Concentrix Corporation (CNXC) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to ServiceSource Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I'd now like to turn the conference over to your host, Anne Bawden, Investor Relations Manager. You may begin.

Good afternoon, everyone, and thank you for joining us for ServiceSource's Second Quarter 2013 Earnings Call. Joining me on the call today is our Chairman and CEO, Mike Smerklo; and Chief Financial Officer, Ashley Johnson. Before we begin, I'd like to remind you that during the course of this call, we may make projections or forward-looking statements that reflect our views as of today and are based upon the information currently available to us. This information will likely change over time. By discussing the perception of our market and the future performance of the company and our solutions with you today, we are not undertaking an obligation to provide updates in the future. We caution you that such statements or projections, and actual events and results may materially differ from what we discuss. Please refer to the documents we have filed with the SEC. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections and forward-looking statements. During the course of this call, we will also be discussing certain non-GAAP financial results. We direct your attention to the reconciliation between GAAP and non-GAAP measures, which can be found in today's earnings release posted on the Investor Relations portion of the ServiceSource website. And with that, I'll turn the call over to Mike.

Good afternoon, everyone, and thanks for joining us on today's call. I was pleased with our performance in Q2 and would like to walk you through the results of the quarter, as well as the progress we have made across our key business initiatives. In all 3 regions, the Americas, EMEA and Asia Pacific, results exceeded our expectations, as we saw sound execution across the entire company. Total revenue in the second quarter was $67.7 million, non-GAAP gross margins were 45% and adjusted EBITDA was approximately $4.4 million. Turning to ACV, it was a solid quarter in terms of new signings. Key highlights in the quarter include: The mix between new logo additions and expansion deals in our installed base was in line with our historical average, coming in at a 50-50 split. Average deal size was up considerably in the quarter, with new deals in 4 of our 5 target vertical markets. In particular, we signed 2 more leaders in the SaaS market under our subscription life cycle management solution, and this vertical now represents nearly 20% of our ACV under management. In addition, we signed several expansions in the quarter with customers like Dell, Red Hat and Roche. With this new business, net of churn, we ended up H1 -- we ended H1 up approximately 7% to 8% from our starting ACV of $270 million at the beginning of the year. Importantly, momentum behind Renew OnDemand also continued during Q2. We added 4 new Renew customers, building upon the early strength we demonstrated in Q1. With these new additions, we added approximately $8 million in subscription bookings, an increase of almost 40% from the $20 million of cumulative subscription bookings first mentioned in our last call. Average contact length was in line with our prior average of approximately 2 years. I'd like to remind investors that we just brought Renew to the market in Q1 of this year. While we're pleased with early momentum around Renew, which is now -- which now has more than $1 billion of recurring revenue running through the platform, it's important to remember that we are still in very early days with Renew, and we do anticipate lumpiness in our new customer additions. With that as a backdrop, I'd like to update investors on the key initiatives we first laid out in February as our barometer for progress we are making in our business. As a reminder, the 5 key initiatives for 2013 were: Unbundling our solution, improving sales execution, standardizing our products, building out our implementation capacity for Renew OnDemand and improving our customer retention. On the first initiative, our goal is to move from one complete solution to an unbundled offering that allows customers a distinct choice when it comes to partnering with us. One of the new customers we've signed in Q2 provides a terrific example of this strategy playing out. This past quarter, a large, privately held SaaS provider was initially attracted to Renew OnDemand as a powerful platform to drive recurring revenue. Over time, this customer viewed our managed services in combination with Renew as a strategic way to address the unique dynamics across their customer base. Through this unbundled approach, we were able to demonstrate a solution that helped them create an evolved, go-to-market strategy specifically tailored to their needs across their multiple business units. Our early customers and prospects are beginning to see Renew as a unique SaaS application, one that is complementary to their existing investments in traditional ERP and CRM systems and that drives a measurable impact to their top and bottom line. However, as exciting as this is, the #1 external challenge we face, particularly with Renew OnDemand, is a relatively low level of awareness around our offering. We've jump-started the efforts to increase awareness this quarter with new branding and market repositioning, something I'll speak to you in a bit. Our second key initiative is to see sales execute its scale and drive incremental ACV and improve close rates. We had a solid quarter for new ACV signings. Coupled with a good first half, this has put us in a good position to achieve 20% net ACV growth over the course of the year. Although performance in Q2 was strong, close rates against the pipeline remained flat quarter-over-quarter. This continues to be an area of focus for both myself and our sales leadership. In terms of sales force headcount, we remain on track to a roughly 10% growth in our sales organization in the year. And as we explained, we expect our new ACV signings to be second half-weighted, so execution in H2 is critical to hitting our goals. Our third initiative relates to standardizing our product offering to be sold at scale. In July, we announced the rollout of our summer release for Renew OnDemand. This release focused on channel functionality and enhanced collaboration features. For most technology companies, the channel represents 80% to 90% of renewal revenue. At the same time, many companies don't have the information they need to give an exceptional customer and partner experience. As part of this release, we focused on fixing this gap for our customers with new features such as two-tiered channel management, channel-specific metrics to track and report on channel sales effectiveness and activity collaboration that empowers distributors and resellers to jointly manage and close opportunities with channel accountings. As we continue to build out features and functionalities on Renew, we are taking steps to protect the underlying IP. In Q2, we more than doubled our patents pending on the platform. Finally, we enhanced our global customer support team in Q2, which is actively providing 24/7 coverage around the world. Our fourth key initiative is to improve our capacity to implement Renew at scale. The best way to track progress here is customer reference ability. Last year, I told you about a large flagship customer for Renew OnDemand. I'm pleased to report that this customer, Dell, is live and running on Renew OnDemand, and they are partway through a global implementation on the Renew solution. ServiceSource is partnering with Dell's existing managed service business and corresponding internally developed tools to capture incremental revenue. This is part of Dell's strategy to build out and partner with best-in-class companies to grow their services business by using the cloud and big data to get closer to their customers. In addition, within the quarter, our professional service organization brought 4 other customers live on the platform. This brings us to 6 active customers on Renew, inclusive of Dell and our original beta customer. We exceeded our goal of having 5 live at the end of H1 and are on track to have 15 customers live by the end of the year. Our fifth and final initiative is better retention of our customers. Our dedicated customer success organization, a key investment for us in 2013, has ramped up and is giving us better understanding of our own customer base. We look at this team as our customer advocate. This team significantly increased the focus on ensuring all of our customers engagements are mutually beneficial across the board in terms of expectations, relationship, contractual obligations and profitability. We've seen strong progress over the past 90 days in bringing issues to the surface earlier so that we can take corrective actions and enhance the customer experience. As we exit the second quarter, we remain confident in our ability to achieve an annual ACV retention rate of 90%. We continue to watch in-quarter churn and looking to drive even better rates in the second half of the year. Across both financial and operating metrics, Q2 completed a solid first half of the year for ServiceSource. There's a lot of work to do in the second half, but I'm pleased by what we've seen so far and excited by what's to come. With strength in both our subscription bookings and overall ACV signings, we are clearly driving momentum in the business and feel there are opportunities to further expand our position as the global leader in returning revenue management. Based on this, we are making some investments into the second half of 2013, which we believe will put us on solid ground for accelerated growth in 2014. First, in order to continue to rapidly innovate our platform, we have increased our investment in our engineering and product management organizations. The expanded team will enable us to execute against opportunities we see to accelerate our product roadmap and increase the features and functionalities around Renew. Second, as I mentioned earlier, our #1 external challenge is market awareness. The technology world is moving towards a recurring revenue-centric business model, and we need to increase awareness and investments around Renew OnDemand as the only cloud application built specifically for this core business process. Recently, we updated our brand and overhauled our website and collateral to reflect a more SaaS-centric story with a strong managed service component. In addition, as part of this enhanced marketing strategy, ServiceSource will be a major sponsor for the first time at Dreamforce in the fall. Dreamforce provides a platform for us to showcase Renew OnDemand to an audience full of existing and prospective customers, while also demonstrating the integration into existing CRM and ERP solutions. Finally, we continue to see opportunities to grow our global managed service operations, specifically selling services. We recently announced our plans to expand our global operations footprint in Asia Pacific with the opening of a new sales center in Japan, the second-largest IT market in the world. We achieved strong performance across the business in H1, and these investments reflect our increased confidence in the opportunity in front of us. I'll now turn the call over to Ashley to go into more details.

Thank you, Mike. Good afternoon, everyone. As you heard from Mike, Q2 was another strong quarter and a solid finish to H1. I'd now like to walk you through our results from the second quarter, as well as provide context and guidance for our third quarter and full year 2013 outlook. As a reminder, our comments with respect to the non-GAAP metrics do not include noncash expenses related to stock-based compensation and the amortization of internally developed software. You can find the reconciliation of GAAP to non-GAAP metrics in today's press release and on the Investor Relations section of our website. So again, let me walk you through some of the numbers. Revenue for the second quarter totaled $67.7 million, ahead of our guidance and up 13% year-over-year. Our results in the quarter were driven by record performance from our teams around the globe. Specifically, we had a very strong quarter in EMEA and in some of our larger enterprise accounts as well. GAAP gross margins held flat year-over-year at approximately 43%, as scale and outperformance in our managed services business more than offset the increased professional services expenses incurred in the quarter. Non-GAAP gross margins were 45%, also flat year-over-year. Sales and marketing spend increased year-over-year, primarily due to commission expenses on new ACV sales. R&D expenses grew year-over-year, reflecting the fact that we are no longer capitalizing the R&D expense related to the product. As a reminder, for the same period last year, we capitalized $2.3 million of R&D expenses. Adjusted for the capitalization, R&D expense remained relatively flat year-over-year. This is something we expect to change going into H2 as we ramp our engineering efforts on the product. I'll talk more about that as we go in the guidance for the year. Finally, G&A remained relatively flat year-over-year. Adjusted EBITDA in the second quarter was $4.4 million, above guidance, due to higher revenue gross margins compared to $4.5 million in Q2 of 2012, as higher gross profits were offset by the higher sales and marketing expense and the full expensing of R&D. On the bottom line, our GAAP net loss in the second quarter was approximately $5 million or $0.06 per share as compared to the net loss of approximately $37 million or $0.50 per share for the same period of 2012. As a reminder, our 2012 GAAP net loss reflected a $33.1 million one-time noncash charge related to a valuation allowance applied to our deferred tax assets. Our second quarter non-GAAP net profit was $1.5 million or $0.02 per diluted share, similar to our non-GAAP results in Q2 2012 and above our prior guidance of a loss of $0.01 to a positive $0.01 per share. Moving on to the balance sheet and cash flow metrics. DSOs in the quarter were 81 days. The improvement over Q1 is attributable to better collection processes around the globe and especially in our international regions. We expect DSOs to trend in the low to mid-80s for the foreseeable future. Accounts receivables at the end of Q2 was approximately $61 million, up almost $2 million from Q1, reflecting the higher revenue. Primary cash collections in Q2 enabled us to reduce our accounts payable balance in the quarter, which ended at $2.5 million, down from $5.3 million at the end of Q1. Accrued compensation increased in Q2 due to commission and bonus accruals, reflective of the strong quarter. As it relates to deferred revenue, because it's still early and we currently invoice most of our subscription customers on a quarterly basis, the change in deferred revenue quarter-to-quarter is not yet a relevant metric for tracking our subscription billings. Based on our higher EBITDA and positive working capital changes, cash flows from operations were $5.8 million in the quarter. Capital expenditures were just under $1 million, resulting in positive free cash flow of $5 million after adjusting for exchange rate changes. We ended the quarter with a record $132 million in cash and short-term investments. Overall, we had a solid quarter and strong first half across both our cloud and data services and managed services businesses. We believe we have successfully realigned our operations to view the business as 2 distinct offerings, each with their own relevant financial metrics that enable us to benchmark ourselves against other like companies and make data-driven investment decisions. By looking at the 2 offerings as separate entities, we continue to manage our -- optimize our managed services business with the aim to achieve profitable growth, driving top line performance by way of superior execution for our customers and streamlining for efficiency to enhance our gross margins. Our nascent cloud and data services business is operated much like any high-growth startup SaaS business. We are investing in R&D to build out the product footprint ahead of opportunities we see in the markets with sales and marketing to maximize visibility and market capture and getting the right talent in place to ensure customer success. Given our strong performance in the first half of the year and the opportunities we see in the market, we have decided to pull forward approximately $6 million of operating investments from 2014 into the second half of 2013 in areas we believe will drive high ROI in the near term. Of these investments, about half will be used in engineering and product management within R&D, approximately $2 million into sales and marketing and the remainder will fund our expansion into Japan. We believe these investments put us in a stronger position to accelerate growth going into 2014. Before I turn to the numbers, I'd like to remind everyone about the quarterly seasonality in our managed services business. Our managed services revenues are closely correlated with the selling patterns of our customers, which would typically mean a strong Q4 and a lighter Q3, particularly in the international regions. As we increase our subscription revenue base, the seasonality will become less apparent. However, for the next couple of years, we would expect this pattern to continue, similar to what we saw last year. With this context, I'd like to turn to our guidance for Q3 and fiscal 2013. For the third quarter of 2013, we are forecasting revenue in the range of $64 million to $67 million, an increase of approximately 11% over the third quarter 2012 at the midpoint of the range and reflecting the seasonality I alluded to earlier. We expect non-GAAP gross margins to be in the range of 41% to 43%, compressed by the continued investments in bringing new customers live on Renew OnDemand and also reflecting the seasonality in our revenues. We are forecasting adjusted EBITDA to be breakeven to $3 million as we ramp our investment in our cloud and data services business. Our forecast for non-GAAP net income in the quarter ranges from a loss of $1.5 million to a profit of $500,000 or negative $0.02 per share to positive $0.01 per share. Free cash flow for Q3 is forecast to be in the range of a loss of $2 million to breakeven. Turning to guidance for the full year. Given the strong performance in H1, we are raising our revenue guidance from the prior range of $267 million to $270 million to a range of $270 million to $274 million, representing year-over-year growth of 12% at the midpoint. Non-GAAP gross margins remain in the range of 43% to 44%, consistent with prior guidance. Taking into account the investments we're making in the business, we are lowering our forecast for adjusted EBITDA from $21 million to $23 million to a range of $15 million to $18 million. Consistent with this change, our guidance for non-GAAP net income for this year is now $4 million to $6 million or $0.05 to $0.07 per share, down from our prior estimate of $6.5 million to $7.5 million or $0.08 to $0.09 per share. Now let me turn to cash flow. We are raising our guidance on free cash flow to $2 million to $4 million for the year versus prior guidance of breakeven to $2 million, and subsequently adjusting our guidance for CapEx on the year to $7 million to $9 million, down from $9 million to $11 million. Finally, our non-GAAP guidance metrics assume a normalized tax rate of 40% and a share count of approximately 83 million shares for the third quarter and for the full year. As Mike mentioned earlier, we continue to see a path to our goal of 20% growth in net ACV. This goal has always been dependent on strong execution in the second half of the year. We believe that the investments we're making in H2 put us in a solid position for continued subscription and bookings growth and new ACV signings. We also believe that by investing in our cloud and data services business, we put ourselves on a faster trajectory to our long-term operating model, given the higher gross margins of the subscription revenue streams. And on that note, I'd like to turn it back over to Mike for closing comments.

Thanks, Ashley. I'd once again like to thank our employees of their Q2 performance and dedication to our broader realignment efforts around Renew OnDemand. We just finished 4 days of strategic planning with our leadership and sales team in Seattle, and I've never seen the ServiceSource team more focused. As I said at the start of the call, the momentum behind Renew OnDemand drove a strong quarter for ServiceSource. As excited as I am about Renew OnDemand, I want to also emphasize how important our managed service business is to our strategy and future. Our selling services teams are on the frontline in delivering for our customers on a daily basis around the globe. On the direction of Keith Leimbach in the Americas and Martin Moran in international regions, this part of our business is growing profitably, closings sales transactions every 47 seconds on behalf of our customers. Lastly, before I close, I want to move -- I want to announce that we've set the date for our Investor Day as November 21 in San Francisco. And with that, we'll now open the lines for questions. Operator?

[Operator Instructions] Our first question is from Jennifer Lowe from Morgan Stanley.

Mike, I wanted to dig a little bit into the commentary around some of the branding changes around Renew OnDemand. It seems like you've been off to a pretty good start there. So where do you feel like the branding may not have been resonating in the way with your clients that you hope it would, and what are sort of specifically some of the changes that you're hoping to make and the message there?

Yes. Thanks, Jen. So we look at it as, it was really about the unbundling more than anything else and making sure our customers understand 2 things, one -- or process under 2 things, one, that ServiceSource exists as always, and that continues to be a challenge, and we're getting better at it; but two, that we also have multiple offerings in the marketplace, including the only cloud application purpose built for recurring revenue. And so we're trying to bring the Renew brand forward more than it has been in the past. And then I'd also say that the approach here is a holistic one. So we've looked at everything from our website to our brand, all the way to how we can get more active in things like Dreamforce. Dreamforce has become the #1 industry event for cloud applications and cloud companies, and we want to have a more prominent role there so that our story can be told to a wider audience.

Okay, great. And just changing gears a little bit and looking at some of the investments that are being pulled forward, you've been putting a lot of focus on sort of building out this skill set around coming to market with a newish offering for you all in terms of the OnDemand, obviously, been in the works for a while but really hitting the -- putting the rubber to the road there. Can you talk a little bit about, tactically, what some -- I know that there was sort of a quick overview of how that broke out between areas of spend, but just sort of tactically what some of the immediate opportunities you see are that make that spending necessary today versus putting it off for 6 more months.

Yes, sure. I'll give you the high-level strategy, and then Ashley can dig in as well. But I think the first thing is just, it emphasizes the confidence we have in the business and in Renew OnDemand, and it's really about setting up the business for accelerated growth in 2014 and beyond. So that's the real emphasis. Some of the specifics, I would say, on the product side, we really have refreshed the leadership team here to supplement the team we had in place before. We feel like coming out of a quarter where we saw bookings up 40% quarter-over-quarter. It's a good indication that now is the time for us to really capture this market. The market for recurring revenue management, I think, is increasing in awareness. And we think putting some more wood behind the product team, both in terms of product management and engineering capability, to further develop our roadmap is our #1 priority. I mentioned some of the market awareness work earlier. As I said, this is our #1 external challenge, really getting folks to understand that we have an offering here. And so we're doing, as I mentioned, everything across the board and hold us to be looking at how we can step up market awareness. And then the third component of this, which is a minor component or the smallest component of the investments is really around Japan. This is a press release we made earlier this month, and it was customer-lead. The #1 challenge we've had in extension in APJ is around having a sales presence in the Japan theater, the #1 IT market in the world. And so we didn't want to be hamstrung in this region that our customers lead us to this, and that center will go live later in Q3. The ROI on that should be pretty rapid, as we've had with other sales investments, but there is a startup cost component to it.

Our next question is from Ed Maguire from CLSA. Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division: I was wondering as you've been referencing scaling Renew OnDemand, could you elucidate some of the areas where you are investing and technologically, what you need to achieve to be able to help the solution scale?

Yes. So thanks, Ed. There's 2 points to that. First of all, in terms of implementations and deployments, I mentioned we had 6 live by the end of Q2. We actually just had another customer go live this week, so we're up to 7 now. But really, that's about getting the customers live. 15 customers is our goal by the end of the year, giving them referenceable, giving usability at a high level and having them absolutely love the product. So that's really on the, I'd call it, on the professional services and implementation and deployment side. From a technology perspective, the way we're thinking about it is we feel like we have a very solid foundation. We're looking at ways that we can enhance our user experience. We want to make sure that we have -- continue to have the most stable product possible. And we're also looking for ways, in the near term, on how we can increase integration into Renew OnDemand. I think about the near-term priorities coming off the summer release, that's really what we're focused on. And obviously, we expect to have, I think, a really exciting fall release around the Dreamforce event. Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division: Great. And you had made a comment that you had progress in 5 of the 6 verticals. Could you provide a bit -- just a bit more color in terms of where you're tracking in a couple of those key verticals, and whether there are any areas that you may be focusing on, especially over the next couple of quarters?

Yes, super questions. We had good progress in 4 of the 5. I would say that we're seeing good activity across the board. And it's always a good quarter for us looking at, not only a good split between new logos and existing customers, I mentioned the ACV was about 50-50, but also seeing it across the verticals. To your question on the -- if there's one vertical where we're seeing the most activity and the most interest and success would be around the Software-as-a-Service or SaaS marketplace. We added 2 additional customers in this space, in this vertical. And we now, as I mentioned in the call, have almost 20% of our ACV coming from our subscription life cycle management solution. And that's really important to note that, that part of our business was almost 0 ACV just a couple of years ago. So a lot of growth there, a lot of interest. And I also think it helps investors understand that our solution is even more valuable, I've asserted for a while now, in the recurring revenue or in the SaaS and cloud marketplace, even more so than in the traditional maintenance and support, and that's bearing out in the success we're seeing there.

Our next question is from Pat Walravens from JMP Group.

Mike, I guess, 2 questions for you and then a quick one for Ashley, so I'll just lay them all out at the beginning. So Mike, the 2 for you, and number one is, sometimes when companies talk about needing to spend more on marketing and build awareness, that means they're not very happy in terms of what they see in their pipeline, and I'm guessing that is not the case for you, but I'd love it if you just address that. And then secondly, Mike, you made a comment about the close rates -- closing rates being flat, and it sounds like maybe you're hoping for more. And then, Ashley, if you could just touch on -- I think at our conference, you gave sort of a rough percentage of the ACV that was from Renew OnDemand, and it was around 10%. I was wondering if you could update that.

Yes, thanks. I would love to be really clear, on the first point, I would say it's 108 degrees of what you asserted on sales and marketing. When I look at the pipeline and the interest, if anything, the incremental investment is based off of momentum, positive momentum versus the other way around. We have been in a situation, as you all know, the last 1.5 years, building out our sales team. We now have over 80% of our reps that are ramped. That's bearing itself out in the new ACV signings, clearly coming off, as I mentioned, the quarter where we saw -- we were pleasantly surprised to see the bookings go up for Renew as much as they did 40% quarter-over-quarter. If anything or if it is, it is playing into a strength a saying, this market, recurring revenue management, the interest is going up, we see a phenomenal wide space and we want to take every advantage of it. So that's really the emphasis behind it. On the second question on the close rates, yes, I guess, who knows? Maybe I'll never be satisfied. I'm excited by the pipeline increase and I'm excited about the results. I think for all of us in the executive team and the sales leadership, we just want to see a higher conversion. And to be clear, we're not losing deals, it's just taking longer, at some point, to close deals. So it's still bearing itself out to a large enough pipeline. You can overcome conversion rates that aren't exactly where you want them to be. So I think that would describe the first half. But in our quest to get better, we would like to see that number get up, and we'll continue to focus on it.

And as it relates to the percentage of ACV that's from Renew, we've been trending up. So this quarter, closer to 20%, of the new ACV in the quarter. And I said that's attributable to the fact that the rest are now leading with Renew in the sales...

Our next question is from Mark Murphy from Piper Jaffray.

Mike, regarding ACV, you're saying it's up 7% to 8% through the first half and that you had a strong quarter for ACV signing, but the close rates were sequentially flat. I guess, thinking that one through, to me, it seems to imply that the pipeline is bigger than expected. But I was wondering if you could clarify being up 7% to 8% through the first half, how does that compare to your original plan, which was calling for up 20% on the year and to be back-half weighted? Are you -- is this where you wanted to be, slightly ahead, slightly behind?

Yes. Thanks, Mark. On the first point, you're absolutely right. I think in terms of the pipeline is up more than we expected, and that even though close rates weren't as high as we'd like -- and I'm not talking about a massive delta there from where we want to be, but it does -- we overcome that. So you're right on that logic. What I would say on the ACV is, first of all, we wanted to give investors the number so that they could take the speculation around that part of our business out. We were pleased and feel like we're right on track for our plan based on that number. Said a different way, we -- the 20% net ACV growth, as we've said, has been -- always been back-half loaded, and we feel that getting to a 7% to 8%, and we can tell you a little bit why the range, but getting to that level puts us in very good position to hit that number on the second half, in the second half. Obviously, we have to execute and execute the way we did last year and then continue to have high customer retention. Those factors on it. But we feel very good about that and know what we need to do in the second half.

Okay, great. And then as a follow-up on the Renew OnDemand side of things, I believe you said 6 are live as of the end of Q2 and then, I guess, another 1 this week, and then the goal is 15 by year end. Can you remind us how many Renew OnDemand customers are booked and maybe how many you think would be booked by year end?

I'll take that question, Mark. In terms of the number of Renew OnDemand customers that we've booked, we haven't really given the number externally. But as Mike said, we're tracking the count as we get them live and certainly giving you guys visibility to that progress. And in terms of how many we hope to book by the end of the year, it's really early days on the product. And as Mike said, while we feel really good about the momentum we saw in the first half of the year, we expect it to be lumpy in terms of how many customers we sign in at any quarter and how much subscription bookings that translates into. But at this point, we're not comfortable giving specific guidance around those figures.

[indiscernible]. Go ahead, Mark.

Yes, Mike, I wanted to ask you as well, just in terms of the transactional renewal rates on the maintenance contracts for all of your end customers, can you give us any comment on that? In other words, I'm interested in any read-through to the health of broader-type economy that you might ascribe to that, and maybe on that basis, what do you see coming here in the second half of the year?

Yes. So we've not seen any deterioration, I should say, major deterioration when we look across our portfolio. At this point, we're over 145 engagements, so it's a pretty broad perspective. There are certain pockets and we've said before, they are coming in more pressure from alternatives, or competitive dynamics, but when we aggregate, our customer base. We've not seen any slippage. In fact, we're just doing some operating views this week, and I think Q2 was our highest production quarter in terms of renewal transactions and renewal rates that we've seen in several quarters. We don't see any reason for that to change. And if anything, I think that customers continue to increase -- understand whether if you're in a traditional maintenance and support business or in a cloud and/or SaaS business. The customer retention component and managing this part of their business is getting more competitive, and it actually plays better for us because our solution really can help regardless of the economic environment.

Okay. And then, Ashley, just -- I guess because it kind of ties onto that, in terms of the geos, I was surprised to see that EMEA, I believe it's up 18% year-over-year for you. And also, APJ is down 3% year-over-year, though, it looks to be kind of a uniquely tough comp. But is there anything worth commenting there in terms of the kind of transactional renewal rates across the geographies?

No. I said, generally speaking, we were really pleased with the performance of the teams around the world and particularly, internationally. You're right, in terms of APJ, it's tough comparison. And last year, when we spoke to some of the churn in the business, some of that hit in APJ, we're off to battling a little bit the lost small numbers. But we obviously feel good about that as a strategic region for us and, thus, the investments that we've made into Japan to drive further growth there.

Our next question is from Bhavan Suri from William Blair. Bhavan Suri - William Blair & Company L.L.C., Research Division: Mike, first, just to touch on it, you've commented about the -- or maybe it was Ashley who commented about the sales force now leading with Renew. Can you just give us a little color on sort of a, are they starting to leap with Renew; and then, how is that affecting sort of the follow-up sale of the traditional managed services business? Or have you sort of split the sales force, or are they compensated differently? Just a little color on how that's going to work.

Yes, sure. So this is what we started just in January, and it actually speaks to why we're increasing the brand and marketing spend. We just started this in January in terms of this unbundling. And what that means for us is the sales team, and it is one sales team, they now are able to walk into a prospect and highlight Renew OnDemand and then showcase how they value the managed service offerings. And that's just different than -- a mere 6 months ago when they were walking in with a complete bundled solution and a single price point. So that's the primary difference. What I'd say is it's still early but -- and we are learning -- we're really excited. This has been a huge acceleration. I think the strategy is playing out and giving customers more choices. The deals, as I said, are centered around Renew. But I'd also highlight, and this is really important, we did have -- so Dell was our primary customer we announced in Q3 of last year. They're just now moving into reference. So all of the success that we've had already, has been done with limited reference ability around Renew customers, and that's changing rapidly. But that's a big push for us and a big difference. So if you think about a business in Renew that's gone to $28 million now in total subscription bookings without having a tremendous amount of spend on brand, without having a referenceable customer and really just moving in through a level of maturity that we're seeing now, that's what gets us so excited. The second question, though -- no, I hit the comp. The second question is, what we're seeing is by leading with Renew, it gives a lot more flexibility, but the pull-through rate on managed service is very high. What we're able to do -- what I mean by that is we're able to introduce Renew. Renew is a platform for recurring revenue, and then the customers can pick and choose what geographies or product families they want to layer on top of managed services. And that's a really powerful value proposition in the marketplace, and I think it's really taking hold. And the third point, we mentioned this earlier in the year, we have put differentiated compensation around for the sales team for Renew. It's not massive, but we do want to have them to lead with it and to learn about it. And I think the second half of the year, that's going to really kick in as all the factors I mentioned come to bear. Bhavan Suri - William Blair & Company L.L.C., Research Division: That's helpful. That's really helpful. And then as you look at implementation times -- and maybe it's because the SaaS guys are smaller. But my logic is as the implementation times for a SaaS or a cloud-based company for on-demand are faster than for a on-premise provider where you're dealing with the recurring revenue base there, is that a logical way to think about it? Does that mean that as you start capping more and more of the SaaS base, the implementation cycle time on on-demand will come down?

Well, what I'd say is that in terms of our speed to deploy in Renew OnDemand, I'd characterize it as -- I'd differentiate the world in SaaS roughly between enterprise and transactional. Clearly, in the enterprise category, thinking more along the lines of a workday, for example. And so we have seen examples where we've been able to get Renew OnDemand live in short orders, say, 3 to 4 weeks. Our average time now is running in the -- anywhere between 8 to 12 weeks. And that's really a function of the customer readiness and their integration or configuration needs. So it's still pretty fast comparative to traditional enterprise software, but it's never -- it's not going to be the transactional, click-to-download type of approach that you see with different SaaS offerings. Bhavan Suri - William Blair & Company L.L.C., Research Division: No, you wouldn't, given the complexity of the data you're integrating for sure.

That is exactly right. Pulling data from multiple sources and getting into a renewal-ready format is a complex, but then the stickiness goes up dramatically as well. Bhavan Suri - William Blair & Company L.L.C., Research Division: And then one last one, this is just following on Mark Murphy's question a little bit was, one of the things you have seen a couple -- 1.5 years ago or so or sort of even last year a little bit was, as some of the traditional software companies felt competitive pressure or market pressure or cyclical pressure, they have taken some of the work that was given to you and brought it in-house because they have sales teams that weren't actually doing as much as they move guys who might have been in the field in-house. So have you seen a reverse of that trend at all yet or not?

Yes, I don't -- we're not seeing that much at all. I think that all of our customers, our traditional hardware and software companies are all looking at their go-to-market models and how they're going to move cloud or SaaS and things like that. But we're heavily engaged in those conversations. And interesting enough, the combination of Renew OnDemand, plus now having the experience, one of the things I really highlighted with the percentage of our ACV that's now from SaaS, we're quickly finding ourselves in an expert position there. And so we're able to educate them and help them think about it in a way that very few other companies can. So I don't see that as a trend impacting our business negatively. In fact, a lot of our dialogue is going around helping them think about what the movement would like and how they need to modify their customer engagement and how they need to think about their application infrastructure differently.

[Operator Instructions] Our next question is from Scott Berg from Northland Securities.

This is Mark [indiscernible] for Scott Berg. Just touching on the previous question, I was wondering if you can maybe expand a little bit more on the implementation period for the Renew OnDemand process? In terms of time and labor required, were those in line with your expectations? And also, how should we be thinking about the ramp times moving forward for new customers?

Yes, I'll take the first part, and then Ashley can get the second part. As I said, I think they are -- so here's our approach, I mentioned this last quarter. Where we are in the marketplace is all about making sure the customer experience for our customers is phenomenal. And so we've taken a white-glove approach, which means we want to ensure the implementation is as smooth as possible, we want to make sure usability goes up as quickly as possible and the experience is really a pleasant one for our customers. So that's been our approach, and I think that's consistent with other new entrants in the market, would have done well. In terms of the timeline, I would say it's tracking as expected, maybe even a little bit better. In the first half of the year, the team -- Natalie McCullough, we moved over to run this part of our business, has brought in a gentleman named Dave Canelis and other leaders. And they've done an amazing job of building out repeatable templates, getting our customer blueprints in place. And so we've seen already in the first 6 months a pretty significant improvement in both our cost to deploy, as well as the speed to deploy. So we were really happy about that, and I think you'll see that trend to continue into the second half.

Thank you. We have no more questions in queue. Ladies and gentlemen, this does conclude today's conference. You may now disconnect. Everyone, have a great day.