So-Young International Inc.
Q4 2009 Earnings Call Transcript

Published: 28 Jan 2010

[Operator:]

Good day everyone, welcome to the Sybase second quarter 2009 earnings conference call. This call is being recorded. Our speakers today are Chairman, Chief Executive Officer and President, John Chen; and Senior Vice President and Chief Financial Officer, Jeff Ross. I would now like to turn the conference over to Mr. John Chen. Please go ahead.

[John Chen:]

Thank you and good morning everybody and happy New Year and welcome to our call. And we will begin with Jeff providing the Safe Harbor statement.

[Jeff Ross:]

Thanks very much John and good morning to everyone. Today certain statements we will make will be forward-looking statements that represent our current judgment on future events and are subject to risks and uncertainties that could cause results to differ materially. Forward-looking statements reflect our opinions only as of the date of this call and include statements about our future growth, future earnings, business prospects and other statements regarding future events. Actual results could differ materially from statements we make today for a variety of reasons, which are described in our earnings press release and in our SEC filings, including in our Annual Report on Form 10-K for the year ended December 31st, 2008 and our quarterly report on Form 10-Q for the three month period ended March 31st, 2009, June 30th 2009 and September 30th 2009. All these documents are available in the Investor Relations section of our website at www.sybase.com. Thanks and off to John.

[John Chen:]

2009 was obviously a great year of major accomplishment for Sybase. We are very pleased that we delivered consistent financial performance throughout the year cumulating in the best quarter of the company history in Q4 and a third consecutive year of record revenue earnings as far as cash flow. We were able to achieve a number of noteworthy records. I would like to list a few for you. One is the full year revenue. We came in at $1.17 billion, the highest ever and above our outlook as we entered into 2009, 12 months ago. Non-GAAP operating margin reached a quarterly all time high with 35%, and that put us a full year all time high at, I think it’s 29.8 something percent, so it’s about 30%. Thus met all time is small though that we set out of the long time ago. The full year Non-GAAP earnings of $2.48 per share up 15% and that obviously exceeded our expectation also and the record full year cash flow from operation of $384.1 million that’s up 30% year-over-year. We also made very significant progress in advancing our strategy Unwired Enterprise Strategy. We secure people worthy partnerships with SAP, Verizon, Samsung and IBM just to name a few in the year. We deliver very innovative new products in analytics, in enterprise mobility, mobile commerce and we garner a lot of recognition for leadership in each and everyone of our key growth markets. For the fourth quarter, total revenue came in at $331.7 million. It is up 9% year-over-year, license revenue, maintenance revenue and messaging all contributed to the growth. Once again all our business saw solid margin expansion in the quarter. IPG and Unwired reached 37% and Sybase 365 expanded to 12%, I like the word expanding, expanded 12%. As a result, consolidated non-GAAP operating margin came in at 35% which is 600, up 600 basis point compared to last year and non-GAAP EPS grew 4% to $0.80 a share. GAAP operating margin reached 30%, up 700 basis points and GAAP EPS actually increased 22% to $0.66 per share. Our performance was strong across the board pretty much and all the geographical groups with notable strength in North America and Asia-Pacific. Jeff and I have seen many investors and we -- Jeff spoke at many conferences and I think the kind of common theme, there are two major questions that came out in our interactions with various constituents. So, I like to address those two questions for us and the first one it’s about our sustainable growth in our database business. And the second one is the, where we are with our mobility partners and I think those are good questions, I like to address both of them. Let’s just go to the first one, which is the database growth. In the fourth quarter, our core database license revenue grew 9% which is actually quiet impressive against a very difficult year ago comparison, you may recall in Q4 a year ago, or Q4 2008 we had a, there was a 38% growth year-over-year. In this past Q4 in 2009 we added 248 new ASP customers and 66 new IQ customers. A few Q4 customers I like to highlight including the Yuanta Futures, which is a market share leaders in Taiwan futures industry. Quest Trade, the Canadian fast growing online trading discount brokerage house, Starz Entertainment's, Taiwan Stock Exchange, which bought both ASP and IQ, travel industry, pretty much travel industry giants Carlson Travels, Mexico Federal Social Security Agency. I guess they got money, China Mobile Group, which we made a lot of progress in the last year, especially in Q4. McCrory Bank, or the McCrory Group, which is exciting to us because they aren’t only, bought ASE, the ASE options, the IQ, but they also bought Aquaria as well as the Mobile Office. So our overall IPT license actually performed quite well, up 8%. The data base business did well in the quarter, as well as the whole year and we have reasons to believe that they will continue to grow at/or above the market rates. Actually, we expect to grow above the market rate and so there are a few reasons why we believe that. First, both the existing and new customer appreciate the ongoing innovation of our full platform. For example in Q4, we released our ASE 15.5 ahead of our schedules, which should result in meaningful revenue contribution in 2010 voiced two major options. The in memory options came out as part of the 15.5, which enabled us data virtualization for high volume high concurring user applications, as well as a new option called the Advanced Backup Service option that integrates the IBM Tivoli Storage Manager to increase the efficiency of data backups and retrievals. In our analysis of data’s, storage and storage software are expecting a good year in 2010 and so I hope that this will ride some momentum there. Yesterday, in New York, we actually held the official launch for this release, ASE 15.5. Second, due to a large number of our customer base that have already upgraded to ASE 15, they remain or they offer us an attractive up sell opportunity with the other options, we already had options actually. The two I mentioned plus the petition, the encrypted column share this cluster. And at later part of the year, we are planning to ship new options in time series. So, as you could see there are plenty of run rate ahead of these options giving us good growth opportunity for ASE in 2010 and well beyond the (inaudible) portable version 12.5, which have caused a little bit of confusion at times with our investor base. The final point in database growth that is, that we expect IQ to continue driving growth of our Analytics Solutions. During 2009 our Analytics Solution license revenue include both IQ and RAP, which is Risk Analytics platform grew solidly in double digits. The latest industry forecast call for this market to grow at 10 to 15% over the next several years annually that is and we expect to do better than that. So during the quarter we launch a beta release our Telco Analytics Solution designed to operate in a cloud-computing environment. By using this solutions operators will gain deeper insight into our network messaging traffic patterns and customer behavior as well as the overall network performance. Now we are uniquely positioned to do well with this opportunity for a couple of reasons, one we already have the raw data in our hub, as you know we probably the largest if not the largest, one of the largest inter operator message carrier and then we ran our own (inaudible) sort of our own hub. Secondly, the IQ high performance architecture is designed for applications like this, which is punching a lot of data’s from various sources. This is obviously a very exciting new solution and I have seen the demos, I encourage you to see to contact us to see a demo this offering I think you will like it, it’s pretty and everybody and all our customers who sees it really likes that. So, beyond the Telco hosting the IQ should also help expanding our addressable market in analytics providing Sybase with plays and new verticals which is one of our game plans to expand it over time, probably not 2010, but that’s something that we are going to start investing in 2010 with small and medium size enterprise customers also in the customer base. IDC forecast its staff analytics market to grow at 22% (inaudible) through 2013. For all these reasons we’re comfortable with the expectation that our database business will continue to perform well when licenses growth at roughly between 8% to 10% in 2010. Okay, if you have more questions on that, we could share about that too. The second major question came from investors related to the progress we’re making with our mobility partnership. Here, we are seeing very positive developments, particularly in the area of managed service, which might present a significant market opportunity. Examples include a recently announced wholesale offering for license in Samsung, based on the Sybase Unwired Platform for application enablement and mobile device management. In Q4, we actually saw strong activity from rights and relationship. Currently we have over 100 deals in the pipeline with them. In addition, we secured three new managed service clients in the quarter. Accenture in the U.K., Italian Post as well as Siemens. We are seeing solid traction here and expect this to grow to continue 2010. A word regarding our SAP relationships or the partnership on the SUP, particularly the first solution , which is the Mobile CRM application. I went into beta on schedule in Q4 and we’re on tract to release the product in Q1. The GA product, the generally available product, will first be available on the i-Phone and the window mobile platform. We’re also moving forward with plans to mobilize the additional SAP applications like ERP and MRP. The first SAP release will also coincide with the launch of the SUP 1.5 in Q1. In fact, the SUP 1.5 stands for, by the way, Sybase Unwired Platform. The SUP 1.5 is the SAP release (inaudible). The future version of SUP will incorporate qualitative management and analytics functionality into the platform. To facilitate a plan we have already combined the IPG and INE engineering group to make that happen. Largely driven by SUP market leader position, we expect ongoing expansion of our mobile ecosystem. Looking to 2010, with more over about 10% growth on mobile software with potential upside as key partnership brand were up in the second half of the year. Now, I'd like to cover some highlights on mobile messaging business. Q4 messaging revenue grew a very robust 30% with solid growth performance across pretty much all of the messaging segments, which are the operator services, the enterprise services and the mobile commerce. There was particular strength in application messaging as mobile enterprise recognized the importance of communicating with their customers through a messaging channel. At present enterprise are mostly commonly, or most commonly used messaging for mobile marketing campaign as well as the mobile CRM applications. But we see mobile commerce rapidly expanding, especially in an emerging payment and remittance area. To-date we have expanded our enterprise customer base to more than 60 mobile commerce and end commerce and end banking deployments. When we meant deployments, we meant we are actually getting revenue from it on a steady basis. The Advanced IP Messaging Server, we call it AIMS which we announced in CTIA in October which caught a lot of attentions, positive attention is on track to be available in Q2. Now this new architecture extend our messaging infrastructure to support next generation IP messaging enabling mobile operators to maximize 4G opportunities on number of countries around the world, by the way and operators are working on 4G. Example will include PaganSpace application for social networking, mobile advertising, advanced mobile (inaudible) and Voice over IP. This architecture will also allow a cell phone to share an application that are used on any connected IP device such as computer, T.V., setup box or appliances, as adoption of mobile IP services grows with operator developers, this aimed platform will hasten the arrival in the fixed mobile conversions, well that’s the English I really like, you will hasten the arrival of the fixed mobile conversions well. So looking to this year, 2010, we modeled roughly about 15% growth for our overall messaging business. In summary, I’m obviously very pleased with our performance. The team has done extremely well, which is particularly gratifying as we marked our company’s 25th anniversary. We entered the New Year with a strong and growing pipeline especially in the analytics and mobility market that we talked about and we have the financial strength to support our growth initiatives. So I’d like to turn it to Jeff for a detailed review of our financial numbers, Jeff?

[Jeff Ross:]

Thanks very much John. I’ll spend a minute going through our fourth quarter numbers and a little bit more in detail. Our total revenue came in at $331.7 million, which was up 9%. All revenue categories contributed to this growth with notable strength and maintenance, which was up 11% and messaging which was up 30%. License revenue was $123.2 million, messaging revenue was $56.2 million and Services revenues of which maintenance comprises roughly 82% was a $152.2 million. All geographies grew revenue year-over-year. In the quarter, our mix stayed relatively consistent with North America revenue comprising 51% of our total revenue and EMEA and intercontinental representing 36% and 13% of our total revenue respectively. Non-GAPP operating income for the fourth quarter rose 34% to $115 million, this represented a 35% operating margin compared to a 28% margin in Q4 of 2008. Non-GAAP net income grew 14% to $72.4 million and our non-GAAP EPS was $0.80, which is up 4% year-over-year. On a GAAP basis, operating income increased 41% to $98.6 million, this represented an operating margin of 30% versus 23% a year ago. GAAP net income grew 34% to $59.8 million yielding GAAP EPS of $0.66, again an increase of 22% from the prior year. Cash flow from operations was a record $113.5 million in the quarter, a 34% year-over-year increase. This strength was driven mainly by operating income growth as well as better revenue linearity. Our financial position remains strong at quarter close with a cash balance of roughly $1.3 billion. A significant near-term use of our cash is expected to be the redemption of our 2005 convertible notes, which become redeemable on March 1st of this year. Our current assumption is that we will use cash to redeem the notes remaining $420 million principal balance and then use a mix of 50-50 cash and stock to settle the premium balance, which currently sits at around $300 million. The final mix relating to this settlement will be determined and communicated as we approach the redemption date. Our fully diluted share count was 90.1 million for Q4. We are modeling a share count of approximately 88 million for the first quarter of 2010. During the quarter, we repurchased $9.1 million of Sybase stock and that remains $83.3 million authorized in our share repurchase program. During the quarter, capital expenditures were $18.1 million, depreciation was $7.2 million and capitalized software and the amortization of capitalized software were $12.2 million and $9.3 million, respectively. DSO for the quarter was 74 days on a consolidated basis down from 80 days a year ago, again due to the strong cash collections in the quarter. Deferred revenue was up a robust 11% to $240.6 million, reflecting strong maintenance renewal and our growth in license revenue. Deals over $1 million represented 40% of Q4 license revenue. Switching to our 2009 full year results, for the year we saw growth in license revenue, maintenance revenue and messaging we also saw strong performance in Asia Pacific and North America on a geographic basis. Our revenue for the full year was $1.17 billion with license revenue at $402.8 million, total services at $571.2 million and messaging revenue at $196.6 million. Non-GAAP operating income increased 31% to $349 million. This represented a 30% operating margin, an increase from 24% a year ago. Our non-GAAP net income grew 16% to $218.9 million according to EPS of $2.48 per share. On a GAAP basis 2009 operating income increased 38% to $289.7 million, this represented an operating margin of 25%. GAAP net income was a $164 million, yield in EPS of a $1.86 compared with a $1.46 in 2008. Cash flow from operations for the full year was a record $384.1 million up 30%. We ended the quarter with head count of 3807 employees. In 2010, with the release of SUP 1.5 we are moving to our new reporting segments starting in Q1 consistent with what we communicated to you at the beginning of 2009. We have been including this format in our earnings release throughout the past year. Now I’d like to turn the call back over to John. John?

[John Chen:]

Thank you. I like, before I provide any guidance I like to offer some color on the outlook. We ended the year with a healthy pipeline and reasonable visibility in the first half. Although we are unable to obviously predict a macro environment we feel confident that our strong competitive position will enable us to continue growth at above market rates driving toward a share gain. Our model for the year are some of the following. There is no significant change in the macro environment. IT market growth roughly about 3 to 4% based on a number of industry sources, based on more linear Q1 and Q2 from the revenue and EPS standpoints. Neutral foreign exchange impact, a 50-50 pay out of cash and stock on the Redemption of 2005 Convertible Premium, which will result in approximately above $90 million in fully diluted shares for the full year. So now on to the guidance. With the 2010 first quarter, we anticipate total revenue range of $285 million to $295 million. We anticipate non-GAAP fully diluted EPS in the range of $0.54 to $0.56 and the GAAP EPS in the range of $0.41 to $0.43. For the full year we anticipate total revenue approximately $1.23 billion, the non-GAAP EPS of approximately $2.59 and GAAP EPS of approximately $2.10. We expect the full year cash flow from operation to be at least $300 million. We had a very strong 2009 with operating margin expansion of 600 basis points and achieved our prior long-term goal of 30%. We remain committed to margin expansion in 2010 and we estimate it to be around 50 to 75 basis points. We believe our outlook and assumptions are reasonable and achievable without the benefit of any major economical recovery. We also have a number of growth initiatives such as our mobility Pagan partnership, the hosted analytics and mobile commerce that could potentially drive upside in the coming year. Operator, we are now ready for the Q&A please.

[Operator:]

(Operator Instructions). Your first question comes from John DiFucci - J.P. Morgan.

[John DiFucci:]

John, you are at 30% operating margins now for the year, I'm just curious. How should we be thinking about that going forward and we assume you continue to have to invest to continue to grow, but at the same time, we assume you have been doing that. The one thing that is nice to see, we continue to see leverage here, a lot of the other companies at least that I cover, sort of stand out as a company that's actually grown license revenue on an organic constant currency basis, at the same time seen a lot of leverage. We are starting to see leverage go away from a lot of your peers, especially as they start to invest as it looks like the economy is going to get a little better. So how should we be looking at Sybase going forward from here?

[John Chen:]

The management teams are very focused on continued expansion margin and you and I chatted many times, my mode of operation is we got to focus on cash flow, we got to focus on cash flow, we go to focus on profit. Of course, margin is a big piece of that. So, we are going to invest and we are going to invest judiciously. I would like to invest after I see the money and we have some really strong products in regional market and so we believe that we could continue to grow the margin. I don’t really believe there is a – I'm not near the top of our end, if you look at a very strong company that has major market prevalence or at least the market leadership in a certain meaningful segment. They are running about a 40% margin. Now I am not telling you I am going to 40%, but I don’t think I should set the official limit on 30. I think there is certainly much headroom and this is one of the things we would like Sybase to stand out. We are going to continue to improve our probability and in your words to continue to add leverage, I think that is in the carts for the next few years.

[John DiFucci:]

And if I might, a follow-up. On the IQ business, I am just curious, it sounds like that business continues to do well and you have some – and you expect to continue to do that going forward. Just curious, in the environment today has the competitive environment changed much especially with some new entries in there just recently or not too long ago and one in particular is Oracle Exadata, which you can see coming up against that, if you haven’t yet, I would think you probably will. I am just curious if it has really much of an effect on your business at all?

[John Chen:]

No, so far we have not seen it, but like you said, we probably will. I mean that is probably a logical conclusion. On the other hand, the analytics market is really growing very fast, people are really excited about it. We are adding more and more resources on CEP, the Complex Event Processing. So, beyond just he IQ as a database engine, we are focusing on adding value to what IQ could do for the end user customers. Risk management, Real time analytics, complex event processing, and we’re going to try to hit that with some level of vertical knowledge. So, I think we could put, A

[Operator:]

Your next question comes from Trip Chowdhry - Global Equities Research.

[Trip Chowdhry:]

Very good execution. Two questions. First, regarding the business analytics. I was wondering, if you see what your competitors and peers are doing, they are doing more of an appliance approach to business analytics and you have taken a very different approach of providing analytics through a cloud as a SAP model. I was wondering, what is your thought process behind it and how does that offering compare with an appliance approach? And then I have a follow up question.

[John Chen:]

In the appliance market, what I try to do is not to be religious of one versus the other. I think we have, because of the 365 strength and the reach we believe that we could do the cloud part of it also and that kind of makes us a little bit, it’s expansion of the server market for us. So, we are still doing IQ as a server/appliance if you want to use that word and that fits in the DNA of my majority of my sales force, that’s where the end-user customer expected us to, but if the end-user customers or small medium enterprise wanted to go to the cloud environment we could also provide that. So that was really it. I hope I don’t give you an impression that I am only, I’m pushing to cloud. The reason why we are so focused on releasing the Telco Analytics on the cloud as I pointed out earlier we have the data, we have the customer relationship, we have connection with eight to 900 operators around the world. It’s easy for our sales force in 365 to show up and show them the demo and give them what, show them what they could do with our tool and they could resonate very quickly, the sales cycle is very short, it’s very leveraged because of that. So, that’s why we went to the cloud part with the Telco person with, so called where the data is, and we actually already have one customer, but I don’t think I have the permission to use their name at this point, but hopefully over time we could tell you more about that.

[Trip Chowdhry:]

The other question I had was when you meet these various IT leaders in various regions especially U.S, Europe and Asia, I was wondering are you seeing any different initiatives or priorities among the various IT leaders in various regions and if you can share those with us?

[John Chen:]

Any difference, in what area?

[Trip Chowdhry:]

I was thinking more in terms of IP like, are they putting more emphasis in say hardware refresh or business analytics or data base upgrade. Is there a certain difference in priorities say in U.S. regions versus say in Asian regions?

[John Chen:]

Let me see, a good question. If Marty is here he would tell you, Europe and Asia are very focused on the mobile commerce rollout, less so in the United States. United States are more focused on analytics and the replacement of their whole infrastructure. China obviously are very focused on building new infrastructures, they talk a lot about cloud, everybody in China talk about cloud, but I don’t see a lot of real money there yet. I think in the developing part of the world what they wanted to do is to use the cloud and the open source as a catch up to the western developed part of the world in terms of capability and productivity. That’s a huge topic, I can’t spend the time here, but whether that is durable in a short period of time is extremely questionable in my mind. This is not a Sybase answer per se. I think this is more of an industry answer. But I knew where you are coming from. They all know the different patterns by. Now Europe basically they try to buy nothing if they can, they try to buy the minimal and probably because at least three or four of the countries in Europe in the EU is suffering a high debt rate and I think the entire EU is adjusting to that, and part of that reason why the U.S-Euro currency obviously is bouncing around, I don’t have to tell this audience, you guys know this better than I do. So, I still think that it is going to be a little softer in Europe in terms of infrastructure. They are still very focused in commerce, mobile, Telco's that seems to be an area of growth, analytics is a strong area in the United States as this is spreading a little bit beyond and commerce and mobility is a strong desire in Asia.

[Operator:]

Your next question comes from Chad Bennett - Northland Securities.

[Chad Bennett:]

Just a couple of questions. First John or Jeff for that matter. The iAnywhere business, license revenues was I think down a little bit year-over-year in the fourth quarter. I am not sure what the dynamic was from kind of a tough comp comparison relative to last Q4, but it was a bright spot for you in the third quarter, I think somewhat driven by your Afaria device management product. Can you give any color there?

[John Chen:]

It is a little bit of a tough comp situation, Afaria has still done extremely well. A little bit of lumpiness, because there is so much focus on OEMs and also the sales force are spending a lot of time in getting the managed services up and going especially with helping Verizon and signing up other people like The Accenture U.K and which we talk about. So, it is a combination of few things, nothing in the market seems troublesome. As I said we’re pretty comfortable, we’re going to grow 10% in 2010 and one of my last paragraphs, it was specially worded. Basically that, if some of this growth engines, like the partnership’s done better than we think or that we are borrowing, we do have some upside. If the upside comes in, most likely it’s going to come in this area.

[Chad Bennett:]

So your expectations for the likes of Verizon and SAP and your new deals you just signed is pretty conservative at this point. Is that what you are trying to say?

[John Chen:]

Very much so. Now, some of them with valid reasons by the way, because SAP, we’re rolling out CRM. Our relationship with them can’t be any better. I was surprised that in their conference call, they actually had talked about us and so we appreciate that but it was not engineered by me. Which speaks volume to our partnership at least in their eyes, which is wonderful. And so I would say we model extremely conservatively because CRM is not the biggest part of their license. They have about 30 million licenses in the world. The CRM is a very small piece but it does establish the relationship and that was why we picked what we picked, to showcase the technology and improve the relationship or make it to the next level. I think we accomplished both right now and we’re going to roll this out. And Verizon has been new in this business and we have 100 deals, in the pipeline that is. And it’s certainly a good number, but these are – if people sign on to it, it’s not going to be a lumpy big number immediately. It’s going to grow as they deploy it over time because this is by individual, by seats or by license by or license by seat or by phone number I guess in this case IP number. So we have a reasonable conservative approach of that and the new ones we actually did not factor any revenue in.

[Chad Bennett:]

Is there a reason, maybe this is for Jeff that, for rolling out more managed service deals or that’s the way the partner pipeline is shaping up on the mobility side of the business that that the margin profile from a gross margin standpoint would change at all going forward for kind of the mobility license revenue?

[Jeff Ross:]

Don’t have any huge expectations it will change as we come to go to market strategies, we’ll update you if there is anything in those models that change the profile. But at this point we don’t have any expectations can materially. Clearly the operating margin is not, if anything it will give us the operating leverage.

[Chad Bennett:]

One more question on the messaging side. Good growth this quarter, you kind of got it for 15% growth next year. Seems like you have had some good momentum on that enterprise side of that business and we are not quite going to have the FX, head wins, it looks like this year that we did last. I’m just wondering are you being fairly conservative there too John or inter-carrier volumes doing something different or somewhat of a drag or any color there?

[John Chen:]

There is no negative factors that I know off or implied in my 15%. That’s what Marty and I came up with after looking through all the businesses and I think that number is as I pointed out could be better. I wouldn’t think that we should model it at this point. But it’s hard to talk about it right now because we came at such as strong quarter. So if you ask me, do I know of anything that are negative on the horizon, that led me to believe that it should be a 15% or not more, the answer is no, I do not know anything on the horizon. I just wanted to make sure that we provide a number that in our model that we could make.

[Operator:]

We will take our next question from Brent Williams - Benchmark Company.

[Brent Williams:]

A couple of things, first off, I think you have given sort of a growth numbers for ASE and IQ separately in the past, even if you haven’t given dollar amounts and did I just miss that or can you give it again?

[John Chen:]

No we never gave it Brent, that’s a good try. No we don’t give it, but in general we said its about one-third, two-third, one-third IQ, two-third ASE and that’s what in general we have. We have never really broken it out.

[Brent Williams:]

No I know, what I was asking for is you have given the growth numbers. I know you have never given out the percentage.

[John Chen:]

Oh I see the growth number?

[Jeff Ross:]

Occasionally its like once or twice somebody has given an IQ number. I think what we generally said is that our expectation at least from a long-term model is that ASE grows around market rate, maybe slightly better and IQ and analytics grows very comfortable in the double digits and that is consistent with what we continue to say.

[Brent Williams:]

Okay great. No I wasn’t trying to get the mix, I figure I would ask that question but only after a few beers that’s just. So as far as the opportunity to see the analytics into the 365 customer base, is that paid on a per subscriber basis and the one question I have in terms of just trying to forecast some growth out of that is the buying center that is buying the analytics. The same individual growth inside the carrier that actually buys the 365 service or is like the operations folks buy the 365 service and the marketing guys are buying the analytics or in other words, do you have to go cultivate a whole new crowd of check signers?

[John Chen:]

No, so the answer to the second question first is no. This is a very natural, it has been a feedback from our services as I get involved in the business for a very long time, is they like to understand the network performance, the congestions or the provisioning. They would like to know where the traffic came from and obviously a mixed stat when we add anything to the marketing side of the equation and that maybe a business group, but today the focus is solely on the operational group and therefore it is the same people in the telecom company. This is why we believe the sale cycle should be very short. And the answer to your first question is not obviously per subscriber, it is rent, we come up with dollars for them to rent it. On kind of the usage basis.

[Brent Williams:]

And then on the mobile front, this is sort of a trip like question. I had read something that a couple of researchers have apparently cracked the 3G encryption so that people maybe able to steal at least voice traffic and maybe data. Has that been something that people have seen as an opportunity or have either the operators or the end customers come to you and said, gees we need an extra layer of security here especially when you are talking about mobile commerce and payments.

[John Chen:]

Right I don’t know what is that those are the codes or incidents had driven the needs, but as the enterprise uses more and more different devices, they now have waken up to the needs that they need to control and manage the devices in a consistent and more secure manner and this is why our foreign business are going so strong. A lot of the managed service that people that we talk to -- they actually would like to offer a (inaudible) on a per seat basis also. And so, the answer to your question is there is an awareness out there. There is no longer a “good enough is good enough” in terms of security. They really would like to get some extra layer of protection on that.

[Brent Williams:]

You talked about on the mobile stuff, you talked about deals in the pipeline for iPhone and Windows Mobile just to get a sense of sort of potential for overall market expansion beyond what’s in the numbers. Where do you see the Android based stuff? Has that been just too early to see a lot of interest or how is that going?

[John Chen:]

Yeah, we have not got into that, it’s probably because the Android devices are not out there as per basis as iPhone and Windows Mobile devices. So, but that’s said, we will support Android. Operator. Your next question comes from Terry Tillman - Raymond James.

[Terry Tillman:]

I got three easy questions. There has been a variety of questions talking about or asking about your telecom analytics and where you are with that. I guess though, sometimes what I struggle with, and it’s not a negative thing, it’s actually a good thing, you got a variety of central catalysts and I’m always trying to understand the relative importance. So is there anyway you kind of compare this telecom analytics opportunity to the RAP product for example? Just trying to sense of how much of a driver it could be.

[John Chen:]

Okay, from the revenue standpoint the RAP revenue number will be much bigger than the telecom analytics. Much, much bigger.

[Terry Tillman:]

Okay, so it’s just a nice kind of additional thing, but it’s not going to be needle mover like RAP has been or will be.

[John Chen:]

No, we did not expected to be a needle mover. That’s said -- I don’t know of anything before I kind of piss off everybody on my team that works on this, I don’t know of any reason to believe that it cannot be, but it’s not modeled to be and it’s not in our expectation, but if that changes it would be changes for the better.

[Terry Tillman:]

Okay, well then I guess on RAP, I mean you have kind of given me a whole another angle now. So on RAP, early on when that first came out and maybe the timing was good too because of the regulatory and the compliance reporting kind of pressures and pain points, you did very well right out of the gate. There is only so many medium and large size financial service firms, I mean do you still have a long way to go in terms of just penetrating some of those customers and/or then just deepening how much they are using RAP?

[John Chen:]

Yeah, okay. I’ll give you some numbers so that you would be satisfied. We now have 34 customers. 34 or 36 somewhere around that. We now have 34 or 36 customers in RAP. That was double from a year ago. And there are lot of rooms for it and especially adding CEP to it.

[Terry Tillman:]

Jeff, a question for you. Just relates to -- not to forget about the other interesting parts of the IPG business such as liquidity and development tools and financial fusion. Sometimes though, those little things in total though can make a big difference between what IPG licenses in the database. So could you tell us how those other pieces did and how we should think about that in terms of into 2010, could we start to see IPG and database kind of converge more to where the growth is similar?

[John Chen:]

I don't know about growth, is similar in 2010. I think those other pieces we're still modeling to be down. We’re probably modeling them to be down half as much as they were down this year or so, or maybe even a little less than half as much as they were down this year. And again, that represents about a quarter of the license revenue within the IPG segment. So the convergence will be much closer than it was this last year, but we still are modeling those things to be down but at a much less rate.

[Operator:]

Your next question comes from Nabil Elsheshai - Pacific Crest Securities.

[Nabil Elsheshai:]

If I could follow up on the SAP stuff, first could you tell me where you are in terms of rollout, training, who will be responsible that type of thing?

[John Chen:]

I mean we’re in a process of negotiation and go-to market. Negotiation, in this case, is not used as a bad word; it's used as a good word. We’re trying to figure out how to cover the space most effectively both on the direct side or the channel side as well as the channel side. So we’re working very hard between SAP and us on it, those are number one. The number two, the training is on the way, other than who picks up what it's not fully flushed yet out but all the kind of supporting functions and all that is all in place now.

[Nabil Elsheshai:]

So the training will be in Q1 or will it be --?

[John Chen:]

The training is already half in it, but it will be more in Q1 yes.

[Nabil Elsheshai:]

And then I think you’ve mentioned in the past, the expansion beyond CRM, is there a timing for that?

[Jeff Ross:]

There is no timing. The engineering teams are in discussion with each other on putting the plan together. There is no concern of not doing it. Both management teams have agreed to do it. So the question now is how much time that we will require, how much time Waldorf will require and that’s the only thing that is outstanding.

[Nabil Elsheshai:]

But that’s something that’s unlikely to happen this year in terms of Waldorf.

[Jeff Ross:]

I would say some of the modules, obviously workflow is part of the CRM rollout. Some of the other modules on ERP, MRP, probably one of those might be towards the end of the year. But I'm speaking slightly out of school. I will update you guys as we get the real plans. We don’t have any revenue for any of those other things this year. But we do think we will have development.

[John Chen:]

A good point Jeff. I'm not talking to you purely on engineering side, product development.

[Nabil Elsheshai:]

And then could you update us on plans in terms of sales, investments, sales hiring? Are you guys expanding on it this year and if so what areas?

[John Chen:]

Sales hiring is expanding. I just came up with a new sales training, speaking of new sales trainings about thirty or so people in the last quarter. So we are basically adding about 30 or so, 25, 30 every quarter in sales. It's covering IQ, its covering general sales and then mobile commerce.

[Nabil Elsheshai:]

And then just tell me what the assumption is in terms share count rollout to your EPS guidance?

[John Chen:]

So we said in Q1, we said 88 million, for the year we said 90 million. So that reflects the assumptions we make with respect to the convertible debt along with wild guesses on stock price.

[Nabil Elsheshai:]

So it looks like you would have this year about 3.5 million shares to cover that?

[John Chen:]

Yes, that's very much in ballpark.

[Operator:]

Your next question comes from Curtis Shauger - Caris & Company.

[Curtis Shauger:]

Just a real quick one on guidance, I heard a couple of metrics fly through there guys. One, that new license growth would be 8% to 10% constant currency messaging 15ish and if I do that I mean I come with maintenance being flat to down 2% and I just was curious is that, do I have that right or what am I missing?

[John Chen:]

So the license number that you quoted was for database, the 8 to 10 was for database. So it's once you add some of the down things that the database licenses or the overall license is little bit flat. Our assumption on maintenance is that would be 3 to 4 and then professional services would be down. So services itself is about flat.

[Curtis Shauger:]

Okay. But it does seem like embedded within their, that there's a lot of upside, two things that you just simply formative projects that you're just simply not willing to include in guidance at this point in time because the newness of their nature?

[John Chen:]

That is correct.

[Curtis Shauger:]

Is there any way to quantify what the potential upside could be if some of the stuff comes there through.

[John Chen:]

No, because as soon as I said it, it will be in your model, no. Folks I've done, I think this is carefully put together in the sense that we have a lot of discussion. These numbers that we provided we could see and I hope that we could do better than that. There are reasons to believe that we could do better than that and that way we’ll make everybody happy.

[Curtis Shauger:]

Maybe another way to approach it is you gave guidance last year in the midst of one the worst environments I think anybody has ever seen and you managed to not only deliver every quarter, but exceeded and the environments improved for sure, but is that kind of the idea that you could kind of hit these number even if we had some reversal fortune here.

[Jeff Ross:]

It is not too great a reversal fortune we could deliver these numbers yeah we clearly not anticipating any dramatic change in the environment. So we believe that if the recovery really starts taking hold it will be at the end of the year if at all. So it’s not terribly factored in.

[Curtis Shauger:]

Okay, and maybe an easier one of scenario it suppose that you settled the convert for all of cash. Can you kind of give us an estimate of what that might look like on the share count for the year?

[Jeff Ross:]

The discussion that just happened it was 50/50 is roughly 3 to 3.5 million shares would come out. So an additional 50 would be that same amount.

[Curtis Shauger:]

But it would be for -- it would be rolled into the June quarter right, correct if I get the timing right.

[Jeff Ross:]

Basically yeah.

[Curtis Shauger:]

So it would be like three quarters of the 3.5?

[Jeff Ross:]

Yeah.

[Curtis Shauger:]

Okay and then last one Jeff it looks like the gross margin on license ticked up a decent amount, highest number I've seen at while anything there we should be aware of?

[Jeff Ross:]

No, I mean it just depends on when -- the biggest component in that is the amortization of software and depends on certain things were loss -- we had some stuff that rolled off this quarter went up -- there will be stuff that roles back on. So, I wouldn't read too much into that.

[Operator:]

Your next question comes from Mitesh Dhruv - Bank of America.

[Mitesh Dhruv:]

Just two quick questions, one is just to follow up on Curtis' question, you obviously ended 2009 in a high note and then all the three segments you laid out the database growth 8% to 10% licenses; mobile 10% licenses; messaging 15% licenses. So if I try to bridge the gap from those three segments licenses to your guidance, which is about 5% total revenue, am I just reconfirming the delta here is in professional services because if you're licenses are growing, the maintenance portion should also keep growing so is all the delta in the pro serve area?

[John Chen:]

Yeah we have a little bit of hedge against the negative license growth on things like development tools and connectivity's, and we expect that the environment won't pick up for that. And this is the part of license that needs to reduce back down a little bit. And then the professional services, again we’re going to model it being down just to offset the 3% to 4% in maintenance revenue up. So the net of all that is the service line is flat and everything what you said is right, and so that will get to about 5% total growth of revenue.

[Mitesh Dhruv:]

And then if I look specifically at the second half guidance for 2010 that implies at least in my model a dramatic slowdown to about 1% or 2%. Is it just a function of that you just do your internal plan six month out and then you just take one step at a time or can you just help me understand that as well a little bit better?

[John Chen:]

Well, partly because its tough comps and then partly because lot of the growth driver comes in the second half and some of those areas that we discussed earlier that, we are not factoring a huge numbers in it and as we get more visibility will -- going to update that number.

[Mitesh Dhruv:]

Last quarter, I remember you gave us the enterprise messaging segment had grew about 40% last quarter. Any color on that this quarter?

[John Chen:]

Last quarter it was –

[Mitesh Dhruv:]

38% or 40%, I forgot. I think it was 38%.

[John Chen:]

It would be about the same. I mean it grew faster in our overall messaging revenue and overall messaging was up about 30. So it would have been, I don’t know if it's up to 40 but we've seen the 30.

[Mitesh Dhruv:]

My last question is on the Verizon deal that you have several deals in the pipeline. So just rank ordering in terms of magnitude, do you still see that this Verizon partnership could be as big as the SAP or I mean can you just put some dollars and sense around this?

[John Chen:]

So by 2010, Verizon business will be bigger than SAP.

[Operator:]

Your next question comes from Steve Koenig - Longbow Research.

[Steve Koenig:]

I will skip into one question here. It's kind of (inaudible) around on database license growth. So Oracle had slower, kind of late in this cycle, they were little better in November. You guys have some very impressive growth numbers clearly in analysis deterioration. Is there something in the market that’s affecting ASC or is IQ just growing off a bigger base and thus allowing its percentage terms or is the end of life of 12.5 a factor here, kind of what's behind the deceleration or do you think maybe you can keep up the kind of growth rates, keeping posting?

[John Chen:]

No, I never said we could keep up the 22% or 28% growth rate on average. I always said that our growth rate ought to be somewhere around 8% to 10%. So there's no, I mean I used the word deceleration and I will use that word because you'll be writing that I am not. But I think the market itself is probably about 5% growth market in the kind of traditional database, and the analytics growing in double digits probably about 15%, 20%. We're definitely ahead of these numbers. So it's really mostly because of tough comp. Did I said a year ago, we had a huge, huge thing, but it's not a, it's not really anything that's related 12.5 whatsoever. If anything 12.5 will help too, but that doesn’t mean the (inaudible) it's not related to that we haven't seen that being the factor.

[Operator:]

Your next question comes from Ross MacMillan - Jeffries.

[Ross MacMillan:]

Just two points of clarification if I could, you comment on the mobile software growth for 2010 of 10%, is that's the whole eye anywhere category you're talking about there, in other words does that include the mix of some of the higher growth product like Afaria versus probably more subdued growth for us equal anywhere.

[John Chen:]

Yes.

[Ross MacMillan:]

Okay that’s easy and then my other one because most of mine have been answered I guess just on your messaging operating margins continue to pick up, but the gross margin on messaging since that we accelerated has been running at about 4 or 500 basis points below last year. Can you just explain that dynamic to me what drives that and how we’re getting the increase in operating margin despite that little gross margin it’s just a shift of costs about the line or it’s something else thanks.

[John Chen:]

No, I mean the gross margin lines, a lot of them are depending on where the sources of the revenue and the traffic that comes in from. You would expected to bounce around a little bit. I guess in this particular phase somewhat telecom has termination clauses and so forth that is in the gross margin line as cost of – to assist this there is a cost of doing business, cost of revenue that is. So that is why what you see there and I don’t think there are any real direction or it doesn’t really tell us a lot awful lot and I mean that (inaudible) had before, the growth from the enterprise business has been marginally based outside the U.S. that’s also where you also see termination fees. So the change in the gross margin profile has been a bit because of where we've been growing with respect to this termination fees. There is still leverage in the model which is why have to get it on the bottom line.

[Ross MacMillan:]

Great and maybe just one last one on the analytics for the messaging carriers, I guess probably I saw that they were already reporting services that you provided and some of your competitors provided. So I’m trying to understand is this a brand new service that you will offer and are you going to differentiate yourselves relative to your major competitors and is there a chance that this offering could actually end up if you will allowing you to capture more power of your share if you will.

[John Chen:]

That’s one of the reasons why I encourage everybody to see the demo, once you see it you will understand why. It will really give you a lot of online query of very fast query because of the way IQ products and the graphical presentation and the user interface, so that’s very jazzy and so this will differentiate us from other people that provide message services. Obviously everybody are providing very static non-view time, near view time maybe a better way to say it. A simple network performance and messages get dropped into the pit bucket and all that, but this really helps understand where is it coming from, where is it going, why is it the case in a relatively real time basis and with alerts and you have alerts to SMS’s. So it’s something that we will find a way to demonstrate it to you all. But if you guys happen to be around, make sure that you have to see one. If not, then we are going to show them in May.

[Operator:]

You next question comes from Derrick Wood - Wedbush Morgan Securities.

[Derrick Wood:]

On the database, there has definitely been some questions around the end of life on ASE 12.5, so I guess as you look at the option of selling opportunity in the pipeline, I would think that the de-clustering option is the least penetrated and maybe has the most meaningful new revenue contribution capabilities in 2010. So, could you give us some figures as to what the penetration here is and what the pipeline looks like with this option or any other options that you are excited about?

[Jeff Ross:]

No, I don’t, I mean I don’t have anything updated right now. I just don’t have the data. On the average we expect every options to pick up by 30% of our install base and that’s kind of our motto, our financial motto. So some of the options are being picked up a lot more ready like encrypted call and I probably (inaudible) I have to get this volume more like a 70% base picked up. But so in-memory database should be a good one. It should be much better than 30%, much higher than 30%. I don’t know how many people use this typically back up and if there are, those will probably pick that up and time-series is also going to be a good one. So it varies a lot and I don’t really have the number in front of me nor actually I don’t really look at the number that way, I haven’t got those data.

[Derrick Wood:]

On the messaging side, I mean you said mobile marketing was probably the strongest segment in the quarter. I imagine that is more of a seasonal business, so as you look in at Q1, do you see some seasonality in that business and would you expect messaging revenue to be down on a sequential basis?

[Jeff Ross:]

Yes, there are some seasonalizations. Your observation is correct.

[Derrick Wood:]

As you are talking to CIO’s, what’s been the importance level of mobile enterprise initiatives are they, are you seeing a big inflection point here and if so what products do you think are best positioned to get traction in 2010?

[Jeff Ross:]

The easiest discussion right now is on Afaria. And then the next level of discussion is mobile, mobile application development platforms and so those are the two major ones that when I talk to them, is a simple straightforward conversations.

[Derrick Wood:]

And Afaria, you didn’t really breakout what you think that could grow in 2010, you could talk about that?

[John Chen:]

No, we don’t really break it down. But this is the fastest growing product in the mobile software environment that we have and earlier there was a question about whether that was, the Afaria would offset some of the growth and kind of that core traditional stuff. The answer is yes. So, we expect Afaria to be the number one. So far, we will expect Afaria to be the number one product in the mobile (inaudible).

[Operator:]

Your next question comes from Brad Sills - Barclays Capital.

[Brad Sills:]

Just one on IQ analytics, that’s obviously been a home run for you guys. Are there any other verticals that you see an opportunity to move up the stack into the applications that would sit on top of IQ that you've see an opportunity for?

[John Chen:]

Yes, right now we are very focused and this year, 2010, we are very focused on pushing CEP, the Complex Event Processing and then as far as vertical is concerned, we saw it moving the Telco vertical. We are probably going to start looking at either retail healthcare or energy. Energy has a very similar profile in terms of data, data management and data retrieval and trading to the financials verticals. But we know least about the energy in vertical but we know a little bit about retail and I think they will also probably could use IQ, so those are some of the areas we look at but it is something that we've been constantly watching and focusing and learning.

[Operator:]

Your next question comes from Kirk Materne - Rafferty Capital Markets.

[Kirk Materne:]

Maybe John, just real quickly, just sort of want your view, yesterday Oracle actually spent a lot of time talking about sort of complete integrated solutions up and down the stack. Just talk a little bit about that from your perspective obviously in analytics you see more appliances going in. And from a database view, do you see any real I guess concern in terms of people asking for fully integrated product from you all or from other say hardware vendors that you guys currently partner with?

[John Chen:]

So I think there’s a multiple level of the answers. Number one, the easiest answer is I can't afford to do the same thing; I'm not interested in buying the hardware company, therefore I had to add value on my own, and adding value in the kind of best of class. Number two, I do have a major pioneer in IBM to be able to put together and integrate up into their stalk and we've been doing that on ASC and now we'll be doing that on IQ with the micro strategy front end. So we do have an appliance offering, so if that become the key then we have an answer for that also. And then finally when I talk to the customers and you folks do a lot of general checks on this, I don't see the customer jumping, let's rely on one company to provide me the entire stack because that will imply the IT innovation is no longer a value add or mission critical. So I don't know whether that’s a good implication whatsoever I mean I’m not a market predictor, at least for the future is, but for the next few years, the way that we are doing, the value that we are adding, the technology that we are adding and the partnerships that we have in hardware, both IBM and HP now it’s -- I feel comfortable that we could do well in our business.

[Operator:]

Your next question comes from Shaul Eyal - Oppenheimer & Co.

[Shaul Eyal:]

Maybe a quick question on the analytic side, the financial service, is that kind of the largest vertical you have right now?

[John Chen:]

Yes.

[Shaul Eyal:]

What do you think kind of you are going to be moving with respect to, I know that you just mentioned Telco's and energy. In terms of the analytics themselves from a technology from a product perspective, do you see yourself kind of heading into within the financial vertical into anti-money laundering fraud that type kind of arena?

[John Chen:]

We do have some solution with partners when Patriot Act first out and then we do have a solution that you people use this for AML that mean the Anti-money Laundering. So, those are something that we could offer today either by directly ourselves or partners that we have. So I don’t think that’s going to be a huge unless there is some huge changes out there, that will kind of rejuvenate that particular selling. I do have, as I pointed out earlier the real time (inaudible) of analytics or financials are very important and we see that to be more and more important and this we rely a lot on that being a growth driver in 2010. So that’s why we keep talking about the CEP or part of the world. So stay tuned on some of those stuff, I think we could give everybody a better road map in May, but we are working on it.

[Shaul Eyal:]

Just maybe a final one. Is Akamai, is that company that you're seeing on the financial verticals maybe on the AML side?

[John Chen:]

Akamai, I don't know who they are, I don't know that I've seen that much about Akamai, but they probably say the same thing above me. No, I don't see them, that, no.

[Operator:]

Your next question comes from Robert Schwartz - Schwartz & Company.

[Robert Schwartz:]

Just one quick follow up to Curtis question about IQ in the go to market and the appliances. I mean we got this relationship with IBM and I'm wondering if you're increasing marketing spend for 2010 and the number of sales people dedicated to this product in this offering given that it's going to be more noise around appliances?

[John Chen:]

We have increased marketing spend. I don't know where it's particularly directed to making the IBM appliance push but since we already had it out in up running and we have customers, joint customers on it. We have a increased product alignment actually I know that’s going on. So there's a very easy thing to us to add increase (inaudible) that's not a hard thing to do I mean we can do in a very relatively short time.

[Operator:]

Mr. Chen with no further questions in our queue, I'll turn things back over to you for any additional or closing comments.

[John Chen:]

Wonderful. Thank you all, I really appreciate the interest and we obviously feel very good about our business. And so to close that, please mark your calendar on the analyst date on May 20th in New York. And at that time, we would like to give you -- there will be a lot of questions you have will be answered in more details in terms of some of the roadmaps with the analytics, the SUP, future roadmaps and the progress we’re making with the SAP, with some of the Management Services pioneers as well as with IBM for that matter. So again we thank you for your interest. We hope to speak with you before that -- before the end of next quarter if not then. Thank you and have a good day.

[Operator:]

This concludes today’s conference thank you all once again for participation.