Qumu Corporation
Q4 2015 Earnings Call Transcript

Published: 10 Mar 2016

[Operator:]

Good day, ladies and gentlemen and welcome to the Qumu Fourth Quarter 2015 Conference Call. At this time, all participant lines are in a listen-only mode. Later, we will be conducting a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to turn the call over to your first speaker for today, Vern Hanzlik, you have the floor, sir.

[Vern Hanzlik:]

Thank you, Andrew, good afternoon, everyone. And thank you for joining us for our fourth quarter 2015 earnings conference call. Some of our comments today may also contain forward-looking statements which are subject to risks, uncertainties and assumptions, should any of these materialize, or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of our risks, uncertainties and assumptions and other factors could affect our financial results, are included in our SEC filings, included in our most recent reports Form 10-K and Form 10-Q. During our call, we may offer additional metrics to provide future insight of our business and results. This detail may or may not be provided in the future. We may also reference certain unreleased services or features not yet available and we will not guarantee – cannot guarantee the timing or availability of these services or features. So we recommend customers listening today making purchase decisions based on services or features currently available. With me today is Peter Goepfrich, our CFO. I will begin the call touching on a few fourth quarter financial highlights. Peter, then will provide some additional financial commentary. From there I’ll provide other operational highlights and comments of our market. After that, we will open the call up for questions. In the fourth quarter, our team delivered on revenue, margins and expense management. We generated record quarterly revenues of $10.1 million, an increase of 21% compared to the fourth quarter in 2014. Full year revenue was $34.1 million, an increase of 30%. Fourth quarter gross margins was 57%, and full year gross margins was at 49%. Our expense reduction program implemented in the third quarter has enabled us to better align our expense structure with revenue. The expense reduction affects all functional areas including both headcount and outside service providers. We are now better positioned to improve our financial metrics without compromising our ability to grow. Geographically, the Americas and EMEA markets continue to show strong adoption of enterprise video and our enterprise business performed well. In APAC, we continue to make progress developing a pipeline through our partnership with Fujitsu and other partners. One of our America wins in the quarter was one of the world’s leading pharmaceutical companies, if thousands of employees, and like many businesses they have invested in inside the firewall video platform to maximize employee engagement and collaboration. This company will run live events on our platform as expected to expand to the next level with mobile and also user generated content. In EMEA, we gained another large pharmaceutical customer both of these wins are at the high end of Qumu’s historic deal size. Additionally, seven of our new expanded customers in the fourth quarter were in the financial services industry providing more evidence of our continued success in this segment. Overall, 12 of the 50 largest global financial service institutions by revenue are now Qumu customers. For additional financial commentary, I’ll turn the call over to Peter.

[Peter Goepfrich:]

Thank you, Vern, good morning. I will come on a few changes we made to what information is provided in our earnings release. The changes were made to increase transparency and provide information that we use to monitor plan and evaluate our financial results. In regards to revenue, as the company continues to transition to more revenue that is occurring in nature. We have provided supplemental information for subscription, maintenance and support revenue. Fourth quarter subscription and maintenance and support revenue was $5.2 million, compared to $4.2 million in the fourth quarter 2004. Full year subscription and maintenance and support revenue was $18.8 million compared to $12.2 million last year. In regards to overall operating expenses and operating results, we have separated sales and marketing in general and administrative expenses, for operating purposes, for reporting purposes. Additionally, we’ve provided supplemental information for adjusted EBITDA, a non-GAAP measure. Adjusted EBITDA exclude items related to stock-based compensation, depreciation, amortization, interest income and expense, and the impact of income based taxes. In addition to the new information we are providing, we will no longer specifically call out total bookings. Because total bookings includes a variety of long-term items in nature and it does not reflect the mix of the underlying bookings. We believe the supplemental revenue information now provided is more insightful to our performance. That said for this call, in an effort to add on the side of transparency. Total bookings for the fourth quarter were $12.4 million. Again, the changes noted were made to increase transparency and provide information that we use. As we continue to refine and enhance our reporting, we may provide additional supplemental information in the future. Moving on to a few specific operating expense items. Total operating expenses in the fourth quarter were $10.7 million, a decrease of $1.4 million, compared to the third quarter 2015. Fourth quarter 2015 results included severance expense of $743,000 and a loss on the third-party license agreement of $1.2 million. Third quarter 2015 results included severance expense of $784,000, and an equipment operating loss of $1 million relating to equipment that we no longer plan to utilize. As noted in yesterday’s press release, with the expected increase in revenue and continued focus on significant improvement in adjusted EBITDA, we expect that there will be – that we will be cash flow breakeven at the second half of 2016. Now back to Vern, with additional operating highlights and comments on our market.

[Vern Hanzlik:]

Thanks. Peter. Let me review some of our key operational highlights then we’ll open the call up for questions. We’re focused on three main themes as we approach our 2016 operating plan. These themes are becoming part of the company's D&A. Mindfulness how we run our business, innovation, as the core of our software strategy and leadership, and how businesses use video. Further Qumu’s focus on user experience continues to set the bar high against our competition. Through multiple successful proof-of-concepts engagements in Q4, Qumu again has demonstrated that we are the only vendor with technology and solutions available in the market today that are proven to scale to meet the business video challenge. We continue to win business because customers demand choice, control and completeness of solutions that we can offer. In the fourth quarter, we closed 80% of our new contracts were on-premise transactions both new and existing customers. However, we continue to see a trend towards increasing percentage of cloud and hybrid deployments in our growing pipeline for 2016. Additionally, in 2015 our global renewal rates for maintenance and support, term contracts, and SaaS contracts were greater than 90%. In 2016, we will continue to advance our cloud and hybrid offerings which are the foundation of our next generation platform. This new software platform will expand on our current capabilities enabling our customers to use video to enhance their work product even more broadly, every day, everywhere, any time. We also announced a new partnership with Pexip, a unified communications leader that's revolutionizing the way people work, and collaborate visually. We're excited about this global partnership. The integration of our software products with Pexip creates huge value-add for our collective customers. We continue to see enterprises deploy tools, video software platform in three ways, on-premise, hybrid and quality. We have a higher percentage of on-premise deployments both new and existing customers from the fourth quarter, and our pipeline for the first half of 2016. Despite this, we continue to build our software as a cloud-first approach for packaging it, for all of these deployment actions. Our largest customer for the fourth quarter, as I mentioned earlier, we’re in the pharmaceutical vertical. One in the United States and the other in Germany both were seven figure transactions. And on the other hand our largest cloud deployment for the fourth quarter was a large retail change of $600,000 transaction with a three-year contract. With that said our main business case for cloud is departmental video communications in large and medium sized businesses. Which focuses on user generated content, and/or external video distribution integrated with marketing automation tools like Eloqua and Marketo as well as websites, social applications and enterprise content management applications like SharePoint and Jive. We see a growing demand in our pipeline for hybrid deployments both in our customer base and net new opportunities. This approach to the enterprise video deployment will grow for us in 2016. We continue to expand and upgrade our enterprise customers. In the fourth quarter, we saw four – we had four large enterprises implement and upgrade our latest release and expand their video footprint. We closed 13 enterprise deals greater than $200,000 in total contract value both existing and new customers. Three transactions are greater than $1 million in bookings for the quarter. This was a very productive quarter for us operationally, and from a growth standpoint, and we are well positioned for 2016. In summary, we are in a strong position to grow for 2016. We continue to invest in the future with mindful discipline for our product direction. A clear vision for our team and operational momentum to carry us into the year, well positioned to reach our corporate milestones and revenue growth objectives. Now, I’d like to open the call up for questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Jeff VanRhee from Craig-Hallum Capital. Your line is open.

[Jeff VanRhee:]

Hi, guys. Excuse me, real nice quarter, numbers look great, thanks for the transparency on the incremental metrics, definitely makes things a little easier on our end. Vern, I guess at a high level, can you start with the bookings, still pretty license-centric, I think you alluded to that last quarter, you expected that for this quarter. But it sounds like it stays that way in the pipe, longer-term you envision, folks going to the cloud. But just – I guess talk through why is it that everybody seems to – or at least everybody seem to be wanting to adopt on-prem and your assumption is going forward that we’re going to see a much more aggressive shift to the cloud?

[Vern Hanzlik:]

Yes. Thanks, Jeff. I think that – we’re just we’re guiding our technology and our growth perspective in how we’re building the software for cloud and hybrid, because we know that’s where it’s going to go. The larger enterprises, still are investing in their IT shops were selling the IT, they have the TIM, but they want to run the software on and they’re a little bit nervous from a security perspective though the cloud is still, hesitation for the – I would say more on the Fortune 500. But their departmental areas that are moving to the cloud. So we’re seeing the bigger deployments, the old pharma and financial both on-premise and as we discussed with them, they are definitely talking about cloud but they’re not willing to move yet. So those are the transactions we’re doing proof-of-concepts, we’re basically putting in the system, running it and that system stays or that’s kind of the trend that we’re seeing in our pipeline with our larger customers. But we’re – we know that it’s going to shift – it’s the timing of it, that’s why – kind of discussed our deployment models, and our strategy there is really working.

[Jeff VanRhee:]

From a bookings number, I mean that was a great bookings number what – rev-rec wise, it sounds like I think you said 80% of the bookings was prem. What’s the cycle to rev-rec on those deals, primarily the premise ones?

[Vern Hanzlik:]

Well, it’s a deployment and I would say, usually within the 90 days, if we’re going to rev-rec them.

[Jeff VanRhee:]

Yes.

[Vern Hanzlik:]

So on the bigger ones, yes. So it’s within 90 days. I mean, some of them happened in the quarter, and then some of them push.

[Jeff VanRhee:]

Okay. And then, one last product and then just a couple of question – numbers questions. But I guess, from a use-case standpoint. How are you seeing the use-cases morphing here at the front-end year of what you’re booking and what you see in your pipe?

[Vern Hanzlik:]

I mean the – more specific to the business cases how people are deploying.

[Jeff VanRhee:]

Exactly.

[Vern Hanzlik:]

Yes, I think, well – we’re talking to a lot of customers, I think that – the executive communication, the broadcast – live broadcast and VOD are the foundational components. Corporate training is another one, and then the other growth area that we see is that people are creating desktop – mostly in the financial sector. The user generated content and we see also a huge growth in the mobile side from the perspective of the BYOD people are getting comfortable with having mobile devices, and then also doing the delivery to mobile, especially in these large pharma, they have a lot of remote users, lot of remote salespeople. So I think the demand in the amount of video going into the repositories is going to grow. I mentioned a little bit about the unified communications area where people are wanting to manage those assets so our repositories of the content side of this business is going to grow tremendously. So it’s starting out traditionally of building out the broadcast network, privatizing that internally then building out more content from users both in the field and internally. And then also exposing it to the internal portals that we see with SharePoint and Jive and some of the other ones that on the social side and then website. So as we talk more about the platform where people are starting to put all their video into one platform, because we actually provide the delivery piece. And it takes it off the network, and so we see that maturing quite rapidly over the next couple of years. What people are going to say look I got to have a broadcast quality network for video, because of the amount of content that’s going to be in these repositories.

[Jeff VanRhee:]

Okay. And then I guess this is for both but as it relates to the numbers. Just a couple of points of clarification on the cash from operations, I think you say cash flow positive, second half. Can you just expand on that a little bit, is that – are you saying you’ll be combining Q3, Q4, you will be cash flow positive or is that you will cross into cash flow positive somewhere in the second half, just a little more clarification there. And then, along the lines of that same question, you’ve given EBITDA, but it’s obviously depending on the mix of revenue flow, hard to make some assumptions about working capital sources and uses over the next few quarters. So can you just sum it all up, where you think the cash bottoms in the year in terms of absolute dollars?

[Vern Hanzlik:]

We are not giving specific cash guidance, but to answer the question – the first question which is second half of year, we anticipate being cash flow positive for the second half of the year. So you will see we guided out on the EBITDA first quarter and you will see we take a little bit of a hit – a little bit more than the full year, because of the revenue side of first quarter. But the balance of the year, you will see a transition into better revenue obviously and driving some better EBITDA which will lead to cash flow and also increased working capital, because in the growing market obviously, as we build up deferred revenue, we’ll get some better working capital pull through to help cash.

[Jeff VanRhee:]

Okay. All right, great you know great quarter guys. Thank you.

[Vern Hanzlik:]

Thanks Jeff.

[Peter Goepfrich:]

Thanks, Jeff.

[Operator:]

Our next question comes from the line of Mark Argento from Lake Street Capital. Your line is open.

[Mark Argento:]

Hi, good morning guys.

[Vern Hanzlik:]

Good morning.

[Peter Goepfrich:]

Hi, Mark.

[Mark Argento:]

Talk a little bit more kind of drill down a little bit, in terms of the guidance relative to your sales force. Maybe you could talk a little bit about where you stand right now in terms of quota carrying sales guys, relative to maybe where you guys were a year ago or sometime last year and maybe just to close that against how you’re thinking about guidance and then in particular, how you see the software license piece grow in 2016?

[Peter Goepfrich:]

I can cover the first part…

[Vern Hanzlik:]

Yes, go ahead.

[Peter Goepfrich:]

Where I can fill in any gaps. But 20 quota carrying now we topped out during the year, last year at early kind of mid-year of 30. You got to remember we are building up a team to drive, north of 40% growth, 60% growth last year 2015. And so, given where we are at and cash we brought team down, I think we can still hit our numbers based on a 20% team. And we feel comfortable about that regarding license revenue, we are not giving specific license revenue guidance across all categories, but in general, I think you look for slight growth. I mean we are still going to be selling perpetual licenses. I don’t think you see that falling off until you see a better transition from more of the regulatory environment of some of our customers in banking and pharma. And then they’re all take to cloud.

[Vern Hanzlik:]

Yes, I think the other thing that I could add to that, just on as we see a growing partnership in the Unified Comm space. We will see partners coming to us, that will be more cloud specific transactions will be smaller in nature, because we are doing a specific thing with our partnership with Pexip and we will also have other partnerships to meet. They’re selling an indirect model completely, so we will see some pull through on our business development side, which is a core strategy for us. As a different channel for us, as what we are seeing. As Peter mentioned we’ve got 20 carrying we are doing more demand generation in our – of how we are putting these people and making them more productive. And really keeping it more of a core lead forces of salespeople than the broad-brush we were before, so we brought down the numbers. But we’ve got a really good team of people that are selling and then also our BD strategy is very focused around areas that we can be successful and we can actually monitor and monetize. And we can – we will provide that transparency to the market as we see the success of that.

[Mark Argento:]

That’s helpful. And then thinking about the gross margin profile and the guidance you guys provided, I think it was about mid-50s to start and hopefully exit in the year high 60s so you’re seeing some pretty big gross margin expansion. Is that mostly all driven also the improving software license growth profit or do you see some expansion on services side as well.

[Peter Goepfrich:]

Margins driven, there are two things really driving it and it’s mostly on the service side, if you think about it. There would be one that we did exercise some cost reduction efforts to right-size some parts of the team. So we are getting a benefit of that next year, additionally in the infrastructure for SaaS cloud environment you’re going to get more scale, right. We are fairly immature from a revenue standpoint, so our scale was on par with where one a larger group of deal, a larger revenue base would be – so as we build the revenue base, we’ll still, we will get better pull through on margin, just based on economies of scale.

[Mark Argento:]

So that’s kind of on the software piece actually did you guys are running in licensing side, I think for the year were just under 70%. So you can think about that in line and then we are going to see most of them on the service side, in terms of the improvement is that the way to think about from a model perspective.

[Vern Hanzlik:]

I think so.

[Peter Goepfrich:]

Yes.

[Mark Argento:]

All right, let’s see here last but not least cost so maybe you could just highlight some of the things that you guys have done obviously the sales force you’ve shrunk the sales force maybe talk about some other specific areas in terms of you see cost on the OpEx line, R&D how you guys look at the R&D line or some of the other key line items on the OpEx side?

[Vern Hanzlik:]

Well, if we look at all the, as I mentioned Mark, we touched every area, but I mean we are sensitive of obviously our R&D line, we didn’t reduce a lot of our investment, they were going to continue to do that. We made adjustments in sales, we’ve also brought back some of the marketing expenses as you would, some of our international footprints we’ve shrunk down of what we are doing. Just because we will go into those markets more specifically I made comment about Asia-Pac, we are partner enabling that part of the world, because people are there and it’s a better way to do it. And then just in G&A I’ll let Peter can comment on some of the things we did specifically but I mean is more a lot of outside services that we just – we were being prudent on how what we are doing there, and we could run the business more effectively and we took those cost out also. But I think the businesses in as I commented is that even though we took the expense out of the business, we are still very – we are agile how we are thinking about what we are running, both from a management perspective and all of our core operating groups that we are just running a little leaner and smarter, how we run the business. And I think that’s why, I think we are well positioned to do some things and then we can put where we generate revenue and the partnerships we are building our product. So that people can take it and run with it and it could be more effective and how we deploy it. So those are the bigger areas, I think, I don’t know if you want to add any…

[Peter Goepfrich:]

I’ll comment particularly on outside services in 2014 with the separation we are just publishing business in the acquisition of Kulu Valley, there was a tremendous the lines placed on outside service providers from a contracting perspective to assist with that. And that really did funnel into the beginning half of 2015. And so a lot of some of the actions, we took in Q3 were to reduce those significantly with appropriately sized internal team. And so some of the benefits coming from that as well.

[Mark Argento:]

Great, and I also echo the improvement in terms of the transparency in the numbers definitely help to get a better feel for the business and the complexion of it, and more in particular the opportunity to grow. So thanks for doing that and good luck and congrats on a nice quarter.

[Vern Hanzlik:]

Thank you, Mark.

[Peter Goepfrich:]

Thanks Mark.

[Operator:]

Our next question comes from the line of Glenn Mattson from Ladenburg Thalmann. Your line is now open.

[Glenn Mattson:]

Yes, just a couple of things, do you have any large renewals in 2016 that we should be thinking about?

[Vern Hanzlik:]

We’ve got a couple of banks that are in – but they are not – they are large, but they within their DNA but I think there is nothing it’s in the renewal piece that I would say that we don’t see that we wouldn’t get in the larger sense, but large being in the 400,000 range renewal. But that’s about the largest that I’m looking at right now.

[Glenn Mattson:]

Okay, that’s great. And then maybe – could you just maybe give us little color on the – just to kind of get a feel for how some of these partnerships to go and like they deal with Fujitsu I don’t know it’s been about two quarters now maybe. Can you talk about have you closed any deals there yet or you close as the pipeline maturing through that channel and any color there?

[Vern Hanzlik:]

I will comment on two, Fujitsu one, the pipelines it’s pretty good. I was in Japan in December. We are – we’ve got a couple of deals that we are going to probably close in the next couple of quarters might be this quarter, next quarter. But I think what we are seeing is their focus on it and they are bringing us into these opportunities and we are working with them and they’re staffing up internally. So they don’t – as I probably commented lastly, they don’t move as fast as we would like, because they are $46 billion integrator. But they are very focused on, they are they doing it right. And we also have, as I mentioned other partnerships there. CPC is another one that we are working with there that actually – they are bringing us into opportunities, so there is an alternative pipeline that’s being built in the Asia-Pac area. Additionally, our partnership with Pexip that we announced, they sell exclusively through partners. We have a very significant pipeline with them, we will be able to articulate deals that will close with that partnership with Unified Communications talk about our cloud product, to manage that content. And so we’ll see that grow and we will see the channel stuff start to pick a little bit more, but I really from one of the themes you continue to hear from Peter and I is transparency. Is that we want to monetize the stuff so we can deliver. But we are seeing clear activity, we are seeing very focused on the stuff that’s going to work. And that’s we are – if it’s not working, then we are going to move or change to it. But that’s one of the key areas in our business development is that we are not doing a short gun approach to this. We are – it’s rifle shot into areas that we can be very productive. And it makes sense, business sense and then we can show the value. So that we can make the transactions happen. So that’s kind of look probably a little bit more color than you wanted. But it’s where we see definitive opportunity there and we’re bullish on it. And we want to be able to call off the numbers a little bit more effectively. Couple of quarters out, but you’ll start to see us communicate that.

[Glenn Mattson:]

Great, thanks. And just for instance, what about like this large retailer, $600,000 three year deal, was that U.S. based and did that come from any partners of that in-house sale?

[Vern Hanzlik:]

That was a direct deal, but it’s in Canada. They came to us through our website, we did a proof-of-concept and got the transaction probably, things like 120 day sales cycle start to finish. Its tip of the iceberg there, but it’s a very nice call transaction for us.

[Glenn Mattson:]

Great. And what about just the general level of competition you’re seeing out there. How do you characterize the market?

[Vern Hanzlik:]

Obviously we’re tracking it all the time. I think that we’re seeing the normal people that we compete with, that you see in the Gartner quadrant. When we get inside, and we’re doing inside the firewall stuff, we really kind of, we have a high percentage of win rates there. But I think that we were – the market is in some areas that people, you know we’re not focused on the educational side of this market and – because a lot of people are competing in there. So we stay laser focused on the businesses that we talk about. But we we’re running into – there’s three or four players that we run into, on a normal basis, on an RP. And we are winning more than we’re losing on those. But we’re keeping close tabs on the space. I think that people, some of our competition, that’s not public that are, hopefully they have the right capital would be successful and move forward. So we’re – that’s why we’re being very cautious obviously is how we move forward. But I think that we see a great opportunity to win based on how we’re – we have the options to deploy our software.

[Glenn Mattson:]

Okay. Great, thanks for the color.

[Vern Hanzlik:]

Yes. Thanks Glenn.

[Operator:]

Our next question comes from the line of Neil Cataldi from Blueprint Capital Management. Your line is open.

[Neil Cataldi:]

Hi, guys. Good morning. You just referenced sales cycle on the retailer being 120 days. What are you seeing in general as far as sales cycle is concerned, especially some of these larger seven figure accounts that you’ve been referencing?

[Vern Hanzlik:]

Yes. I think that if we put it into a norm, Neil it’s going to be six months to a year depending if there is a compelling event that the CEO of an organization wants to do a broadcast and we’ve seen those in some of our transactions where the proof-of-concept accelerates the opportunity. And so, I would say still where cloud deals are going to run in that 120 day cycle start to finish, but they could go faster. We haven’t seen total evidence of that. And the enterprise deals are going to be more in the six months to a year sales cycle. And the way we – the metrics that we’re doing internally in our KPIs of our pipeline is we’re tracking that very effectively. So when an opportunity enters our pipe it’s well qualified, it goes to wrap and then we track the days. So we actually can start to kick this thing out more programmatically in our systems internally, so that we get more scientific on this. And it’s because we’re not, we’re doing a fair amount of transaction on a quarterly basis. But I think that we’ll start to do a more but I think the timing is still in that range. So it’s an exact science at this point.

[Neil Cataldi:]

Okay. Thanks. And the opportunity sizes – you referenced a couple large pharma companies that you’re working with now, and I think those are seven figures. What is the total opportunity size when you go into a company like that, your initial implementation might be seven figures, but is the total opportunity with them over time something exponentially larger?

[Vern Hanzlik:]

I know that we – we’re analyzing what that size the opportunity is inside of this because it keeps expanding. I reference the Unified Communications piece, that’s the piece of content that people are starting to say, look I have to manage this as an asset. So that gets us into a whole different market space. So I think we’re trying to size up, we don’t – the mobile component, the user generated content, and then the management of other assets that people want that are video based which WebEx meetings, these new software based, Pexip are software based video conferencing system which is really going to put the market and there’s other players that are in this space, so the amount of content is going to grow. So I would say that there’s significant opportunity to grow within these large as we get more horizontal in these accounts. We haven’t put a definitive number on it yet, because it’s hard, it’s a moving target. But for us it’s – focused on the renewal component of it, in addition to the – how we are licensing it to them from a user base, and then where the expansions are in the different departments because we’ve been in a couple different departments inside there, but everybody is starting to use this stuff, and the demand will grow. So it’s – we are trying to size that in our base of customers. So that we can see it, as you can see, we get a lot of revenue out of our base and it continues to be that way. And that as we build out the broadcast networks, the end points grow exponentially. And that’s where we collect a lot of revenue there.

[Neil Cataldi:]

Okay, is there an example you could say, where one of your large customers came in was seven figure and then maybe what they are today. Do you break-out who your largest customers are and what the size of those relationships are, just trying to get a sense if somebody came in at $1 million and there are five today or something like that.

[Vern Hanzlik:]

One example that I can’t articulate who the customer is but I can tell you that the initial contract was in north of $1.5 million and our additional stuff will be north of $2 million over 18 month period. And that’s a large financial institution. And they will have, I think when we are done north of 600 end points for a private broadcast network. That will be the largest, yes.

[Neil Cataldi:]

Okay, thanks nice quarters.

[Vern Hanzlik:]

Yes, thank you.

[Peter Goepfrich:]

Thank you.

[Operator:]

Thank you. And we have a question from looks like a follow-up from Jeff VanRhee from Craig-Hallum Capital. Your line is open.

[Jeff VanRhee:]

Great, thank you, just one big follow-up here or a couple of big follow-ups. But the – I guess start with the metrics and thanks for giving the bookings this quarter. And it sounds like going forward got a lot of the other segmentation, but as I think about sort of a real time view of what just happened in the given quarter. Is there going to be anything to replace the bookings number over time, some sort of ACVA or some sort of measure normalized for contract duration what the booking were in that quarter?

[Peter Goepfrich:]

We are working through a better segmentation of total bookings and to the extent we can get year-over-year compares for it, we will start talking about it. But we want to make sure we have the appropriate set up to make sure we can speak to past and future, so it’s a TVD, I mean I comment on a couple of things in my script about increasing transparency, we will continue to refine that, right now there is not a definitive plan for it, but it’s something we are working on.

[Jeff VanRhee:]

Okay.

[Vern Hanzlik:]

Yes, I think that – go ahead, Jeff.

[Jeff VanRhee:]

No, go ahead.

[Vern Hanzlik:]

No, I’m just going to add to Peter’s comment we are driving the sales teams accordingly like that. So from an annual perspective, so the optics people start looking as the optics of our business on an annual basis. So that we can start to see the reoccurring component that you guys – that I think that we want to provide that transparency and then we are driving our sales teams, accordingly on an annual thinking mindset versus multi-year, not that that’s not important. But I think that we want to kind of get those optics and Peter’s in his teams are trying to get that – so that we can articulate it effectively. So that’s kind of where we’re at with that. Given the total bookings, our backlog is important we are communicating more, a little bit differently that I think more mainstream.

[Jeff VanRhee:]

And Vern, on the pipeline, I mean obviously the number really strong this quarter. How does the pipeline look going into Q2, I mean how was the pipe changed in absolute value, may be over the last 90 days. Just a little more commentary of the depth and breadth of the pipeline into the new year I should say.

[Vern Hanzlik:]

We were – sales force not this year, the pipeline is every evolving. So we’re not in it, we’re not in where I would like to be total, I mean that the three X type component of where some of the stuff we want to do, but our pipeline is strong. And we’re – as we provided guidance for everybody on where we’re at. We see a little downturn from Q1 just as we come into the year. But it starts to pick up in the second in our Q2 and Q3 normally. And we’re building on that. So the demand generation stuff that we’re doing Jeff, is a stuff coming into the pipe on a weekly basis. This partnership that I referenced in the call that they have lots of customers. That they’re bringing us into that pipe, that is added to our pipeline in a surprising, we will start to convert those things will message that. But I think that we’re feeling good where the pipeline is. I always want more. And I think all our shareholders want more, but I think that we feel good of what we’ve put out there, and we’re bullish on where we’re going from a business perspective and the pipeline kindly indicate that to us. It’s time to – conversion, I always want to be prudent about, which is, what we’re trying to do as we give you guys more and more sense of how the business is operating.

[Jeff VanRhee:]

Okay. And I guess last for me, and Peter, may be just one more crack at different variations of the cash flow question. But as you think about 2016, and you look at sources and uses of cash, particularly from a working capital standpoint. How do you think about working capital use does not asking necessarily quarterly views, but as you wrap the year even have any broad thoughts on sources to use this with respect to working capital?

[Peter Goepfrich:]

I think you’re going to see two parts more significantly than other, overly just want – deferred revenue, right. With the growth in the deferred revenue, our ability to generate cash pre-revenue – so I think that’s the biggest variable we – pay attention to and manage from the other items, to see quarterly anomalies again prepays here and there. Some significant ones occasionally, crop up little hard and things like bonus, accrual STI those seasonal things you’ll see. But I would say the biggest one to all of us to be mindful of is deferred revenue.

[Jeff VanRhee:]

Got it. Okay. Good, thank you.

[Peter Goepfrich:]

You’re welcome.

[Vern Hanzlik:]

Thanks, Jeff.

[Operator:]

Thank you. That’s all the questions that we have at this time in the queue. So I’d like to turn the call back over to management for closing remarks.

[Vern Hanzlik:]

Okay. Thank you, everybody for joining us today. We look forward to updating you on our first quarter 2016 in early May. In the meantime, if you have any questions please contact us directly.

[Operator:]

Ladies and gentlemen, thank you again for your participation in today’s conference call. This now concludes the program. And you may all disconnect your telephone lines at this time. Everyone, have a great day.