.S. and Asia for Perpetual licenses.

Secondly, seasonally we have less TBL renewals in March as compared to June, September and December quarters.

Thirdly, both U.S. west and Japan came in strong with maintenance renewals.

We believe the Q2 percentages were an anomaly, primarily for those reasons.

For the first half of fiscal 2004, Perpetual was 26% of our total bookings, TBL was 48%, and Maintenance was 26%.

Going forward, with large expected TBL renewals in Q3 we expect TBL as a percent of total bookings to be 50% to 70% for the second half of fiscal 2004.

Revenue for Q2 was $9.8 million, an 11% increase from the same quarter a year ago and a slight increase from Q1; meeting the low end of our guidance.

With 61% TBL bookings in Q1, TBL revenue in Q2 increased by 36%; and, as a percent of total revenue, increased to 56%.

Our highest level.

Maintenance revenue remains relative flat, both in absolute dollars and as of percent of total revenue.

For the first half of fiscal 2004, 77% of our total revenue was derived from renewable business, meaning TBL and maintenance.

Qualcomm, our largest customer, accounted for 10.3% of total revenue.

There was no other end user customers that accounted for more than 10% of our total revenue in Q2 FY 04, or the same quarter a year ago.

With a large TBL install base, we expect TBL revenue, as a percent of total revenue, to be 50% to 60% of our total revenue for the second half of fiscal 2004.

Geographically the distribution of revenue was as follows.

Domestic was 60%, Europe 12%, Japan 20%, rest of Asia 8%.

These percentages are consistent with our historical trends.

Costs of goods sold includes third party OEM royalties and allocated AE support costs and it remained consistent with the prior quarters at approximately 4.5% of total revenue.

As March 31, 2004, our total head count was 108, an increase of three from previous quarter.

Overall operating expenses decreased by $195,000 primarily due to decreased legal fees of approximately $150 K. R&D expenses -- R&D had a total head count of 48 at the end of the quarter.

Expenses stayed flat, boasting absolute dollars and a percent of total revenue which was 21%.

Sales and marketing expenses also stayed flat as higher trade show related expenses were offset by lower distributed commissions.

As a percent of total revenue, sales and marketing expenses remain at 27%.

Head count was 47 at the end of the quarter.

G&A expenses decreased by $150,000 primarily due to lower litigation legal costs.

As a percent of total revenue, G&A expenses decreased to 37% in Q2 versus 39% in Q1.

Litigation legal costs for second quarter was $2.8 million, 28% of total revenue.

Head count was 13 as of March 31.

GAAP net income has been improving steadily and was 8% of total revenue or 3 cents per diluted share, meeting external guidance with an effective tax rate of 30%.

Now the summary of balance sheet.

Cash and short term investment again increased in Q2 by $1.1 million, primarily from net income and increasing accounts payable.

Increases in prepaid expenses and decreases in deferred revenue were offset by increasing AP and accrued DSPP accounts.

DSO remained at 19 days as majority of the revenue is derived from backlog including deferred TBL and Maintenance.

Prepaid expenses increased primarily to the payment of D&O insurance for 2004.

Accounts payable increase in Q2 by approximately $600,000 primarily due to unpaid legal invoices.

Deferred revenue has two parts.

Long-term and short-term and has decreased by $1.4 million primarily in deferred TBL and backlog; and back to the September 30th, 2003 level.

I would like to reiterate that we expect deferred revenue to fluctuate from quarter to quarter depending on the timing of the invoicing of TBL and Maintenance and their respective payment terms.

That concludes my comments about last quarter results.

With respect to Sang's comments regarding our outlook, I would like to reiterate my earlier Safe Harbor regarding our forward-looking statements about uncertainties we face and about our ability to perform as we have anticipated.

We also want to communicate our policy regarding forecasts.

In connection with the SEC rules on corporate disclosure, Reg FD, we have established our procedures for publishing and updating our business outlook.

In addition to today's discussions, we expect that during the second -- during the third quarter, our corporate representatives will meet or discuss privately with investors, the media, investment analysts and others.

In these discussions we may reiterate the business outlook, discussed publicly during our quarterly earnings conference call; but we do not intend to give material guidance beyond that discussed in prior public statements.

Now I will turn the call over to Sang.

Thank you, Tammy.

Good afternoon ladies and gentlemen.

Thank you very much for joining our second quarter fiscal '04 earnings conference call.

We are pleased that with a fine team effort we met Q2 quarterly revenue and earning expectations.

The reasons we feel encouraged about the Q2 results are as follows: You might be aware that the second quarter has been traditionally the most challenging quarter in our fiscal year.

And we are reserved that the semiconductor business environment was still fluctuating, with occasional flashes of hope; but generally without an industrywide steady growth momentum during the second quarter.

As a result, our customers continue to be cautious in their R&D spending.

Moreover, our competitors try various tactics to gain market share in our space.

Under these circumstances, our team worked diligently and still delivered a reasonable quarterly result.

Compared to the same quarter a year ago, our Q2 booking total improved by more than 20%.

On the revenue net profit side, we made 3 cents EPS on a revenue of $9.8 million for the quarter, which represents about 11% year-to-year and a slight sequential quarterly revenue growth.

In addition, our total cash balance increased by more than $1 million to a total of $96 million.

Having obtained more renewable business for several quarters and in anticipation of a steady semiconductor up turn around the corner, we feel more confident about the outlook of our business in the second half of fiscal '04.

As a result, we continue to hire new staff and added 3% work force in last quarter.

While semiconductor company revenues were generally on the rise, we found that these companies R&D spending did not grow accordingly during the March quarter.

As an example, semiconductor industry February monthly revenue was 30% higher than that of a year ago.

Yesterday, India announced 20% quarterly revenue increase from a year ago.

However, EDA revenue for entire through '04 was predicted to be relatively flat by market analysts.

A recent annual forecast by key EDA CEOs echoed their prediction and provided an anemic 5% to 7% revenue growth outlook for this year.

We may be observing again the familiar pattern where EDA revenue trails the semiconductor revenue train by 6 to 9 months.

Today, however, encouraging observation is that both industries are on upcycle where semiconductors 2004 revenue may increase by 15 to 20% according to SIA and IDS.

Such a customer's strong growth can, in turn, uplift the EDA revenue to a double digit growth level in 2005.

This is one of the reasons that we feel optimistic for the remaining half of our fiscal year.

Included in our Q2 bookings were six orders exceeding a half a million dollar with a new major account.

We also added 14 new logos to our sizable existing customer base.

Among them, 6 were new Asian customers.

And three of these new Asian customers have future major comm potential.

Furthermore, we are pleased to report that a significant milestone in our user base expansion was achieved during Q2.

With the addition of two new first year accounts, we now have all of the top 25 and 43 of the top 50 worldwide semiconductor sales leaders as Nassda's customers.

It is a remarkable achievement that we have gained 100% acceptance of Nassda's technology by all of the 25 worldwide IC leaders.

We are proud of this extraordinary team accomplishment.

Another interesting market development, both Q1 and Q2 bookings from our new products and options increased substantially to about 15% of these two quarter's total bookings.

These new products and option sales in fiscal year '04 are significantly higher as compared to that about 5% throughout full fiscal year '03.

We had set a goal to book 10% or 15% of our business from these new products and options for fiscal year '04.

Now we are already on track to meet this goal.

It seems that the expected market of our new products and the capabilities was beginning to take hold.

We intend to continue our focus on this campaign to meet or exceed our target for the rest of fiscal year '04.

One area of improvement, however, will be to increase the major account booking contribution of Q3 and Q4; since our Q2 major account bookings were below our expectations.

As a top priority, we must focus our sales effort to expand this key contribution area in the next two quarters and beyond.

As design starts, based on 130nanometer process, continue to increase among mainstream players.

As 90 nanometer products begin to ramp up among leading edge players in 2004, the need for the detailed circuit verification and analysis tools that we provide will increase.

A considerably higher booking level of our post-layout verification product and analysis capability was a clear indication of such a growing market demand.

Yet, it is not clear whether a steady increase of these demands will take place in the remainder of fiscal year '04 or until fiscal year '05.

Nevertheless, we strongly believe that as time progresses, our product will be used increasingly and indispensably by leading IT designers to resolve their detailed nanometer circuit verification, timing, power, noise and their reliability problems.

During Q2, our R&D team focused its effort on the version 5.0 product development for our annual software release in Q3.

This upcoming 5.0 release will include all our products with substantial enhancements and the new capabilities implemented according to our user's feedback.

A key component of the 5.0 release is the recently announced HSIM plus platform, which has become the new foundation to build our next generation unique nanometer simulation and verification solution.

That is, the use of required nanometer capabilities are integrated to form a comprehensive solution on a single platform where users can selectively perform pre-layout designs or post-layout verification and all kinds of analysis for their complex nanometer circuits.

The benefits are lower cost, more flexibility and ease of use in one integrated environment to enable multiple usage of our products throughout the design and verification cycle.

Used for post-layout features and capabilities such as dynamic and aesthetic power net IR drop, device and interconnect reliabilities, co-simulation with leading digital simulators and verification with millions of parasitic elements are now options available for a user to choose in their specific design, verification and the sign off flows.

The net result will be our user's nanometers silicon success with improved yields.

We believe that this new major release can and will further distance our product from our competition.

The Q2 highlights of our marketing activities include five press releases.

The HSIM plus platform launch and a major trade show in Europe.

Among these press releases, two were customer success stories and two were partnership announcements with other major EDA players.

Sirific Wireless was very satisfied with the HSIM's contribution in the verification and analysis of its multi-mode, radio frequency IC products.

Solaris was also quite happy about HSIM's contribution in design and verification to its very high speed and low power physical layer networking product operating at 10 gigahertz-- 10 gigabits per second.

Our HSIM plus platform announcement was publicized in EE Times, EE Times Asia, Techno Online among others.

We attended two trade shows during the quarter, namely DATE in Europe and DesignCon in Santa Clara.

We gained good exposure and reached out to more potential users of our nanometer solutions.

Other useful press coverage include Hooley's deepchip.com user feedback for HANEX and HSIM products as part of the 2003 DAC Trip Report which has a broad readership among IC designers.

On the promotion front, our banner campaigns from EE Times, EE Design, and deepchip.com have attracted over 11,000 visitors to our website.

These market communication activities should continue to increase the Nassda's visibility in our user community.

Dataquest, in it's Generate 2004 EDA report, estimated that Nassda took a 45% market share in the fast circuit simulator arena in 2002; which was the latest available data from Dataquest survey.

Although the market analysis result was not current, our team took pride of the progress and the impact that our product made in helping numerous global IC designers.

Two partnerships were announced.

The first with Mentor Graphics for ADMS integration, and a second with Magma for an improved nanometer solution.

The ADMS integration is aimed at better serving many joint customers who use Mentor's ADVance Mixed-Signal 2 environment and Nassda's HSIM product; particularly in the communications IC sector.

The adoption of HSIM usage by Magma will strengthen its utilization and the timing correlation capabilities for nanometer digital timing closure and signal integrity enhancement.

These relationships have good potential to increase our product usage as part of the integrated solutions offered by our EDA partners.

In conclusion, we achieved considerably higher Q2 bookings and revenue than those a year ago.

Having endured a challenging quarter after an adverse environment, we feel that some new business momentum has been gained.

Our sense is that coming June and the September quarters, will be generally more prospect for Nassda as well as for the EDA industry as a whole.

Due to a continuous upward trend of the semiconductor revenue and an anticipated increase in the R&D spending.

At the same time, leading edge customers must face 90 nanometer issues and a required new generation of nanometer tools and solution such as ours.

Going forward, our strategies are to steadily grow our work force, achieve expanded sales for our new products and options, and increase our major account penetration for the remaining quarters of fiscal year '04.

Now, I will invite Tammy back to give you the guidance of our Q3 quarter and fiscal year 2004 forecast.

Thank you, Sang.

Before we open for questions, here is our guidance which has been included in our press release.

Nassda's team has continued with much focused efforts in meeting market expectations in both revenue and earnings.

Customers remain conservative in their spending and we expect to continue to experience longer sales cycle, flexible licensing structure and extended payments in order to remain competitive.

As more of our business transitioned to TBL over the last four to five quarters, our revenue visibility has increased.

And there seems to have been some gradual improvements in the overall economy.

Nonetheless, without seeing material changes in our customer's purchasing behavior, we believe it is prudent to be conservative and set guidance within such predictability.

Based on these assumptions, we have provided the following guidance.

For Q3 FY '04, we expect revenue of $10.4 million to $10.6 million and fully diluted earnings per share of approximately 4 cents for the quarter ending June 30, 2004.

For fiscal 2004, we expect total revenue of $40 million to $41 million and fully diluted earnings per share of 13 cents.

With expected large TBL renewals, Time Base License order bookings, as a percent of total bookings, is expected to be between 50% to 70%.

And TBL revenue, as a percent of total revenue, will be between 50% to 60% for the second half of fiscal 2004.

We will strive to achieve sequential quarterly revenue growth and control costs in order to achieve increasing operating margins, and at the same time make continued necessary investments in our worldwide sales and support and R&D organizations.

As a result, we expect quarterly operating margins to vary from quarter to quarter at ranges from 10% to 15% of the second half of fiscal 2004.

We will keep our earnings release and earnings conference call replay available on our website until April 21, 2004.

Now we will open the floor for questions and answers.

Sherry?

Thank you. [Caller Instructions] We'll go first to Rich Valera from Needham & Company.

Good afternoon.

Hi, Rich.

Hi.

Just wanted to make sure I understood your macro outlook.

It seems that in your written comments in the press release that you are maybe more cautious than last quarter, sort of expecting a tight spending environment for the balance of this year.

Yet in some of your verbal comments it sounds like you're more optimistic about either the June quarter and beyond, or sort of the second half of the calendar year.

Just wanted to understand maybe a little better how you are seeing the second half of the year shaping up and what gives you some confidence of a recovery there.

I think our general sense is that we see some good indicators as far as our customers and their revenue and their profitability.

However, on the other hand, normally you would expect R&D spending to increase.

Unfortunately, we really have not seen a, I guess, a substantial loosening of the R&D budget.

Therefore as we go through our sales process, we are still seeing similar behaviors from our customers, the way they negotiate, the way I guess our EDA industry has trained our customers to, as far as looking at ASPs and bundling.

I think that's why you might be seeing somewhat of a mixed feeling sense in our mind.

We see good signs but we also see, on the other hand, business still somewhat challenging to get orders and we still have a pretty long sales cycle.

And also on -- also in addition to that, our business potentially-- for the last six months, 77% of our business is from TBL maintenance; therefore, even if the budget loosens up and they come in as TBLs, you won't see a substantial increase on the revenue side.

I think that's why we are taking more a conservative view on our projections.

Does that kind of answer your question?

Yeah, that does.

That's very helpful.

Thank you.

And just with respect to bookings, you mentioned--it sounds like they were up nicely year-over-year, can you give us a sense of where they were relative to your expectations.

It sounds like you maybe had some challenges at the major accounts, but where were they overall for the quarter?

I think overall even though we don't give specific numbers out, I believe bookings on the major account was below our expectations.

However, maintenance renewals are substantially higher than our expectations.

So you have a mix there.

And, again, TBL is below our expectations.

I think that has to do with major account penetration results.

So overall, we do see sequential increasing bookings, but year-to-year is a much substantial higher number.

Quarter-to-quarter sequential booking numbers are increasing but as substantially as estimates were a year ago.

Okay, that's helpful.

And it sounds like on the positive side the new products are probably tracking a little bit ahead of your expectations as a percent of bookings.

Is that right?

You were over 15% of total bookings for new products for the first two quarters.

So it seems like your 10 to 15% goal for the year is probably pretty readily achievable based on those numbers.

Yes.

I think, Rich, we are very happy to observe this growing trend of needing the post-layout verification capabilities we have.

The dynamic IR drop, the electro migration, the liability check.

So these issues we knew was looming, but the last two quarters shows that reality is starting to set in.

Users start to feel the urgency, the necessity of these capabilities now.

We are very happy that the trend is to our advantage.

These type of leading edge products finally catch on now.

Very good.

And just a final one.

Could you give us an update on the trial status, Tammy?

I think last quarter you talked about a start maybe in either the June or September quarter.

Is that still on track?

I think as we are already in April.

So I think that June time frame is still not going to happen.

Okay.

So we don't have a lot of update, but still at this point in time, we are probably looking at the September to December time frame for the actual trial to happen.

Okay.

Fair enough.

Thank you very much.

Thank you, Rich.

Our next question comes from Tim Fox of SG Cowen.

Hi, Tim.

Thank you.

Good afternoon.

Tammy, if I could just dig in a little bit here to some of the bookings and revenue numbers.

You mentioned that the bookings were up sequentially, definitely up sizably year-over-year.

And that up-front perpetual deals were at a much higher percentage than you had anticipated.

Yet the product revenue that you reported was down almost half quarter-over-quarter.

Can you explain a little bit about the dynamics around a higher percentage of Perpetual's booked, yet lower product revenue hitting the P&L?

Sure, absolutely.

Good questions.

You are correct.

Our perpetual license revenue actually is down sequentially almost by one-half , so 50%.

However, if you look at from a bookings perspective, our product bookings actually increased by a large sum of the money.

Basically, as you know, our bookings comes in closer to the end of the quarter; just like many other EDA companies.

Therefore, as we got these orders at the end of the quarter, we do not have sufficient time to ship the order and get the process closed.

So, a lot of those orders are going to be shipped in this quarter, the June quarter.

So you will see perpetual license revenues increase in Q3.

In addition to that, some of the perpetual license orders that we get do have payment terms and we do have a very conservative revenue recognition policy on payment terms.

Therefore, some of those orders, even though it may ship, we will not recognize any revenue until we actually receive the cash based on our revenue recognition policy.

Okay.

So that substantial amount of bookings for Perpetual license will be shipped this quarter.

Okay, got it.

That's very helpful.

The second quarter, I just want to confirm again why the TBL percentage was down.

You attributed this primarily to several large orders that were on a perpetual basis.

Were those--had you anticipated those coming in as TBLs?

Or was it just that the TBL renewal seasonality-wise was down?

Actually, no.

Those originally were Perpetual licenses.

I think it has to do with those coming in and a function of being a very seasonally low renewal for March, and being a seasonally high renewal for maintenance; particularly in Japan because of the March year end.

So if you look at absolute dollars, the impact is not as substantial as if you look at the percentages.

The percentages is a function of where the components are.

So actually it's a function of all of those different reasons.

But not all the Perpetual license orders were TBL converted to Perpetual, they originally were Perpetual license.

Got it.

Okay.

Great.

Tim, I heard you were asking next quarter's TBL mix.

I think, you know, some are renewable TBL, but every quarter we do book some new TBL orders.

So I think it will be a mixture of renewable and a new TBL business.

Okay.

Great.

Sang, if I could maybe just dig in a little bit to Rich's question earlier about the slight shift in your view about the uptick in spending.

I'm wondering if there is something that you've seen that's fundamentally different with this rebound in the semiconductor cycle that may not be translating to a return to a greater number of design starts, a greater number of engineers out there; or whether, maybe, there is an effect of some of the higher end of FPGAs eating into ASIC design.

I mean, is there anything other than just cautious spending on the customer side, do you think, that contributing to the lower bookings for the industry?

I think those factors you mentioned probably all have some percentage of impact on the overall semiconductor dynamics here.

And I would say that compared to a year ago, March quarter, we just don't have any customers willing to talk about making deal with us.

Last quarter there were more frequent kind of interaction between the customers and us, so that's a good sign.

And as I mentioned, all this big revenue increase for the industry, for Intel and for other key players, indeed you see the momentum of the semiconductor industry.

But, certainly, when they make money whether they are ready to spend money, which is another question.

And historically you see the six months lag of EDA's revenue for the semiconductors revenue increase.

So because of that, we feel that it would take some time before EDA picks up it's steam.

In the semiconductor space, obviously, the overall atmosphere is positive and optimistic.

I heard the system level shipment also increased, like the PCs and the wireless communication sectors and so forth.

I think overall the outlook of the semiconductor and the EDAs are both are somewhat encouraging and upbeat at this moment.

Okay, and I guess just lastly on the major account weakness in the quarter, is this something that you attribute to just seasonality, or was there some other factor there and are you making any adjustments to your strategy going forward?

No.

We've been preparing this recovery for some time.

Certainly last quarter we tried our best to continue to solidify our customer base and business foundation.

Now the remaining half of the fiscal year we just have to go forward, you know, with full throttle, full steam.

And sort of make our own, and create our own fortune and success.

We need to work very hard, but we see the environment is favorable.

So we just try to deliver our goal and execute our strategy.

Okay.

Thank you.

That's it for me.

Thank you, Tim.

Our next question is from Jennifer Jordan from Wells Fargo.

Yes, I believe that most of my questions were answered.

I just want to drill down again on the major accounts.

Sang, you just talked about that the reason you believe -- I'm curious about the reason that you believe that major account bookings were below your expectations.

Is that just a result of people being conservative about their spending?

Is there any competitive pressure there or are they pushing anything out?

Since you did have some expectations that there would be major account TBLs this quarter.

Right.

I think our expectation was based on the historical trend.

We've been gaining the percentage of major account contribution in the past.

So we expected our momentum should continue, but this quarter didn't work out that way, but we know that first of all maybe we didn't focus hard enough or we didn't execute our strategy quickly enough.

And certainly we also see the competitive pressure on major accounts through our competitors, but I think the competition is always there.

We just have to do our job to really present our value and ensure our better solution than the major EDA companies offer.

Then convince users that for nanometer solution, silicon success that Nassda is the way to go.

So what do you do to change that, or to improve your ability to compete at the major accounts?

Do you need add AEs in there, is that part of your hiring strategy?

Or what does it really take to get closure on those deals, since you've already got initial penetration into the top--basically the top 45?

Right.

I think the resource is indeed a issue, but more is the strategy, execution and focused effort.

And with this in the certain major accounts we've been very successful because we focus, we have a really good relationship with them.

They trust us a lot.

Those are good.

But other accounts, either we don't have enough resources or we didn't focus enough, and we didn't do as good a job.

But going forward, we will correct that and improve upon that.

Jennifer, just to give you some kind of information.

The way we look at our major account performance internally is that we expect our top 30 to 40 accounts to account for typically between 60 to 70% of our total bookings; and that's how we have always measured from a quarter-to-quarter basis.

So when we say, our penetration for major account is not as expected, is that it wasn't at that level, even though we did have some penetration into some of the accounts, but it wasn't as substantial as we would like to see.

And also another measurement that we look at every quarter is how many of these deals are in the million dollar range.

And basically we did not have any million dollar ranges, even though we had deals in the half million dollar and more than that.

But typically as our company gets bigger and bigger, and to achieve over $10 million-- whatever that number is going to be for our bookings, we hopefully would like to see some of these multi-million dollar deals.

So that's more of how we measure our accomplishment on major accounts.

Okay, when you--just out of curiosity, are you counting the maintenance renewals as part of those major account renewals?

Or major account progress?

Yeah, we do count.

We look at absolute dollars in the top 30 to 40 accounts, yes.

And then you had -- but you had a greater breadth of accounts, is that right?

A larger variety of smaller accounts this time?

Yeah.

We have consistently throughout, we typically have 10, 15, sometimes more than 15 new customers.

This quarter we have 14 new customers.

So we continue to penetrate into new customers.

Particularly there were a couple of those that are potentially major accounts, too.

And then finally, to address something on the idea of the trend for bookings, do you think part of the pressure has to do with the fact that this was -- this was just a conservative quarter where people were trying to get kind of the lay of the land ahead of their purchasing?

And does that mean that smaller companies have some -- do you have more challenges in those kind of quarters than you do in quarters where people are looking more at spending?

I think certainly, yeah, certainly as we saw last calendar year and this calendar quarter is better but, typically, I always believe as we go into the first quarter of calendar year, every company with a new budget is going to be spending very cautiously.

And eventually, the second half of a calendar year, the budget starts to open as they see they were able to deliver or meet their own expectations on their revenue and their own profitability; and that's what we saw last year in calendar 2003.

So, certainly, I do agree with you and that is part of what we are seeing there.

And then finally, I have to ask, do you have any sense of the time line on the lawsuit or any movement in that arena.

No.

Unfortunately, the legal process takes its own timing and we absolutely have no control over that.

We continue to work-- our team of legal people continues to work and that's why we spent $2.8 million on it.

Which you said was 28% of revenue?

Yes, 28% of our total revenue and that's been somewhat consistent for the last several quarters.

So I think we are definitely working very, very hard to bring these cases to an end if we possibly can.

In the meantime, we will just have to be patient because that's the American legal system.

Great, thank you Tammy.

Thank you, Jennifer.

And once again it's star 1 to ask a question.

And we go to Joan Tung from Sedoti & Company.

Hi.

Good afternoon.

I just have this question regarding the major release that you talked about coming up in Q3.

Just want to see, were there any customers delayed their purchase decision because they were waiting for the new release?

Not as we are aware of because the announcement hasn't come out yet.

Once we've got the software through all the alpha beta tests, then we will make announcement; which will be definitely prior to the DAC time frame.

So customers are not aware and waiting for this release to postpone their purchasing decision.

Great.

Thank you.

Thank you.

And there are no further questions at this time, Ms. Liu.

Great.

Thank you very much for attending our conference call.

And our replay will be available and if there are any questions, certainly feel free to call myself or Sang.

Good afternoon, thank you.

Thank you.

And that concludes today's conference.

Have a great day.