openwave 07/23 4th qtr 2002
IR Mike Mussin, Don Listwin Pres/CEO, Kevin Kennedy COO, Alan Black CFO
Don:
2 goals 1.sense of mkt conditions 2. update strategy
Mkt conditions: perfect storm, carriers focussed on cost control. Approvals are
on highest level. Most cautious environment, this pace contributed to qtrs results.
Service level also low- 3.8mm wireless data subscriber additions for qtr.
100mm mobile internet users worldwide by end of qtr - not only openwave, mostly
in Japan and Asia- worldwide mkt just beginning to align with data handsets with
2.5 and 3G networks.
Listwin believes mkt remains difficult for 4-6 qtrs.
Is there a robust mkt for platform and app suite, Listwin believes yes as carriers
evaluate offerings. The timing and absorbtion uncertain and slow.
Java and location base services will be key apps going forward. Listwin believes
opwv is product rich and needs to focus on channel structure and product penetration.
No acquisitions anticipated in foreseeable future.
Industry channel served by larger firms, mo, siemens, sun/accenture etc. Carriers prefer bundles with these
firms to a more comprehensive offering.
Ops: continue to strengthen leadership team. Work on penetration mms.
Cost structure will be reduced between 3-5% in each of the next qtrs. Will try to return to
profitability asap. Timing of profitability is uncertain.
Revenue 365mm$ for fiscal year. Mkt share leadership in msging gateways and browser.
300mm in cash at EOY. We have the assets to remove from this storm as leading provider wireless apps.
ALAN- REVS
revs 70.1mmtotal - 48% licenses
18.4mm maintenance 26%
12.5mm professional svcs 18%
5.3mm project revenue, porting services.
42% USA revs
20% europe
38% asia and japan.
96% revs came from pay as you go, amortized accts over period
33.2 mm proforma loss, 19 cents/share
474.8mm GAAP loss, includes 472.2mm overall reduction goodwill
66.9mm deferred revenue 13.9mm increase from prior qtr.
86.2mm new bookings, half core licensing business and related svcs, balance is
one time contract with biz partner.
GM- 72% gross margin, on the low side because mix skewed towards services and projects.
96% - core platform, licenses
60%- maintenance
48%- prf services
11% - project
Outlook for next qtr GM 67%-70%
OPEX
Sept. expenses
Expectations- Sept qtr total exp 105mm, incl 3-5% reduction from end of June, this includes cost of sales and opex.
3-5% reduction continues until profitable.
June. expenses
43% revs R&D expense.
Sales&Marketing 50% of revs compared with 37% of revs last qtr.
G&A 18% of revs per qtr.
q/qtr increase primarily due to increase in reserves for bad debt. The other opex expenses were down.
Total stock based comp 2.6mm for qtr, expect 2mm in coming qtr.
Income tax 7.1mm up from 5mm in prior qtr.
CASH BALANCES
Cash- 294mm cash and ST invs. Excludes 22.3mm additional but restricted cash.
Net cash used 3.4mm during the qtr, excluding 2.7 for restructuring.
Cash for finance and investment- 13.4mm
Sept-
226mm-241mm cash expected by end of Sept. Incur 25-30mm expenses in qtr (see Q&A, below for cash questions)
Incur 20-25mm use of cash expected for signalsoft/elipsis.
SEPT QTR EXPECTATIONS
Sept - expect revs 68mm +-10%
67-70% Gross profit.
net loss .18-.28 pro forma net loss.
Q&A
Matthew Hoffman Soundview
-Thanks for granularity on metrics. Bookings look good except for one time w/partner? Details pls.
Alan: We indicated bookings would be down in pre-release on core business. We were trying to
explain actuals.
-What drove the 14mm decrease in the license line?
Alan: We found operators increasingly have a bias towards slow decision making and many levels
of signoff. Comparing bookings qtr over qtr- in total modestly higher but the mix was not what
we expected, 82-83mm core bookings last qtr this qtr half that.
-Color screens or BPRS, are you capitulating on revenue from this?
Don: we don't think this is the time for any sort of bullish tone. I came back from Tokyo, KDDI has
a million in the last 100 days, 10x what docomo has been able to do in a year. Verizon has mobile
data in their stores. Sprint is going to announce in aug/sep. US market inflection points happening.
Europe back half of year, toughest mkt. We are being cautious.
Mike Lattimore, Raymond James.
-Project revenue. What is the project, who are customers.
Alan: not too much detail. Taking existing portfolio products and porting them to another platform.
No more comments on the partner.
-Instant messaging, a material mkt in next 12 mos?
Don: a lot of trial activitiy in mobile inst messaging and MMS. In the 2000 area. An important category
I will be conservative, lots of MMS in GSM community. Right now most traffic is CDMA.
-acquisition revenues for September qtr?
Kevin: Topline coming from signalsoft 4-5mm, cost side 6-7mm also from signalsoft.
Goal for P/L for that product breakeven.
Thomas Vincent SSB
-channel relationship. How is the IBM and Siemens relationship and in Europe.
Kevin: IBM, resell agreement with IGS also co-development agreement. BOth are executing relative to
plan. Otoh we are still early wrt gestation of products so roadmap is a few qtrs out. At the same time
we are balancing IBM with the Sun/Accenture deal. We are continue to work with major RF channels
Siemens/Motorola for the more traditional channels. Conversations are more vigorous than they have
ever been.
-Pricing. Nokia is bundling MMS with their own gateway. Pricing pressure?
Alan: Our belief that every MMS is still using Openwave gateway, customer base is choosing to use
existing gateway. Pricing environment for MMS isn't really a category. There is nobody on the opwv
pulling revenue currently, the real opportunity is for 2.0 MMS with persistent storage. The current
pricing is not reflective of potential. Email pricing consistent.
-cost structure rate 100-110mm, break even 1st half 2003 still a target?
Not going to provide a target timeframe for breakeven. Pretty fluid wants to take things one qtr at a time.
Eddie Wu CIBC
-Standards adoption. Still a shortfall of standards adoption operators standing on the sideline. Comments?
How will OMA drive that? OMA is a repackaging of WAP?
Don: OMA is a best chance. Its a group of WAP participants- CDMA+ Nokia community. These are the 2
camps that were out there, trying to come together. Its fine to be skeptical but the best we have.
Standards, we do have good cooperation in key areas, MMS for one. More collaboration at industry level.
OMA has set tone for the industry="focus on open". Also, implementation always precedes standards.
We're early in OMA. 2nd half 2003 is important inflection point in industry.
Scott Sutherland Webbush
-At end of last qtr, a lot in the pipeline, what happened to those deals.
At a deal level, we are trying for b2b > 1, that is our goal for sept qtr. 2/3 of business that didn't manifest
last qtr are still in the pipeline. We need to scrutinize the deals more closely. We expect positive b2b this
qtr.
-licensing revs from existing customers vs. new customers.
No we don't have that data. Little closing of new business existing or new.
-Signalsoft how are you penetrating their carriers , vodaphone?
Signalsoft just closed. We are executing on their existing pipeline. Also working toward integrating them
and restructuring team to meet break even goal in 6 mos. We have begun to follup on one transaction ssft
yet to be announced.
Moffitt- Pacific Crest.
-Increase in revs from ellipsis?
It took a year since avagadro until we penetrated Telus. It takes sometime to get new products through.
It is 2 qtrs until Java tech will manifest itself. The downloader will be available this qtr to download ringers
and app environments. We expect revenue in 6 mos period. Ellipse brought some undisclosed customers.
A booking event will happen in 2002, revenue 2003
Richard SWS securities
-buz model for instant messaging with Telus
Alan: Same business model as with other products. Per subscriber perpetual license 2-5$, maintenance 15% of
that amt.
-12 trials with MMS and IM, are 9-10 of them IM?
Don: no 2/3 are MMS and 1/3 Mobile IM. MMS things are either second source, and high interest in photo MMS.
Opwv is only company with any real experience in photo MMS.
-whats the price level that will kickstart MMS? to the subscribers.
It varies from one mkt to another. In japan 6 cents per message, send and receive. This is where the value chain
aligns, also the handset needs to be available. The handsets are the key inflection points.
-China unicom rollout
They are continuing with "knowledge absorbtion"- what services. Planning the rollout of 1x network next year.
They are learning and planning. Handset rollout in china is slow. This is a 2003 volume event.
-July 2nd you said how much you could close between then and now. How successful were you in last 20 days.
We said it would take us 20 days to assess visibility. We said today the qtr numbers, that takes into acct
the 2/3 rollover to next qtr. Its all in the Q3 estimate.
Tim Long CSFB
-Sept revenue guidance, lower sub base or lower revenue per sub? What are the key drivers for business, handsets?
What % will have next generation techs going forward?
Sept- historically sept qtr sub growth have been lowest in the year. Sub growth will be light, europe has vacations.
Don: what drives growth? 81 new handset models will ship this year. 54% are enabled next-gen as far as OPWV
is concerned. A wide range.
Robert Glenn MSDW
-price declines, maintenance
Factor in a few specific things: 1. KDDI a network based contract, as new subsribers added each qtr increases opwv
has a net decline per user since price is fixed. 2. Verizon agreement had revenue taken upfront 83% pay as you grow
17% upfront, so Verizon doesn't get reflected in topline until they come back.
-revenue per active sub should stabilize then?
Yes. should stabilize as more licenses get out there. Opwv needs to drive more value to avoid pricing erosion.
We have been successful holding our own, we need to sell incremental apps or incremental functionality.
-broken out "client" as separate line item.
Client is browser and related client messaging. This will rollup into support but most of these include porting services
with no per unit fee. We are trying to provide more visibility and granularity in the numbers. Mkt is moving from pure
services to model where OEM is paying license business and providers then redistribute to OEMs for branding.
(lizzie- kindof like windows licensing I guess?)
Rajiv Dahs Goldman
-project revs more details
Alan - we expect the same project revs for the next few qtrs, 5mm/qtr for the next 4-5qtrs.
Richard Petrowski SWS securities
-25-30mm cash burn, seems like a lot how come
Alan- a terrific collections qtr this qtr, we expected 70-75mm collections but we got 90mm. Also in this qtr we have
ops expense signalsoft and ellipse, costs us in opex. We paid for ssft in cash, 20-25mm this is over and above
the 25-30mm cash burn.
-15mm incremental ops for ssft and elipse?
No, collections timing is half and ssft and elipse is other half.
-Perfect strom, if carriers consolidate, what is this "perfect horror movie"
*excited response*- OPWV has the largest companies as customers now. As consolidation occurs, more investment
will occur. The negative is it is a distraction. Industry will be healther, not a horror movie.
Jeff Lehman Bros.
-% of sales from wireless vs. just applications. How is that developing Korea and Japan.
-And why a series of sequential cost reductions vs just a target and cutting.
Sequential reductions: a function of the reality of ability to execute cost cutting. There is a limited amt we can do
for sept qtr. For december we have another set of incremental actions. A more measured approach. We want
the customer base to know they are supported.
Wireless- we don't break it down. Messaging is still wireline. At a revenue level are wireline. KDDI and Jphone
are only 2 wireless. Infrastructure biz is on wireless side. |
