COMPLETE TRANSCRIPT - NETP 2Q 2000 CC
Question and Answers Segment
Transcribed by "victor" on Silicon Investor (si) from netperceptions.com (See "Investors - Audio Archives - 2Q 2000 CC - Questions and Answers)
Doubtful words marked with (?). Corrections welcome.
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MODULE 1
Questioner: Stephen Sigmond of Dain, Rauscher, Wessels.
Stephen and Tom - nice quarter! Just a quick question on the gross margin. Tom, can you walk us through what happened in the gross margins in the quarter, from the prior quarter?
Tom Donnelly, CFO: The gross margin in the Services and Maintenance line, which also includes our ASP business, was down about 2%. We're scaling infrastructure for the ASP business and, as you know, we've been scaling our consulting organisation. I expect significant improvements on that side of business in the coming quarters.
OK great, and it looks like you guys are getting increasing traction, really, from the indirect channel, and I'm just wondering if you can give us a little more colour on that, and, you know, what's going into that. Are you seeing more traction from partners, from system integrators - how's that building?
Tom Donnelly, CFO: Yeah. We're seeing more traction from all of the above. You know, obviously our OEM relationships with Vignette and Xchange contribute quarter over quarter, and we are seeing more actual deals that are sold through partners. The indirect numbers I gave you do not include "influenced" business, which is also a good chunk of business, but - we're - you know - we are just reporting partners which are actually selling our products, for instance i2 - the Best Buy relationship came through i2 - in the early stages we still have some direct sales efforts in order to get these channels rolling but indirect revenues, we think, are very important to our...to the scale we can add into the model over the coming quarters.
OK, and finally, can you comment on any changes in sales cycles during the quarter?
Tom Donnelly, CFO: I didn't see significant changes in previous sales cycles that we've discussed. I would say that it was evident that some of the dot-coms were tightening their belts during the quarter. So that would be a slight change in the sales cycle. And the larger our transaction sizes gets may push them from, you know, a typical 3 months sales cycle to perhaps a 4 months sales cycle: but overall, I'd say about the same - with the exception of the dot.coms belt tightening.
OK thanks. Nice job!
MODULE 2
Questioner: U.S.Bancorp Piper Jaffray (introduced as "Hany M. Nada" but gave a different, inaudible name).
Hey guys, just a couple of quick questions! Could you talk about the Personalization Network in terms of the six customers that are using it now....concerning e-mail....what do you envisage it to be and what is the average transaction or revenue size per customer or on a quarterly basis.....what is the subscription ...every month?
Tom Donnelly, CFO: It was hard to hear you! I'll talk about the model and then, maybe Stephen can talk about the Services, themselves.
The model is a set-up fee typically in the $10-20K ranges that can also include some Consulting Services if the customer needs help in getting their data organised. And then there's a monthly fee for each of the four Services. I'll just state the average list price is around five grand for Services. And the model is, they sign up for a six or twelve-month period - typically for one Service - and then our goal is to cross-sell multiple Services to where we could get to the.....be collecting, you know, $15-20,000 a month for the existing Services in the Network.
Does it depend on the size of the customer, in terms of number of users, number of databases and so on?
Tom Donnelly, CFO: Yeah. I'll eh.....for the Intelligence Channel, its the size of the database, OK? So there's a cap on how many Gygs of data they can download and how much historical data. For the actual Recommendation...for the Collaborative Filtering fee, we're going for the.....to be again scaled on the number of e-mails. And for the Acquisition, I believe its based on the number of impressions from Angara - our partner in that channel.
Can you also talk about....you mention the dot-coms and kinda....your weaker dot coms fade away...can you talk about how...what did you guys do during the quarter when you saw....did you replace those dot.coms with, you know, bigger customers that ...were in the pipeline?
Tom Donnelly, CFO: Well as I said in the past, our focus has been on the larger deals, and historically, that was an unpopular positioning. But we've always been focussed on the multi-channel retailer, you know. Some of the dot.coms are going down. I do think, though, because our value proposition is driving revenue and driving margins, and because the domain expertise we have in running, you know, B2C businesses, that this shake-out may help us long-term because dot.coms are going to be looking for ways to understand their business better financially, you know, ultimately, to make money, so....
Great thanks!
MODULE 3
Questioner: John G. Kinnard & Co. (Keith Menzel)
Hi guys, congratulations on the quarter. Just a quick question on acquisitions. You mentioned that you have pretty much fully integrated the KD1 deal. What's your appetite right now for acquisitions and can you give us some colour on what you might be looking for out there?
Stephen Snyder, CEO: Yeah, at this point we're looking for ways to expand our market that we serve, to diversify from the retail base. We see two paths to do that. The first is organic. And we have SWAT(?) teams working on that with new customers some of which I've mentioned. There's some unannounced customers that we're working with that are expanding our base of applications organically. Obviously, we continue to look at acquisitions as a way of both diversifying the markets that we serve and also gaining depth in retail.
Just one follow-up on the previous question on the ASP model. Where are you.....is this being hosted out of your Dallas facility?
Stephen Snyder, CEO: Yeah, it is.
OK, thanks!
MODULE 4
Questioner: Adam, Harkness & Hill (Ben Z. Rose referred to as "Andy")
A couple of questions, Steve, regarding the competitive landscape for the quarter at Net Perceptions for your e-commerce product offering. Could you kinda comment on any changes or the evolution in that landscape? And secondly, could you give some more colour on the contribution from the KD1 analytics during the quarter?
Stephen Snyder, CEO: Andy, the ...the landscape...the competitive landscape is ...we're in a very strong position with our e-commerce. We are seeing in terms of real-time interactive, web applications are......we're competing very strongly - continuing to be competing very strongly. As Tom previously mentioned, the dot-coms activity had dropped off a little bit, but in terms of winning deals, its primarily the...we continue to be in a very strong situation. In fact, in our largest multi-channel retailer customer base, in addition to the dot coms, in the e-commerce area, we're seeing very strong competitive strength in the analytics space, primarily because of our advantage of the deep expertise in merchandising that we have.
Tom Donnelly, CFO: And then our licence revenue, our analytic through the KD1 set, contributed about 16%, but that doesn't include the ASP business where we had five new customers, four of which were for the Intelligence Channel which is an analytical product, but the revenues will show up radically(?) over the year from those transactions.
And could you comment on your latest thinking regarding the i2 relationship and kinda what your expectations are kinda going out of the next couple of quarters?
Stephen Snyder, CEO: Yeah. The i2 relationship is very important to Net Perceptions because it helps us move back into the supply chain which we think is a very critical piece of value-added in retailing today
OK, thanks a lot!
MODULE 5
Questioner: Robertson Stephens (Lowell Singer)
Hi Stephen and Tom, nice quarter! Could you talk a little about how the ASP model - sort of the integrated personalization model - will better enable you competitively. And do you view that as more of a platform that will allow you to take customers from your competitors, or to bring people online who are not really using any service beforehand? How do you look at the source of the volume for that?
Stephen Snyder, CEO: Yeah. Well its actually both. We see it as an opportunity for the large multi-channel retailer to get up to speed very quickly through the ASP and grow into enterprise-class software. For example, the Intelligence Channel, in addition to being limited by data-size is also limited by the number of reports that can be produced. Once every demand and appetite increases, we see upselling to our enterprise solution.
OK. And Tom, I think I wrote the numbers down correctly , I was just trying to compare Knowledge Management in Q1 versus Q2 as a percent of revenue - did it decline in the quarter?
Tom Donnelly, CFO: Yeah, it did decline. That's not to say the pipeline in the number of ongoing pilots has declined. Again, our sales model is to do a pilot and when we announce a customer... when its actually live and up and running, so, although....because its a new product the percent of revenues may be choppy, the pipeline is very strong for that business.
Could you give us an update with regards to P&G and JP Morgan, which, I guess, are two you've announced using that product.
Tom Donnelly, CFO: Yes, P&G are fully deployed on all of their....they've now bought a licence for all of their R&D organisations - 16,000 seats - and they're considering going broader beyond their engineering organisations. And JP Morgan is rapidly developing their financial portal...strategy which uses the product to, in essence, better serve the buy side, if you will.
And as you look out in terms of visibility where do you see the pockets of strength right now versus a quarter ago?
Tom Donnelly, CFO: The visibility is...continues to be strong for our E-comm offering. The pipeline for our AD (?) product is strong. The pipeline for our Knowledge Management product is strong. And I think the ASP model is going to get some leverage, not only from inside sales efforts, but also through partnerships where we can really access new markets of small dot.coms, if you will. So, as I look, those would be the four areas.
OK. Thanks a lot, guys.
MODULE 6
Questioner: H&Q (Matt Davies)
Congratulations on the quarter, Tom and Stephen. Quick question for you - most of my questions have been answered. But just looking for a little bit more detail on the e-mail product. You provided incremental ROI for Childrens' Place. I was just wondering if you could talk about other customers that have endorsed the e-mail product and other ROI data - at least expand a little bit on that topic. Thanks very much.
Tom Donnelly, CFO: Yeah. Matt, I'm not sure, I believe the licensed customer count is ten, or so. We're also, in the pipeline, trying to OEM our underlying recommendation technology into some of the other e-mail delivery systems, as evidenced by the Xchange agreement, where we're actually going to target mail from their e-mail ASP. And there are other companies using the product. We only did the one pilot-study against the Forrester industry data - with very nice results, not so much....you know I dont focuss so much on the click-through, but the purchase-rate and the conversion-rate - at 10x Forrester's industry average - makes us very excited. And I think in time that capability might morph into a broader solution-set for the multi-channel retailer. In other words, that it will become a capability as part of a broader platform for customer interaction.
Great thanks, Tom. And then the final question would be your sales....your direct sales count in terms of hiring according to plan going to the remainder of the back half of the year. Where are you there?
Tom Donnelly, CFO: We're just a bit behind. I think I told you at the end of the first quarter that we would be hoping if we could double our count at the end of the first quarter - which was 30. We are now 39, which would leave another 20 to hire. We're really focussed on hiring kind of the top dogs out there of both the multi-channel retailers and some of these other verticals we're going after. Its competitive for those people.... to get those people, but I'm still confident that we'll be able to approach 60 on the direct sales front by the end of the year.
Great! Then Tom, one final quesstion. Any plans in the future to break out the ASP revenue in the top line, or are we to continue to meld that in with Services?
Tom Donnelly, CFO: No, I think that when that becomes material - the bar for me is about 10% - was 2% this quarter. And in time we will break that out as a separate line item on the financials.
Great, thanks again!
MODULE 7
Questioner: Miller, Johnson & Kuehn Inc (Pamela Lund)
Hi! First, just a nit-picking question: but just looking at your new customer list this year...this quarter, it looked like 19 new to me. You ended the last quarter, I think, with 191 and you've arrived at 202, is that correct?
Stephen Snyder, CEO: No, 213.
213 - well that's my mistake there, fine! Actually, what I really wanted to ask you a little bit about is some of the competition, to follow up on that area, particularly in the Knowledge Management space where I think Autonomy has been coming on fairly strongly, and I'd just like some kind of comment on that from you, if I could: also wondered - I notice that Art Technology had announced that their (?) product is being used by Target and wondered if that, if you had anything... if you were involved with that, too. So first of all just those two things.
Stephen Snyder, CEO: Yeah. For Knowledge Management, we see our product very distinct from the Autonomy offering, in fact, some companies might choose to buy both products. Our Knowledge Management offering has the unique capability, because it links people with other people, and no other product does that. With respect to our Target...the acquisition of the Art Technology Group platform...obviously that's a platform decision that Target made. We support the Art Technology platform, the Dynamo platform. We previously announced a partnership and we have partnerships with all other major platforms, so we're pretty much platform agnostic, but we're very pleased with ...working with the Art folks on that technology
So they could be using yours through Art?
Stephen Snyder, CEO: Oh yes!
You dont know yet how that will work out?
Stephen Snyder, CEO: We've not announced them as a customer - but yes! We have integration with Art.
Yes I understand that, I just wasn't sure that that automatically then meant that you were part of that Target solution, if you like. It does automatically mean that?
Stephen Snyder, CEO: That's correct.
OK. Also wondered about Broadbase and their 4.0 product, which I think was just recently announced, and wondered how, you know, how that was on a competitive horizon?
Stephen Snyder, CEO: We don't see Broadbase all that much. Obviously Cabellas (?) was a customer of Broadbase and we did win the Cabellas.com business for piece(?) for our Personalization Network, which was a different service than what Cabellas was getting from Broadbase. But we actually don't see them a whole lot
OK, fine, thanks very much.
MODULE 8
Questioner: U.S. Bancorp Piper Jaffray (Mike Mazzell)
Hi! I was just wondering if there is any change as you continue to move upstream, if there's any change in the average customer buying pattern - whether they're still buying individual modules or moving towards the entire suite.
Tom Donnelly, CFO: We're seeing more and more customers buying more offerings, particularly now with the ASP business. We now have 7 software products and 4 service - ASP services offerings. And we're seeing more and more companies like, for instance, Willams-Sonoma, that want software and the services on the ASP in the first quarter. So I think, it is our strategy, and we are seeing companies move along the lines that where they will buy more than one product offering and, as we've said in the past, you know, some of those products offerings are going to start to come together into a broader platform to really serve the needs of the merchandiser and the marketer in the multi-channel retail setting.
And then you mentioned the average size transaction size - bullet point - that you excluded OEMs. Is that just from the prior quarter?
Tom Donnelly, CFO: Yeah, it is. I think its important to note that our ASP (average selling price)is continuing to rise as our indirect revenues are rising, so, in a re-sold situation, and you're not getting quite so much professional services, generally, along with the sales, so I am encouraged with where the ASP's (average selling prices) are going.
Righty. And could you give us some sense of the percentage business that fell out of the pipeline that was dot.com related? What would your dot.com percentage have been if you didn't lose any?
Tom Donnelly, CFO: Yeah, I don't know that I have an exact number. I think every quarter you have a pipeline and things come in and close and things shift out into future quarters. I....the tone I was trying to express was that dot.coms are more and more concerned about where they're spending their money and I think long-term that's going to bode well for us because our value proposition is to help them make money.
And just finally. Some think there might be a change in the dynamics between IBM and Vignette. Does that change the dynamics between either IBM and NETP or Vignette and NETP?
Tom Donnelly, CFO: I'm going to have to apologise. We're not ... what are the changes in the dynamics?
Possibily shifting to BEA
Tom Donnelly, CFO: In other words Vignette shifting to BEA?
Possibly
Tom Donnelly, CFO: Possibly?
Stephen Snyder, CEO: I think that's several orders of effect removed from where we compete. We don't see that impacting us. Of course, we work with BEA. We work with Websteer(?). We work with all of the application server platforms.
Great, thanks again.
MPDULE 9
Questioner: U.S. Bancorp Piper Jaffray (Follow-up question: Nada)
Right, just a quick question guys. I'm just trying to get a sense of the traction you have versus the competition. I mean in terms of your growth rate. Do you think you are gaining share, losing share, maintaining the kind of...the same rate of growth? And what do you think is the real dynamic in the industry? Is there a kind of a slow-down, are they reassessing where they are in their software needs or are we still at the stage of buying still - buying everything and see what works and what doesn't?
Tom Donnelly, CFO: I don't think that we're losing share. I do think that there are others in the space that...whose growth rates are aided through acquisition. So sometimes you have to look behind the growth percentages to see what acquisition went effective this quarter. The dot-coms did spend a little bit more time evaluating, but I don't think that had a serious impact on our sales cycle and, you know, our pipeline remains strong. So I'm not concerned. I mean we grew on a real dollar basis greater than we have in any other quarter and we've worked quite a bit of ASP business which again isn't going to show up in the top line right out of the gun. So I think, you know, with the new ASP business and with the traction we're getting with our existing products, that we are still getting our share of the available market out there.
Thanks
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