So-Young International Inc.
Q4 2007 Earnings Call Transcript

Published: 29 Jan 2008

[Operator:]

Good day, everyone, and welcome to the Sybase Q4 2007 Earnings Conference Call. Today's call is being recorded. Our speakers today are Chairman, Chief Executive Officer and President, John Chen, and Chief Financial Officer, Jeff Ross. I would now like to turn the conference over to Mr. John Chen. Please go ahead, sir.

[John S. Chen:]

Thank you. Thank you, very much. Good morning everybody and welcome to our call. Let's begin with Jeff providing the Safe Harbor language.

[Jeff G. Ross:]

Thanks, John, and good morning to everyone. Today certain statements we will make will be forward-looking statements, including the statements regarding our future growth, future operating results, potential business combinations, market opportunities and business prospects. While these forward-looking statements represent our current judgment on what the future holds; they're subject to risk and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements which reflect our opinions only as of the date of this call. Also please keep in mind that we are not obligating ourselves to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. Throughout today's discussion, we will attempt to present some important factors relating to our business that may affect our predictions. Actual results and the direction of our progress and our future growth, if any, could differ materially from statements we make or imply for a variety of reasons. Those reasons are described in our press release and in SEC filings including our annual report on Form 10-K for the year ended December 31, 2006, and the quarterly reports on Forms 10-Q for the three month periods ended March 31, June 30 and September 30, 2007. All non-GAAP amounts disclosed in this conference call have been calculated and presented in accordance with the most directly comparable Generally Accepted Accounting Principle financial measures, which are posted in the earnings release section of our Investor Relations website at www.sybase.com. And now, John will provide an overview of our 2007 fourth quarter and full-year results. Over to you, John.

[John S. Chen:]

Thank you. Thank you, Jeff. We are extremely pleased… you all have the results in front of you, we are extremely pleased with our Q4 financial results, which help us complete the best year ever in the history of the company, the 23 years history of company. Our performance enabled us to deliver all-time record highs in revenue, operating margin, earnings and cash flow from operations for the fourth quarter as well as the full year. While I'm not going to call out all the records that we broke or we set because we only have an hour on this call, I would like to highlight a few noteworthy once. First, our full year revenue came in at $1.026 billion, was indeed the highest in the company history. Additionally, our annual revenue exceeded our most recent guidance and was consistent with our outlook entering 2007. Non-GAAP operating margin of 22% versus 20% last year show very impressive leverage in a year that we integrated the Mobile 365 acquisitions. Non-GAAP full year earnings of $1.70 soundly beat our expectation of $1.52 entering the year. Lastly, but not the least, of course, full year cash flow from operation came in at $254 million compares extremely favorably with our initial expectation for the year. In addition to all these many records, the common theme here is that we consistently meet or exceed our plan. The annual results also demonstrate that our approach to managing the business for the full year rather than a 90-days window is the right approach. You may recall our decision to defer a large deal in Q2 because of, I would say, less than favorable terms, which disappointed some of you, but ultimately that deal closed in Q3 and bought us meaningfully higher revenue. This is one example of our disciplined approach to managing the business for the long-term, allowing us to deliver to shareholders the best year in our history. Clearly, lots of credit goes to the momentum behind our Unwired Enterprise strategy. This is a function of the increasing technology and channel synergies across our entire businesses, as our product converges and expanding the size of... and that would expand the size of our addressable market. To give you some example. Our Unwired Enterprise platform combines the mobile middleware technology with messaging services to enable the delivery of mobile applications, whereas similarly we combine our infrastructure solutions with our mobility technology as well as the messaging services to create our mobile banking platform. We'll have more of that later. We are also benefiting from significant channel synergies in the form of cross selling of mobility products by our enterprise sales force. We are extremely proud of our consistently strong execution, which has driven the following achievements

[Jeff G. Ross:]

Thanks, John. Let me take you through the numbers for the 2007 fourth quarter and the full year. I'm going to start with Q4 results. During the fourth quarter, our total revenues increased 15% to $295.2 million. License revenues for the quarter grew 12% to $112.9 million. Services revenues grew 4% to $143.5 million and messaging revenues were $38.8 million. All geographies grew year over year. Total revenue for North America increased 16% year over year to $145.4 million and represented 49% of our total Q4 revenue. Europe came in at $106.2 million, up 11% year over year and represented 36% of our total revenue. Finally, our intercontinental region, which includes Asia Pacific and Latin America came in at 43.6 million, up 25% year over year and representing 15% of our total. Some of you have raised concerns regarding our reliance on financial services. I'd like to spend a minute to highlight the diversification of our vertical mix. During 2007, technology and OEM was by far our largest vertical. The second largest was financial services, but was followed closely by telco, which was of course boosted by the addition of Sybase 365 messaging revenues during the year. We also generate significant revenues from our government and transportation verticals. Non-GAAP operating income for the fourth quarter increased 29% to $81.8 million. This represented a 28% operating margin compared to 25% operating margin in the fourth quarter of 2006. Non-GAAP net income for the quarter was $55.4 million with our non-GAAP fully diluted EPS at $0.61, which was up 17% year over year. On a GAAP basis, operating income increased 33% year over year to $66.9 million, representing an operating margin of 23%. GAAP-based net income was $73.5 million or $0.81 per share. Cash flow from operations was $83.5 million and was up 65% year over year. Now, I will switch to our 2007 full year results. Our revenue for the full year was $1.026 billion, up 17% year over year. Non-GAAP operating income was $220.8 million, and was up 26% year over year. This represented a non-GAAP operating margin of 22%, up from 20% in the previous year. Non-GAAP net income grew 12% year over year to $157.3 million or $1.70 per diluted share. GAAP operating income for the full year was $168.6 million, up 26% year over year. This represented a 16% GAAP operating margin up from 15% a year ago. GAAP net income was $148.9 million, up 57% year over year, and GAAP EPS was $1.61, up 56%. Due to our strong US profits during 2007, along with a profit outlook for 2008 consistent with our recent performance, we were required to reverse certain valuation allowances on tax assets in the fourth quarter. This adjustment, which reduced our GAAP tax expense by $27 million, did not impact our non-GAAP results. Full year cash flow from operations was $254 million, up 18% year over year. Growth in our cash flow from operations was driven by our strong earnings growth and margin expansion as well as capital... working capital improvements. A more detailed description of the reconciliation between GAAP and non-GAAP numbers is contained in our press release distributed pre-market this morning. I would also like to provide a few additional details highlighting the strength of our financial position. Our year-end cash balance was $738.3 million including a restricted cash of $30.4 million. Our total debt was unchanged at $460 million. This represents a debt-to-market cap ratio of 20% compared to a debt-to -market cap ratio of 10% for our industry peer group. Capital expenditures in the fourth quarter were $6.5 million; depreciation for the quarter was $7.2 million. Both capitalized software and the amortization of capitalized software were $9 million for the quarter. DSO for the quarter was 75 days on a consolidated basis, down slightly from the previous year. Deferred revenue was $208.7 million, up 6% year over year, reflecting strong maintenance renewals and our growth in license revenue. Yields over 1 million represented 31% of Q4 license revenue, which is a consistent percentage when compared to the fourth quarter of 2006. And our head count at the end of the quarter was 3,970 employees. During the quarter, we repurchased 75.3 million worth of Sybase stock for total year-to-date repurchases of 166.7 million. There currently remains $83.1 million authorized under our stock repurchase program. With that, I'd like to turn it over back to John. John?

[John S. Chen:]

Okay. Thank you, Jeff. Before I go to the numbers that outline the guidance, I'd like to spend a little time on kind of the overall views of how we're going to manage and run our business this year in 2008. We are re-implementing a number of strategic initiatives, designed to sustain the business momentum, the great business momentum you've just seen. On the operational front, we are creating a Global Financial Services Group, chartered with cross-selling all Sybase products and services. In the future, we'll form a similar group for Telco. Secondly, we are streamlining our sales channel to achieve greater go-to-market efficiency and created a much broader non-overlapping channels or at least reaching to the channel. As a result, the IPG reps will be responsible for global name accounts, the iAnywhere sales force will focus primarily on the indirect channels, and the Sybase 365 will focus singularly on hosting all Sybase technology. By doing so, we also have redesigned our internal systems, including comp plans to motivate the achievement of all that. Lastly, we will continue to gradually push through our maintenance price increase, which will bring us more in line with our industry peers. On the product front, we are introducing several very new and exciting products and offerings. First off, the ASE Shared Disk Cluster which enables grid computing. This will GA this quarter making us only the second vendors to introduce or have this ability or have this technology. The risk analytics platform which is built on an IQ engine and targeted at the financial services sector is scheduled to be launched in mid-May at the New York Stock Exchange in conjunction with the Sybase Classic. Thirdly, the m-commerce platform, which comprise of mobile banking solution, advanced mobile payment capability and mobile remittance capability, this solution targets emerging very high growth market in mobile commerce. We are targeting this the second half of 2008 to deliver most of all these capabilities. We obviously expect all these products will facilitate our entries into new markets as well as serving existing ones. On the current environment, we read the same headline you all do and in fact some of you wrote some of these headline and we are sensitive to the uncertain macro fundamentals. Nevertheless, we feel very good entering the year. We believe the company... our company will do well or the company that would do well are those with the strong balance sheets, manage expense judiciously, focus on execution and are sensible, yet opportunistic with their cash. This is how we will manage our business in this environment. We believe the strategic initiative that I just laid out and the product set that we just laid out will provide incremental growth opportunities. We further believe that we are very well diversified from a vertical and geographic standpoint with half of our business coming from outside of North America. I'd like to also remind everybody that Sybase 365 gives us very important diversification into the telco verticals as well as very predictable revenue stream. These factors give us added confidence in our 2008 outlook and it should insulate us if domestic IT spending softens this year. Now on to the guidance. For the first quarter 2008, we anticipate revenue in a range of $240 million to $250 million with a non-GAAP EPS to range between $0.30 to $0.35 per share, the GAAP EPS to be in the range of $0.21 to $0.26 a share. For the full year 2008, we anticipate revenue in the range of $1.075 billion to $1.09 billion. Because of the higher operating margin exiting 2007 and our plan to continue to expand by 100 basis points next year or this year, 2008, currently the First Call consensus EPS is a bit low. We expect the non-GAAP EPS to range from $1.85 to $1.90 and the GAAP EPS to range from $1.50 to $1.55. We anticipate cash flow from operation to range roughly between $220 million to $240 million. We plan to repurchase a minimum of $50 million in Sybase stock per quarter going forward. Finally, before I open up the call to your questions, I would like to comment briefly about the recent activist activity in our stock. As many of you know, an activist shareholder recently announced intentions to nominate three replacement candidates to our Board at the company's 2008 annual meeting. Since we have been in quiet period and as well as closing our quarter and the year, we have not been able to have any dialogs with you on these situations. Let me say at the outset that we always welcome the views of our shareholders with the sheer goal of enhancing value. Our Board, which is comprised of a majority of independent directors who are proven business executives, is actively engaged in the company's strategy. Our Board is committed to act in the best interest of the company and all Sybase shareholders. Sybase has a proven record of solid overall financial execution. Our management team, with a full support of Board, has delivered double-digit return over the last past three years. In closing, we're proud of our achievements and feel very good about our company's future. That concludes my prepared remarks. Since this is an earnings call, we would very much appreciate if you will limit your question and comments to this morning's earnings announcement regarding our fourth quarter and full year 2007 results as well as our 2008 outlook. Thank you for your cooperation and understanding. Operator, could you please start the Q&A process? Question and Answer

[Operator:]

Operator

[Alan Cooke:]

Thank you, very much.

[John S. Chen:]

Good morning, Alan.

[Alan Cooke:]

Good morning, John and Jeff.

[Jeff G. Ross:]

Good morning.

[Alan Cooke:]

Could you talk about the strength that you saw in verticals in Q4, particularly in... specifically talk about each one, financial services, OEM and the other verticals?

[John S. Chen:]

Okay, sure. Well, Jeff has already pointed out, we looked through our numbers; in fact, all the verticals seems to be reasonably strong. There were no slowdowns on financials. The OEM or the technology sectors, the VARs and the OEMs are very, very strong. and so those two are basically a driver. You know about the telco, and we talked about Airtel and Ericsson and so forth, so those are actually spending money. So, there hasn't... there is no really soft area, at least not in Q4 we haven't seen that.

[Alan Cooke:]

And does your pipeline look as good now as it did, say, a year ago?

[John S. Chen:]

Does the pipeline look good? Yes, the... I have checked with all our business drivers, business owners, and they all feel good about the plan that we lay out in front of us, and there doesn't seem to be any of that either. It looks pretty good.

[Alan Cooke:]

All right. And for Q4, can you talk about your growth in your maintenance revenues and maybe if you can break that up between the database business and the mobility business?

[Jeff G. Ross:]

No. I don't have the... I don't have a breakout of database and mobility business. I mean, maintenance, because it is such a large pool and is based on VSOE, they're all previous licenses or all are either site agreements and so forth. So, it's extremely high. I would say the percentage will be... as the percentage of the two operating units.

[Alan Cooke:]

Okay. But can you talk about how... overall then how much did the maintenance business grow?

[John S. Chen:]

That's well about 5%.

[Alan Cooke:]

About 5%. Okay. And then --

[John S. Chen:]

And just obviously, Alan the combination of previous quarter’s and previous year’s license growth, therefore I've got more maintenance as well as the slight modest increase of maintenance as it rolled through the system… I mean, rolled through the entire base.

[Alan Cooke:]

Okay. Great, thanks. And in terms of the licenses, so, licenses grew 5.5% for the full fiscal '07. And how should we think about license growth going forward? That was a slowdown from fiscal '06, what are your expectations for fiscal '08?

[John S. Chen:]

Well, I think that we are in pretty much the same area, I think 6% to 8% license growth. Overall, it's a pretty reasonable target, I think higher in database, probably 8% to 10% like what we've seen today in 2007. We don't see any mixture changes on that; of course, now we are on a little higher base.

[Alan Cooke:]

Right, okay. And so you've said higher in database 8% to 10%, so does that mean lower in mobility?

[John S. Chen:]

No. We have a lot of other products in the enterprise group –

[Alan Cooke:]

Oh, got you. So, that 8% to 10% is the --

[John S. Chen:]

The [inaudible] and so forth. We are very concentrated, we're very focused on building the database business.

[Alan Cooke:]

All right. And so what sort of license growth are you expecting in the mobility business?

[John S. Chen:]

I would say 10% plus somewhere between 10% and 12%.

[Alan Cooke:]

All right, thanks. And then for Sybase 365, are you seeing any synergies there because looking at your results, it looks like there was about $5,000 in license revenues in Q4. But just wondering are you seeing any synergies with Sybase 365 and the other two businesses, and what do you expect going forward?

[John S. Chen:]

Absolutely. You wouldn't... first of all, they are focused entirely on hosting. A number of platform and products that we talk about like Answers Anywhere is a mobility product and from iAnywhere is all being hosted by 365. You should not be looking for license in the 365 segment as the indication of synergy. The synergy is really… the product and channel synergy is really, really far, far reaching. I'll give you one example. For Asia-Pacific, our entire IPG group and the 365 groups have a common pipeline list for pushing mobile banking and those are combinations of basically hosting of a solutions that IPG has. So, you should not be looking for license numbers in the 365 segment and interpret this anything other than just license.

[Alan Cooke:]

Okay. So, how could we tell whether or not your synergy is taking place?

[John S. Chen:]

I will have to report on that, yet can’t tell from the numbers specifically.

[Alan Cooke:]

Okay, all right. And then my last question is with respect to your buy backs. You did $75 million in the quarter. Your authorization, are you planning to increase that for fiscal '08?

[John S. Chen:]

Well, we have to go back to the Board and ask that. We probably have to because otherwise, we only have 83 left. We said we're going to do 50 a quarter, so it will be gone in a quarter and a half. So, before it is over I do plan to present our cash flow, cash usage to the Board of Directors and they will make a determination and, of course, I'll make a recommendation, but they would then have to approve the increase of the buyback. But given the history that we have, I don't... we’ve been in the buyback for eight years, I don't really believe that our Board has any concern about that. So, I would expect, not guarantee, I would expect approval.

[Alan Cooke:]

All right. And lastly, even with the $75 million in buybacks, it looks like your share count really didn't go down by much and you're still left with a lot of cash in the balance sheet. Why don't you increase the amount of buybacks that you are doing on a quarterly basis even greater than what you did in Q4?

[John S. Chen:]

Well, I would have to talk to the Board about it.

[Alan Cooke:]

Okay. Thank you.

[Operator:]

We will go now to Trip Chowdhry with Global Equities Research.

[John S. Chen:]

Hey, Trip. How are you?

[Trip Chowdhry:]

Hello. Good, good. Congratulations on good execution, at least you surprise us positively. Two questions here, John. Since I think in a difficult environment it's always good to have focus on long-term and not get sidetracked by the short-term tactical decisions, have you decided like stop giving quarterly guidance and just focus on the yearly guidance as some forward-thinking companies in Silicon Valley like VMware and Google don't give quarterly guidance. Do you think it will be prudent at least for this fiscal year, stop giving quarterly guidance?

[John S. Chen:]

We would... Trip, thank you for bringing that up. A year or plus ago I already have expressed that as a potential with everyone of you on the call. We have not yet to do that at this point but we will... now there’s more and more company like you pointed out in the industry leading the charge. I think this is the more sensible way going forward, but I don't know when we are going to do that yet. But we will obviously consider that. Now that you’ve brought it up, I'm sure Jeff will rejoice, if I tell him that that's what we're going to do.

[Jeff G. Ross:]

Hallelujah, John.

[John S. Chen:]

And so Jeff would jump up and announce it’s great. So, it makes sense and, as you see, Trip, if we could run the business on an annual basis, I think the shareholder really benefits. The customers then know that they have one less leverage to say, "Well, this is June 30th, my friend, what do you want to do?" And we should just focus on value we add to the customers and the need base, matches up their needs. It shouldn't be matched up to calendar, a date. I absolutely agree with these progressive company like you said, the VMware and the Google. We would do more research and maybe if you know of any great experience of that, you let Charlie know, and we would do... we will take it as an action item.

[Trip Chowdhry:]

I think as a... just as a quick, our research shows that US companies are at a disadvantage because we as investors focus too much on the short-term and because we're focused so much on short-term, our own companies get hurt in the global market, so that's just a thought. Second question I have is regarding raising the licenses fee. We just came to know that Oracle has raised the licenses fees by 10% to 15%, and I was wondering have you thought of doing that or are you doing that selectively?

[John S. Chen:]

We are doing that selectively with new products, and we have not universally done that yet. And we could actually learn from the Oracle experience and see what it is actually. It's something that the market will absorb. I think this year, we've somewhat of a turbulence in the market, probably not very wise to raise the license fee. Because even if you could get away with it, I don't think the customer will really like that. And therefore, over time, it may hurt the relationships, and I would probably stay away from doing that this year, in 2008. But with the new product, we're going to price it correctly and we would price it rather aggressively from that point of view.

[Trip Chowdhry:]

Just a follow up, we are in the midst of doing some research right now. It seems like customers who have more than 50 terabytes of data stored in a database, they are not price sensitive. And for them, the price increase is fine. Would you happen to know what percentage of your customers have data stored in your databases which is more than 50 terabytes. Probably you can target them and increase the rate for them?

[John S. Chen:]

Yes, it could very well be, but I don't have that numbers at my fingertips here. But I appreciate the comments.

[Trip Chowdhry:]

Thank you and congratulations. Good execution in a very terrible environment.

[John S. Chen:]

Thank you Trip.

[Operator:]

Thank you. We'll move now to Kirk Materne with BoA Securities.

[John S. Chen:]

Hello, Kirk.

[Kirk Materne:]

Hi, John. Thanks very much for taking the question. When you look forward into '08 in terms of your guidance, I think originally you'd sort of targeted Sybase 365 at 10% to 12% operating margins for this year, correct me if I am wrong. But I guess do you still see that range as being valid? You guys just put up a very solid fourth quarter, you’ve been sort of ahead of plan to date. Does that 10% to 12% still... is that still sort of what you are looking for from that business, or I want to... I am trying to get a sense on where are you targeting things for '08?

[John S. Chen:]

Well I think it's always sensible to think… a good question by the way. If you ask Marty, he said 10% to 12% is great. If you ask me, it's probably got to have to be a little bit higher. I think we should probably be targeting at 12% to 14% and especially with the synergy, being able to hold some of the traditional license based applications, I would expect us to be able to get more margin dollars.

[Kirk Materne:]

Okay. But your guidance is more predicated on that 10% to 12% level, is that right? Being what baked into your '08 guidance is more along those 10% to 12% lines?

[John S. Chen:]

Yes. I would say more like 12%. I think it is somewhat at the higher end. And as I said earlier, that probably has a little bit upside. What we talk about, the plan that we laid out comes into fruition, we should be able to get much better margin.

[Kirk Materne:]

Okay. And then just... this harkens back to an earlier question, but just on the license versus services year over year growth for '08, given that your... you obviously had a bigger build up of license growth over the couple of years and you are pushing for a maintenance increase. Should sort of your maintenance revenue be growing a little bit more in line with your license revenue this year? I know license still outpaced it this year, is that going to sort of come back into more into line with one another this year potentially?

[John S. Chen:]

Probably... I don't know the answer to the question. In the maintenance increase environment, some of them are little tricky. First of all, as you know that maintenance are being renewed on an ongoing basis, so it doesn't really come in one lump sum, and then we obviously take it across the year also. So, therefore, if you just match this up on a quarterly basis, it probably doesn't make a lot of correlation sense. But if you match this up from a year or multi-year basis, I think your... eventually what license growth there we've been recorded will show up in the maintenance increase also. And so it will come through, it will kind of get to a normal point of growing in tandem, maybe a little bit of a time lag. Am I making any sense to you?

[Kirk Materne:]

Yes, that's fair. That's fair. I'm just trying to get sense. So, directionally --

[John S. Chen:]

Yes, don't look at it on a he quarterly basis that you grow this and therefore you should grow that. But if you look at on a longer-term basis, we should be seeing maintenance upticking because of license growth.

[Kirk Materne:]

Okay. That's fair. And then just last question for Jeff. Your assumption for the non-GAAP tax rate for '08?

[Jeff G. Ross:]

For the full year, somewhere around 37%.

[Kirk Materne:]

37%. Okay.

[Jeff G. Ross:]

Yes, that... it maybe slightly higher in Q1 but for the full-year 37%.

[Kirk Materne:]

All right. That's all I needed. Thanks very much.

[John S. Chen:]

Thanks.

[Operator:]

Steve Koenig with KeyBanc Capital Markets has our next question.

[John S. Chen:]

Hi, Steve.

[Steven Koenig:]

Hi. Thanks for taking my question. Just a complete kind of questioning on guidance and then a quick follow-up. You talked about pretty much every other component, just getting back to services for a second, can you give some color then on what kind of overall growth would you expect to see on the services' line in '08?

[Jeff G. Ross:]

Yes. We usually factor around the 3% growth.

[Stephen O'Rourke:]

Okay. So, no real change from '07?

[Jeff G. Ross:]

No. Not much of a change from '07.

[Stephen O'Rourke:]

Okay. Great. And then also just related to guidance, as we move through the year, any thoughts on where we might see more potential variability in terms of seasonality, with respect to things like site licenses or where customer actual spending versus budget can impact you? Where are you more confident and where could we see more volatility as the year progresses?

[John S. Chen:]

Okay. Good question. Q1 and Q4 are always better quarters; Q2 and Q3 are always a little tougher. And some of them have to do with seasonality; some of them has to do with the comp plan at the end of the year [inaudible] and so it has a number of factors. But all the historical trend and all the... and even on the timing of renewal, a lot of the renewal are in Q4, so Q4 tends to have a little better tractions on those. And of course, the first quarter, we also benefit from a strong pipeline going into this Q4 or the past Q4 always rolled into the Q1. So, we get a little better visibility. That said, I think it's not meant that therefore everything is guaranteed. We still need to work at it, but you kind of have a lot of things to work with in January. So, Q2 and Q3, especially Q3 being Europe, basically have half of working days, so to speak, gets very tough because we dropped quiet a bit of business out there. And Asia, Q1 is usually low because of Chinese New Year and every other holidays they could drum up. And so that's kind of where things are. So, if I were on a volatility basis, I would look at Q2 and Q3 being a little a lower cycles. 2 and 3 is harder to predict as individuals. 2 and 3 together is a little bit easier to track, to predict, and that goes back to Trips point, and 1 and 4 are a little bit easier for us to have a better visibility.

[Stephen O'Rourke:]

Okay. That's very helpful. I appreciate that. So, John, I can't resist then as a parting question just asking you about some developments in the database market. MySQL being acquired by Sun, who is an Oracle partner, is Oracle mad or glad about this and would this have a chilling effect on MySQL, could it benefit you guys in terms of less competition for AFA, et cetera?

[John S. Chen:]

Well, we are looking for way to benefit us. I have number of meetings with my folks and Raj and the database team and marketing team, and we think we could offer the market and other MySQL partners maybe a very, very solid alternatives. And so, it won’t really affect us negatively, will probably more... there might be some opportunities here. As far as whether Oracle is mad or not, you’ve got to ask Oracle.

[Stephen O'Rourke:]

Okay. Thanks. I appreciate that. Congrats on the quarter.

[John S. Chen:]

Thank you very much.

[Operator:]

And we'll move now to Robert Schwartz from Jefferies.

[John S. Chen:]

Hi.

[Robert Schwartz:]

Thanks for taking my questions? Hi, John.

[John S. Chen:]

Hey Robert. We've got our database full, right?

[Robert Schwartz:]

You sure did, congratulations.

[John S. Chen:]

Okay, go ahead.

[Robert Schwartz:]

You quickly, at the end of your comments went over several key initiatives and I was just hoping if you could give us a little more color on them, particularly around your sell-thru reorganization? Could you talk to us about where you are in the process in terms of rolling it out with your sales people? When did the comp plan roll out, and were there any big movements in terms of senior management in that process?

[John S. Chen:]

No movement, no big movement in senior management; in fact, we're hiring a number of them in addition. Very, very pleased with that. There is no reorganization in the sales force, there is a reorganization in the comp plan. And in fact, it's been welcomed rather universally, because in the past when we're doing the product specific and channel specific... not all the IPG reps, for example, lay their hands on the mobility stuff. Now, if the IPG reps target an account, he or she will have the full platform of it all and so this is being extremely... this is kind of relaxing to some of those sales organization. There is no reorganization. Everybody is in place, and we are adding more people to it, and things are pretty good. Now as far as comp plan rolled out, we always try to roll it out by January 31. If you ever [inaudible] you will know that that is extremely ambitious, but then before March 31, everything will be ruled out. So, because, there is a lot of negotiation, also obvious. But this is true, for 23 years of Sybase, so about 600,000 years in the industry, so nothing... but we are very bullish on where we are in the sales execution.

[Robert Schwartz:]

Okay. You talked about the maintenance price increases, what's behind that and can you give some more notion of the magnitude?

[John S. Chen:]

Yeah. We said it's going to be about 3% to 4% growth. You saw that in Q3 and Q2 on '07, our results were maintain growth at 4% year-over-year, in Q4 it was 5% year over year, we probably should be able to see the same magnitude going forward, but the maintenance increase is a slow roll process. We're just increasing the standard of living and want to make sure that the customers are comfortable with where we are and... so it's just a slow... it's a much slower process on that, but it will come as I said. The pricing will be a little firmer and standard of living adjustment. Also that... since we're doing better in license growth than the last two years, I would truly fully anticipate that is going to roll through and benefit our maintenance line.

[Robert Schwartz:]

Okay. You posted 30% margins in the iAnywhere space. Is that anyway sustainable going forward?

[John S. Chen:]

No, no. That one actually really, really surprised me to the positive. I... My motto has always been may be about 25% when they do it very well and because we have an ongoing investment in it, the fact that IPG sold so many... so much of iAnywhere product this past quarter really gave Terry a really big bump on that, a positive one, of course, but that really is the... that's the synergy. I mean people ask us why, I mean, that is the... you now see it.

[Robert Schwartz:]

Okay. There is a lot of examples out of Asia and how much are you depending on Asia for the targets that you have set for '08 and what kind of currency impacts rate are you building in your plan?

[John S. Chen:]

We never really build any currency impact to the plan. That... we --

[Jeff G. Ross:]

Either up or down.

[John S. Chen:]

Yeah, either up or down. So that's not in the picture there. How much is growth in Asia. Asia experienced double-digit percentage growth in this past quarter from a year ago. Looking... and in fact I'm going to go and have a conversation with the Head of APO as well as the controllers about this soon. From what they have indicated and the amount of... the number of people they are hiring everywhere, I would expect that the double-digit percentage growth in Asia would be continued.

[Robert Schwartz:]

Okay. And last before I hand it off, you had excellent growth in the 365 business

[John S. Chen:]

Right.

[Robert Schwartz:]

I'm wondering how do I think about if I had to do an analysis of variance in attribution, was it just growth in message volumes at existing customers, was it addition of some large customers, do you think it was seasonality, how do I think about that?

[John S. Chen:]

Actually all, seriously all three of them. The answer is yes, yes and yes. We have a lot of great new customers. The good thing about the business, this business is, I mean we really don't see a slowdown on message volume and sophistication of the message. In fact, MMS in North America jumped quite a bit year over year. So, this should, should and would and could and continue, especially all these great phones like between HTC and Motorola and Samsung and iPhone and so forth and so forth, multimedia messaging is kind of now the most acceptable thing to do, and so those are good margin for us. So that's part of that. So, growth really from new customers, from existing customer using more both in enterprise as well as telco pretty much, and geography expansion and now we introduce three sets of new products. This looks pretty good.

[Robert Schwartz:]

And the impact of pricing in there?

[John S. Chen:]

No, we haven't really seen, no. We have not seen the impact of pricing everybody talked about. Maybe it was... maybe the growth was so fast, just kind of assumed that. But I'm not exactly sure. But when I asked the business owner like Marty, the answer is no.

[Robert Schwartz:]

Thank you very much.

[John S. Chen:]

I think people… I spoke to some of the very top customers myself. And their focus is not so much on pricing. Their focus is... because they are growing their revenue, their focus is on scalability, their focus is on delivery, on real-time, their focus is on reliability and delivery. Every time I talk to them, they said, John, makes sure your system is up and is reached worldwide, and the rest we could talk. And so I don't really see that as the top on their list.

[Robert Schwartz:]

Thank you.

[John S. Chen:]

All right, thanks.

[Operator:]

Thank you. We'll move now to Terry Tillman with Suntrust Robinson.

[John S. Chen:]

Hi, Terry.

[Terry Tillman:]

Hi, guys. Thanks for taking my questions.

[John S. Chen:]

Absolutely thank you.

[Terry Tillman:]

John, don't worry. I haven't run out of questions by the way. I still have some here.

[John S. Chen:]

We don't have a lot of time left but --

[Terry Tillman:]

Yes I understand. First on the shared disk cluster option, can you may be more specifically say when are we going GA and what kind of feedback you're seeing? And lastly, is that baked in at all, any kind of success from the 8% to 10% database growth assumption?

[John S. Chen:]

Okay. We have roughly above 12 data [ph] right now that are actually going around the world. The feedback I personally have got… well, this is the feedback report I got that was all positive. The things that we found or they found and they... our engineering folks are working on kind of some of the… some were the run of the mills, there is nothing really broad and deep. So, those tells me that it looks pretty good in terms of the product stability and features what we promised and what we're delivering. A couple of key customers I've spoken with, they like it a lot, and I have one of them baked into my Q1 numbers too. So, the answer is yes, it has baked in very modestly to the 8% to 10% growth.

[Terry Tillman:]

Okay. And then just a financial question, on the deferred revenue side, that is one of the highest growth rates at least we've seen in years, at least the last three years. Was there any kind of software deals because of VSOE or are you just had to push into deferred revenue or was there anything that was kind of abnormal to help start driving that growth a little higher?

[John S. Chen:]

No. I'll let Jeff answer the question. No...Terry, its illegal to push anything into the deferred, so you’ve got to be careful in asking the question, but then I'll ask Jeff --

[Jeff G. Ross:]

There was nothing unusual. Again, we had strong license revenue growth. I think you're starting to see that on the deferred maintenance line. The other... there is a modest increase due to the pricing changes. You are starting to see that with respect to Q4 customers. So, I would say those are the two biggest contributing factors.

[Terry Tillman:]

Okay. And then, I guess the share count assumption, what should we be looking at for full '08, full-year?

[Jeff G. Ross:]

Probably based on what we've messaged, I would expect share count to be probably in the 88 million range for the full --

[John S. Chen:]

Million shares?

[Jeff G. Ross:]

Yes, 88 million shares, yes, for the full year. That will obviously come down over time, and the full impact of our Q4 repurchase will also start being reflected a little bit more.

[Terry Tillman:]

Okay. And then just last question. I know I'm running out of time, but John, with some of the headlines we've seen at least in January with the shareholder activist situation and potentially a proxy fight, you've got some pretty shrewd customers. I'm sure they're always trying to have some leverage and use things against you so to speak in the negotiating process. Are you seeing any hesitancy and/or disruption from some of this customers asking are you're going to be around? What's going on with this proxy fight? Are you seeing any impact or any disruption or hesitancy?

[John S. Chen:]

Well, I'm going to be very careful as I said, Terry, about answering question related to this area. But, in kind of a broad stroke, every time a strategy is up for debate, it does hurts the confidence of not only the partners and the customers, but also our employees. So, but that said, it's our job to manage it and you show the... you've seen the Q4 results and the Q3 results. I mean the great thing about this company is that we've a lot of committed people that are very capable with their heads down and our management teams are very strong and go pretty deep and they are working hard at it. So, once we have all these things behind us and resolved, we're going to able to execute our strategy faster and looking forward to providing continued growth and better results. But, thank you for the question. It’s hard questions to answer at this point. Terry?

[Terry Tillman:]

Yeah. Thanks, John.

[Jeff G. Ross:]

Thanks. Okay. Are you done? Terry?

[Terry Tillman:]

Yes, I'm done. Believe it or not, I am done.

[John S. Chen:]

Thank you very much, Terry. Thanks, by the way, for all your support, all these years. I'm glad we could do something and not to embarrass you. And so, okay... is it that... I think we are running out of time, and let me just give one closing comments or remarks. We're hosting a Unwired Enterprise Analyst Day focused both on the roadmap and the progress of the analytics and mobility together in conjunction with Sybase Classic in the week of May 12, the week of May 12, this year in New York. And also during that week, the Sybase Classic week, the former Fed Chairman, Alan Greenspan will deliver a keynote address at our customer launch of our Risk Analytics Platform and we choose New York Stock Exchange as the venue. It promises to be a very exciting week in New York for Sybase, and so please mark your calendar. We look forward to seeing you soon and speaking with you in the coming quarters, and thank you all for your support and your participation today on the call.

[Operator:]

And that does conclude our conference for today. Thank you all for your participation. Have a great day.