Lucas Skoczkowski - Chief Executive Officer David Charron - Chief Financial Officer

Steven Li - Raymond James Michael Urlocker - GMP Securities Eyal Ofir - Dundee Capital Markets Robert Young - Canaccord Genuity Justin Kew - Cantor Fitzgerald Gabriel Leung - Beacon Securities

Thank you. Good morning, everyone and welcome to Redknee’s second quarter conference call.

I’d like to draw your attention to Slide 2 of our presentation, where we have outlined the company disclaimers and cautions regarding forward-looking statements. I am Lucas Skoczkowski, Redknee’s Chief Executive Officer, and joining me today on the call is our Chief Financial Officer, David Charron.

Today, we will be discussing the results of the second quarter of fiscal 2015, which were issued after the close of market yesterday. The press release and accompanying financial tables are available in the Investor Section of our website.

If you haven’t done so already, I encourage you to download the presentation, which provides further analysis of quarterly results. David and I will be referring to this presentation during today’s call.

Following my opening remarks, David will review our financial results and then I will return to give an operational update before we open up the call to your questions. During the second quarter of fiscal 2015, we have made progress entering on our operating plan and are encouraged by our improving revenue mix, which has driven gross margin enhancement.

We intend to focus on continued revenue mix improvement, focusing on software recurring revenues, which are the key to driving our operating leverage in terms of profitability and cash flow generation from the business. Revenue in second quarter came in at $53.7 million declining over prior year quarter as a result of the impact of foreign exchange variations as well as lower third-party hardware and software licenses, which remained lumpy on a quarterly basis.

Gross margin was 61% of revenues in the quarter and 55% on a trailing 12 months. This resulted in an adjusted EBITDA of $10.5 million, or 20% of revenue ahead of our plan and expectations of mid-teen percentage adjusted EBITDA margin as well as demonstrating the natural hedges we have built in into our business to isolate overall profitability for compression of top line revenues.

The EBITDA on a trailing 12 months was $24.1 million, or 10% so more work is required for us to get into mid-teen percentage adjusted EBITDA margin. Recurring revenue in the quarter was 46% of total revenues, or $24.8 million and we expect that the final tool former NSN customers will roll off our platform by end of the year, which we as mentioned during our last conference call, should account for 5% to 10% of the current quarterly run-rate given current foreign exchange rates.

We expect to start to gradually grow our recurring revenues from both support revenues and term licenses in fiscal year 2016. Our order backlog at the end of the quarter was $157.2 million.

Cash at the end of the quarter was at $105.8 million as a result of $13 million of cash flow from operations. As already mentioned within the quarter, we saw the impact of foreign exchange rate fluctuations on our business, specifically isolating for the fluctuations in foreign exchange rates on a constant currency basis, adjusted Q2 revenue would have been $61.1 million and recurring revenues of $27.4 million.

Applying the same principle, our order backlog which were otherwise have been at $105.8 million. Conversely, our operating expenses would have been approximately $30.9 million, instead of $27.1 million.

The net result on our adjusted EBITDA would have been approximately $1.6 million higher, which would result in an adjusted EBITDA of $12.1 million, or 20% instead of $10.5 million. I will provide a more detailed operational update in a few minutes.

However, first, I would like our CFO, David Charron to walk you through the financial results for the quarter. David?

Thank you, Lucas and good morning everyone. I would like to spend the next few minutes summarizing our financial performance in the second quarter of 2015.

And to put this discussion in context, I encourage you to review the company’s financial statements, MD&A and earnings release which are posted on SEDAR and are also available for download on our website. Please note that our financial results are presented under International Financial Reporting Standards and are presented in U.S.

dollars. And for comparative purposes, our previous year’s results are also shown under equivalent accounting standards in functional currency.

Now, on to our results, overall total revenue for the second quarter was $53.7 million, down 26% from the $72.4 million in the same year ago quarter. The change in revenue results from the impact of foreign exchange rates, lower third party hardware sales and in addition to the roll off of legacy support contracts that we discussed previously.

As Lucas mentioned on a cost and currency basis, our total revenue would have been $61.1 million. Recurring revenue which we define as revenue from support maintenance agreements, term based product licenses and long-term service agreements was $24.8 million or 46% of total revenue in the quarter as compared to $25.9 million or 36% of revenue in the same year ago quarter.

On a constant currency basis, recurring revenues would have been $27.4 million. Gross margin was strong at 61% of revenue as compared to 48% in the same year ago quarter.

Gross margin improved as a result of the improved mix of revenue types specifically the increase in revenue from high margin software license deals and improving margins from support. Gross margin also improved as a result of decrease in third party software and hardware revenue which has lower gross margins.

Adjusted EBITDA was $10.5 million in the quarter or 20% of the revenue compared to an adjusted EBITDA of $5.7 million or 8% of revenue in the same year ago quarter. And as presented in the reconciliation of net income to adjusted EBITDA in our press release the Q2 2015 net loss includes $0.3 million of cost linked directly to the BSS acquisition as well as $0.3 million in costs related to the restructuring plan and $5.2 million in loses due to the impact of foreign exchange rates in the period.

Net loss for the quarter was $2 million or $0.02 per share compared to a net income of $4.8 million or $0.05 per share in the same year ago quarter. However, excluding the impact of FX changes incurred in the quarter, adjusted EPS was approximately $0.06 per share.

Now looking a little more closely at revenues for the quarter, we saw software and services revenue decrease by 25% to $28.8 million or 53% of total revenue from $38.2 million or 53% of total revenue in the prior year quarter. Breaking down the software and services revenue further on Slide 5, you see that in the current quarter our estimated split for revenue was $18.7 million for software licenses and $10.1 million for services compared to $26.5 million for software revenue and $11.7 million for services revenue in Q2 of fiscal ‘14.

The other point I would like to make here is we have grown our software revenues substantially over the last seven quarters from $7 million in Q4 of fiscal ‘13 to about $19 million in Q2 of fiscal ‘15 which shows the progress we have made in improving the quality of revenues and service of transitioning through a software business model. Support and subscription revenue decreased to $22.5 million or 42% of total revenue, which compares to $25.7 million or 35% of total revenue in the same period last year.

And this decline was in line with our expectations and primarily caused by lower support revenue as a result of the non-renewal of certain support contracts. Sales of third party revenue of hardware and software components in the quarter decreased to $2.4 million or 5% of total revenue from $8.5 million or about 12% of total revenue one year ago.

On a constant currency basis each of our revenue items would have been as follows. Software and services revenue would be $33.6 million, support and subscription revenue would be $24.7 million and third party software and hardware would be $2.8 million.

Also recurring revenue would therefore have been $27.4 million and our order backlog of $175.8 million. As I mentioned earlier our gross margin improved in the quarter to 61% of revenue primarily as a result of improved revenue mix with a higher percentage of software license revenue and a lower percentage of third party products and higher margins on support.

Also we benefited from the decreased dependence our outsourced contractors reducing our overall cost of sales. On a trailing 12-month basis our gross margin is now 55%.

During the quarter total operating expenses adjusted to exclude acquisition, restructuring and amortization cost was $24.5 million or 46% of total revenue compared to $31.9 million or 44% of total revenue a year ago. Now, I would like to discuss each of the OpEx lines separately.

First, in the quarter sales and marketing costs totaled $7.7 million, 15% decrease over the same period last year. And as a percentage of total revenue, sales and marketing expenses were 14% up slightly from the 13% recorded a year ago.

While increasing as a percentage of total revenue sales and marketing costs decreased in total dollar value as a result of foreign exchange impacts and lower overall compensation costs. G&A costs decreased 3% to $7.5 million in the quarter from $7.7 million in Q2 of fiscal 2014.

As a percentage of revenue, G&A expenses increased to 14% from 11% of revenue. Excluding stock compensation and amortization, G&A cost decreased 19% to $4.5 million in a quarter from $5.5 million in Q2 of fiscal 2014.

R&D expenditures decreased to $11.4 million compared to $16 million for the same period last year. And as a percentage of revenue R&D costs declined to 21% from 22% in the comparable period.

The decline was largely result of the impact of our restructuring plan and a reduced use of external contractors which is a major focus area for us as we have discussed on previous results calls. Total cash cost related to the acquisition in the quarter was $0.3 million compared to $2.4 million in the same year ago period.

Last year we announced details of our Normal Course Issuer Bid under which we could purchased up to $9.4 million common shares. The NCIB commenced on June 3, 2014 and will terminate on June 2, 2015.

As at March 31, 2015, we have not purchased common shares under this NCIB. At this point, I would like to turn your attention towards some specific balance sheet items that we reported in the quarter.

Cash and equivalents totaled $105.8 million at the end of the quarter. This includes strong cash flow generation from operations in the quarter of $13 million excluding the cash used for restructuring.

While this represents a $4.3 million increase in cash over Q1 of 2015, our overall cash was compressed by nearly $3.5 million by the translation of our cash balance, which is in multiple currencies to U.S. dollars for reporting purposes.

Overall, the improvement in cash was a result of improved collections and good balance sheet management. We have made tremendous progress on our unbilled revenues which declined 30% from $43.6 million in Q1 of 2015 to $30.7 million in current quarter.

Accounts receivable declined 4% from $76 million in Q1 to $74.9 million at Q2 of fiscal ’15, while our day sales outstanding increased to 113 days compared to 107 days we reported last quarter. The increase in the results was largely the result of lower revenues on a trailing 12 month basis and doesn’t reflect the excellent progress we have made in our combined unbilled revenue and accounts receivables assets as well preferred revenue decreased slightly to $20.5 million from the $21 million last quarter and our overall working capital decreased to $129.4 million from $131.9 million as of Q1.

Our order backlog was $157.2 million versus $171 million in Q1 of fiscal 2015 and of the $157 million backlog approximately 65% is expected to be recognized as revenue in the next 12 months with the remaining 35% to be recognized afterwards. This completes my financial summary.

Let me turn the call back over to Lucas for his operational update.

Thank you, David. We feel it is important to review our financial results within the context of our overall growth strategies.

Here, I will update you on two main areas. Number one, I would like to discuss our short to medium-term management priorities, and number two our long-term growth strategy.

With regards to our short to medium-term management priorities, as previously discussed we see a significant opportunity to continue to build value for our shareholders. During the second quarter, we continued to progress towards achieving these objectives.

With regards to the support values, we will continue to focus on the gradual improvement in the support margins we are deriving from our customers. As stated on the last call, we expect also that throughout fiscal 2015 we will see some lumpiness in support values as we continue through this process especially as we look to continue to remove third party from our recurring revenues.

At the same time we are seeing margins approach our target for support, while we exclude third party historically embedded in support contracts from acquired business. We will continue to replace underpriced contracts, with more of industry standard evaluations and focus on the Redknee content in support and recurring revenues.

With regards to upgrades and upselling our software portfolio, we have continued to close on upgrades, license expansions and upsell providing validation for our customers that as we are taking care of their investment while providing them with a competitive advantage through the latest version of Redknee Unified platform. Now I would like to provide you with an update on our long-term growth strategies.

These are comprised of three main elements, which build up on the short-term objectives we described earlier; Number one, continued evolution of our business critical software product offering. Number two, market share growth and leadership in our served addressable market.

And number three, an increasing proportion of sustainable recurring revenues. Expanding on these, number one on the product offering front, in the quarter we continued to announce secured contracts for our core telecom business as well as for Redknee connected suite, a software platform that fully leverages with the Unified product line to support the Internet of Things market.

Number two, on expanding our market share and leadership, we currently deployed with over 200 global service providers supporting approximately 2 billion subscribers. As a company, we are relentless about customer for life approach.

This approach to customer service is why we have continued to obtain all of our clients and we have not lost any customers from the acquisition to-date. And more importantly, we see the remaining two and the same customers will revolve as mentioned before by end of the fiscal year.

Furthermore, with the recent events in our industry, including bankruptcies and consolidations, we emerge as a clear alternative to the legacy solutions providers for their real time monetization and customer care platform. We are excited about these industry changes and we expect that these will create additional opportunities for us to acquire new customers as we enter fiscal year 2016.

Here I would like to know that we’ve singed a Tier 1 America’s operator who will look – who we look to expand across multiple countries globally in coming years. Finally, we continue to evaluate the pace of accretive acquisitions to drive increased customer access and expanding product portfolio.

We remain disciplined here. Number three, on sustainable recurring revenue front, our recurring revenues are primarily comprised of support, some product service or term licenses that together in quarter comprise of $24.8 million or 46% of our revenues.

As discussed anticipated decline in recurring revenue relates to the specific former and the same customers that have made decision to move off the platform prior to Redknee’s acquisition of their Nokia BSS assets. In medium-term, we see opportunity to continue to increase support margins while providing more opportunities for term licenses.

We continue to focus on sustainably growing our recurring revenues while progressively scaling our EBITDA margins. Once again as we said previously, we are committed to continue to drive our EBITDA margins from where we are to-date versus our long-term goal of 20% to 25% total revenues over the medium to long-term.

In summary, we have continued to execute on our three-step plan. We are building strong quality revenue streams, improving gross margins and EBITDA margins while improving our cash flow.

Before opening up the call for your questions on behalf of the entire management team, I would like to say thank you for the continuous support from our employees, our partners, our customer base as well as our shareholders. Now with that we are ready to open the call for your questions.

Operator, please provide the appropriate instructions.

Great, thank you. David or Lucas, so FX you now expect recurring to bottom closer to about $22 million and support at about $20 million, just wanted to confirm that?

I think that math works Steven, it’s again approximately 5% to 10% from the current run rate.

And you expect this further will roll off to starting Q3 and finishing Q4, David?

Yes, that’s right. Second half of the fiscal year is where we expect that to happen.

Alright, great. And Lucas Amdocs acquiring Comverse, does that change the competitive landscape for you guys?

Thanks.

I think it was a very much expected move, which has probably had taken a bit longer than we thought it would. And I think it is asking to buy that entity and I think in a short to medium-term it will create opportunities for us in terms of ability to access additional customers who have been pondering decisions and I think now they will be right moved into action to decide on the path forward in some of the projects that they are evaluating.

So we see it as something that is – was required for Amdocs to do. And I do see that there are opportunities, advanced opportunities for Redknee.

Any – Lucas any recent examples where you have displaced Amdocs or Comverse you can talk about?

I think from a competitive position I would prefer not to, but we have had recent wins against Amdocs definitely because of our strength in the platform of Unified 10 release. And I would say that following Mobile World Congress, I am happy that we have quite few discussions with some of the key clients of the combined business as they look for alternatives and maybe even do vendor strategies to maybe provide good attention for Amdocs in the marketplace.

So, we are encouraged by customer engagement on that front.

Okay great. Thanks guys.

Thanks Steven.

Thank you.

Thank you. Hi Lucas, I wonder if you could maybe expand a little bit on what you are seeing in terms of the upgrade cycle.

There was a point in the past when the traditional required NSN customers certain number of them or a quite large number of them were using out-of-date versions of the NSN software, if you could maybe flush out what that trend has been in terms of that upgrade cycle. And also if you could describe maybe if we look at Unified 10 as a product, how would you describe the sales experience has been so far?

I think from our perspective a couple of things. I think we have seen the ramp up of the upgrade and supply license orders continued to be robust.

We see that average sales cycle on upgrades probably be around 12 months. And we have built up quite few orders which we are now implementing the upgrades and we are able to convert usually an upgrade in under six months, so between three to six months depending on customers location and they are on process.

So we have found that are progressively moving through and bringing more of the customers both Redknee historical customers as well as the acquired customers over to Unified 10 and actually but that’s continuing over next 2 years before we bring them onto next release. Overall experience I think as a response I would say that new – from existing customers they have found the functionality to be very relevant especially as they are facing competitive pressures and for retention and new revenues.

I think our capability combining with consulting we are able to help our customers to improve their revenue, create new data revenues as well as improve profitability by customer retention. It’s been – we obviously have over hold our sales organization over the last 2 years and that I think has helped as we are able to attract sales people from other large providers such as Comverse and Amdocs to help us really drive probably a bit more experienced software sale into the customer base.

I do expect that as there is a long noise in the industry that there will be some customer policies especially since we have seen some big vendors make announcements such Nokia and ALU combination which will cause procurement departments probably to ponder what the impacts are, but net-net I do believe that this creates ongoing opportunity for Redknee to be able to bring the product approach. And I think that’s probably the most important aspect is over the last 2 years the product orientation that we have is no longer an option, it’s a must.

We have seen the change in communication obviously from folks like Amdocs in terms of moving forward from our products. But I think the D&A that we have clearly differentiated us in the marketplace and operators have been very receptive about hearing our story, is that helpful Michael.

Yes, it is helpful. And you used the word pondering regarding the customers and it really is kind of a hard reminder that even customer is looking for an upgrade, it’s a 12 months sales cycle, they really do like to ponder and I guess they make wise decisions with these telcos, but they do move a bit slow.

My next question would be on cash flow and I wonder if you could make an observation or David on the general goal for a sustained cash generation whether that’s continuing and in particular not a major focus but we are seeing some progress on deferred revenue on a year-over-year basis, but I wonder if you could put in a context where we are today on deferred revenue and where you want to get and whether signing the contracts on your terms is helping improve that further? Thank you.

Yes, thanks. Good question, Michael.

So, first of all on the cash front, we have had very good progress in this last quarter on cash flow from operations. I think in general and a steady state situation improved EBITDA margins will translate into good cash flow from operations and that’s certainly our experience and our goal.

On the balance sheet we have made good progress in reducing our unbilled revenues that think of it in terms of unbilled revenues, then move to accounts receivable then are collected as cash. So we have seen that positive movement.

And on the flip side, to your question on deferred revenues, deferred revenue is really a source of cash to company. It’s really – and our standard is to make sure that we – our invoicing terms are such that we get paid in advance for support, this is common in the industry.

We are making good progress on taking some of the acquired contracts and moving them more to what I will call the old revenue standard. There is still a lot of work to go and to do on this.

But in general terms, I am more comfortable when I start to see unbilled revenue and deferred revenue one being an asset, one being a liability start to equalize and be at about the same value. So we are making some progress there but more work to do.

Thank you. That’s good.

Would you describe like the change in unbilled was pretty substantial about $13 million, is that largely from some project completions and sign offs or is that also because of changing contractual terms on new business?

It’s a combination of both Michael I think we had some very good progress on our projects which allowed us to invoice and move that asset into accounts receivable. At the same time, we are gradually making improvements in our billing terms in our contracts, our invoicing terms to make them more milestone based and as I had mentioned on previous calls to be less focused on overall final completion of our projects.

Thank you.

Okay. Thank you, Michael.

Thank you.

Thanks. Good job on the results, margins and cash flows guys.

I am just I am touching on the cash flow again David I mean you talked about the target going from trying to equalize the unbilled revenue and deferred revenue, as we kind of model this going forward should we assume kind of this in a better steady state level for unbilled right now or is there room for improvement and how should we think about the quarterly volatility as well.

Okay, it is going to – so I will answer the second part first Eyal. It is going to about to ramp on a quarterly basis as is the nature of our business.

I think as I have mentioned before I think the $30 million to $35 million range for unbilled revenue is a good steady state. We have had good progress this quarter, but it doesn’t mean it’s not going to bounce around in previous quarters.

I think there is more room and more opportunity to actually increase our deferred revenue and get that up to say $30 million in a steady state. That’s not going to happen over the next 6 months to 12 months, it probably is more of a 2 year plus cycle or journey, I will call it.

But we are making good progress there. And I am encouraged by the individual contracts that I see being renewed the terms of those contracts are more and more in line with what our objectives are.

So its encouraging to me, but that will take time to work its way through results which of course are lagging.

Okay, great. And then just on the OpEx side, I mean you talked about this in your prepared remarks, but it sounds like between the restructuring, the FX and also removal on some of these sub-contractors that you are able to kind of this is kind of your new steady state R&D and sale and marketing level is that a good assumption here?

Yes. We are making – we made very good progress.

You are starting to see a good portion of the restructuring if you will come through in the results. And as we said before that it will fully baked by the first quarter of fiscal ‘16, but we are seeing a fair chunk of that happen now.

So we are pleased with the progress we have made so far and we will continue to very closely watch costs both in OpEx and in cost of sales.

Okay, good. Thanks.

And Lucas just for you, obviously you talked about the big contract win you had with the Tier 1 in the Americas, how is the progress there, have you guys already began deployment in one of the countries and then how should we think about the roll out into other countries overall the next call it 12 months to 24 months? And I have another subsequent call before – another question before I pass the line.

Thanks.

Sure. So I think we are deployed and we have now got stabilized surveys probably by the end of this quarter subject to customer’s business requirement.

But because it is a cloud solution, we are able to move much faster and it’s really now flexibility for customer when they want to actually pull the trigger to drive it. So that’s one encouraging aspect.

This allows us – we are leveraging out cloud infrastructure right now. We would be able to put it into the global infrastructure in the future.

And then really as the marketing leads drive, they will be able to bring and move subscribers into our platform very rapidly, is that helpful.

Yes. And just to clarify on that, revenue there will be driven off of kind of I guess minimum monthlies and then on top of that as the number of subscribers increases you will be increasing the number of I guess recurring revenue we will be seeing from the accounts, is that correct?

We will have definitely the focus on recurring revenues, but this deal come to place right now. They will be different based on different countries, because they have the different levels, as no other customers might want to pay you more of a term license and some customers might want to pay upfront with a bigger support.

And we want to give our customers flexibility on operating business in each country of how they want to spend their money. And I think as David mentioned if you are going to pay me money upfront, we like it the most.

So we are definitely increasing our sales team to think in those terms as well.

Okay. So basically this products business you are ready for to be globally driven out by the operator, right.

So they can go country by country as these decisions are made, you guys are ready to go essentially?

Correct. Yes, so we didn’t [indiscernible] platform, yes.

That’s perfect. And then just finally before I pass the line, obviously you have made some traction here in the non-communication space, telecom space and the energy space and some other areas, what are you seeing in the end of the space there and then also from a pipeline standpoint, obviously you made some comments, but how are you feeling on the pipeline it’s been obviously north of 2 years here since the acquisition closed, so I think clients with more reference point customers you should be able to start converting some of these larger opportunities for you so I just want to get kind of your view?

And I will pass the line. Thanks.

I think there are a couple of things on the non-telecom aspect and I think we continue to remain encouraged. We are looking to deploy more resources behind that to be able to derive both the implementations as well as to secure additional business, because we have had couple of inbound requests.

And I think once again I think I mentioned I think before our focus there will be there to work with other either equipment or service providers who really deliver that solution to the IoT environment. So either energy, retail, transportation we are going to work with larger providers of either service or equipment to deliver our solutions.

And I think from a customer reception perspective, we are I would say I am very encouraged by the engagement we have with service providers. And then we find a very significant Tier 1 in Americas which I am very pleased with because that drive us to the opportunity.

We are engaged in late stages albeit I would say [Technical Difficulty] customers have predicted us and now we could convert those into deployment, which is spending the different customers cycles. Now, overall I would say that we are seeing a very good alternative and proven now with increased flexibility we have from customers who are, I think as one thing you recently mentioned of a very large operator that we have one of the best teams and the best stock from the market.

Okay, great. Thanks.

I will pass the line.

Thank you, Eyal.

Good morning. Couple of quick ones.

The 100 to 110 days DSO guidance you gave recently [Technical Difficulty] progress on the balance sheet, are you still thinking of that range as appropriate or is there a different range you would like us to think about?

Again, there is a lot right on the line, but I think I got your question, so yes, the 100 to 110 days that we talked about with respect to DSO is longer term [Technical Difficulty] will it go below 100 or will it go above 110 in any given quarter? Yes.

What we have seen this quarter is great progress on our unbilled revenue, very good collection, but the unbilled decrease is frankly moving to accounts receivables and natural progress on the balance sheet. And with trailing four quarter revenues declining based on FX, the calculation of DSO spiked it to 113 days, not a concern for me.

I think the overall visibility on cash and cash flow in collections is in much better shape than it was a year ago. As I mentioned on previous calls more and more customers of ours we are dealing with directly from a contractual and invoicing and collections basis and that is always better for us than working on a back-to-back arrangement with anybody.

Of course, it was with Nokia, but we have moved significantly beyond that now. That’s all behind us.

And my confidence in our ability to collect on a timely basis and to generate cash is much stronger than it was a year or 2 years ago.

Okay. And you don’t include unbilled revenue in that DSO calculation, correct?

No, we don’t do that, because we probably stick with kind of the industry standard. However, if you were to do that and I am sure Alice can easily do that.

You have seen we have made great progress on reducing that combined assets 2 years ago to today.

Okay. And then you noted earlier, part of the margin strength was due to higher margins on support.

Is that a sign of the progress you have made on raising some of the contracts, the industry levels? Can you quantify the benefit to the margins, lot of moving parts of the currency this quarter, but if you can sort of simplify that for us that will be great?

I think it’s a couple of things. I will take that is in prospectus we are making improvement in pricing.

We are also making improvement in reducing the cost. And I think those two commissions are two has put if I remove third-party, we are looking at targets of that we expect it to be in a 2-year journey we have taken to where we have been to be in terms of as a margin support.

And it’s – I would say it’s in the range of being the good contributions for support in our industry. And if you think about support providing kind of around 30% margins, I think we are in a purely revenue content support.

We are on target there. And I think we can improve a bit, but really the combination there is for us how do we continue to deal – remove the structurally put in place third-party support that historically we have inherited from acquired contracts and that is making progress – expected to be making progress over next 12 months further progress, which will drive additional improvements.

I do – and I remind everyone that this quarter we had EBITDA and margins ahead of our plan. And I don’t want us to get ahead of ourselves.

So, I am going to continue to make sure that we – our view is to be in the high 50s as margins and in mid-teens for EBITDA for the year, because I do expect continuous lumpiness on the different both services third-party and software, because overall remainder that I want to make sure people won’t get overexcited.

Okay. And then I guess last question from me would be on the software and services line.

I have a hard time understand the underlying trends, it looks like on constant currency was down this quarter over last year and maybe perhaps a little flat with sequentially, just talk about what’s going on there? Is there – are there underlying signs of growth, which we should be looking at constant currency analysis might be clouding and if not like what drove the sequential and year over year weakness specifically?

I mean, I will take it and then I will let David to close up on that, but I think number one, I think last year we had a very big lumpy increase in our licenses. Unfortunately, licenses are lumpy in nature.

So, from that perspective, we are cognizant of the fact that overall we have grown the trend. And the view for us is that if I look at over the last eight quarters, we have progressively grown the top of component in making you this more predictable, but still subject to customer realizing accepting the software that we deploy to them, but they really want….

I think you have hit the high points, because from my perspective the growth in the software license revenue over the last seven quarters or so, the FX aside is growth. And it’s going to be lumpy, but we have seen, I think great progress on moving to more traditional software business model focusing on the value of our software licenses in our business making sure that our contracts are structured that way and so on.

So, that increase as I mentioned in my remarks from $7 million a quarter to roughly $19 million a quarter shows very good progress in that regard. The direct comparison to the year ago quarter, I think is an anomaly.

It was a very high quarter for orders and revenue on the software side. Much of it was catch up and some other aspects.

And so I think the way that we are looking at it is to kind of normalize that on a quarterly basis and I think we have made tremendous progress there.

Okay. So, just lower activity in this Q2 for new signings I guess is the kind of way to simplify.

Are you still thinking that you will see growth overall in software and services for the full year?

Well, I think from taking aside the FX, our plan is to see gradual growth on the software and services and while we expect overall revenue to – on FX adjusted basis to be – our plan is to be flat, because the focus really is if you remember we are doing the company to focus on EBITDA generation and a cash flow generation and that’s where the team and the whole guys is being paid on, which I think create good basis for us to be able to also add other things to the business, because we have the underlying business performance, so that’s kind of priority.

And then last question for me and it’s the same sort of question, just looking at the support revenue at the constant currency number 27, and now the floor for support revenue is a little bit lower than you had previously expected. Is currency the factor there or is there just something else beyond those two customers that are expected to churn off in the second half?

Is there any new information relative to headwinds in the support component of revenue?

So, I think from us – there is nothing new. I think the FX does play a role and we are continually trying to find the ways to eliminate the role of third-party support cost, which have been embedded historically in this line.

And our view is if we can lower that, I think we can demonstrate moving close to be probably one of their most profitable support in the industry over next two years, but that’s – the process is really that’s more noisy. I expect that we will probably spend less among that in our discussion as we exit 2015 as we move into 2016 fiscal.

Okay. So, currency is the only factor to think of really it’s in a decline.

Yes.

Okay, thank you. I will the pass the line.

Thanks, Lucas.

Good morning. Thank you, Lucas and David to take my call.

So, just a quick question, Lucas you talked about M&A and looking for customer access and product portfolio and especially now with cash flow from operations being a lot more stable. What are you seeing in terms of M&A pipeline and where do you think opportunities lie for you within this area?

I think we see a very active M&A market in terms of number of companies that are either looking to be acquired or are being sold both in the process, or maybe in a more from a asset perspective being forced to sell. So, I think we feel it as a target to its territory.

We see few quality assets that we are evaluating really to both us customers with recurring revenue, but also products. Some of the products might be overlapping, some of it might be complementary, but the idea for us is how we can continue to scale the business, but also improve and build on that product IQ that we have in a company.

Now, I mentioned because they do emphasize we want to be accretive and we obviously continue to think about how sustainable the recurring revenue/profitability can be in acquired business, but thankfully there is a well targets in both our small, medium size and few large and our view is we will continue to evaluate that and work with out board to make sure we create most value for our shareholders.

Hey, good. So, it sounds like there is opportunity there.

Yes.

And Lucas, can you just talk a bit about the backlog, I mean, with adjusted FX, it does look like it was up sequentially, can you just maybe talk about how you see that – how backlog trends over the next couple of quarters and maybe just qualitatively talk about your book-to-bill?

We are not trailing 12 months, we are at 1.1 book-to-bill is what our plan is. We, from our perspective is we do see lumpiness in terms of orders especially the larger new customer orders will tend to be lumpy quarter-over-quarter.

So, I like to always think about kind of trailing 12 months as a way to view the business, because I am definitely not enough to give it a call 24 months sales cycle exactly in the quarter, especially given low customer ponderings, I think as we have discussed before and changes. That being said, we do see a high quality pipeline, where we see we have the sufficient opportunities that are being closed, so that we can continue to be on plan for our fiscal 2015 in terms of orders.

I would not also that some of the orders we are getting are longer term. So, we have closed two term licenses.

So, I think you mentioned the backlog right now, I think David mentioned this about mid 60%, 65% of the backlog will convert over the next 12 months. And I would just point out that, historically, there was 30% and benefit for us to drive bit more longer term contracts and recurring in nature, because we are trying to dive with more term licenses in a mature market where we feel we can enforce them.

Is that helpful?

Yes, absolutely. Thank you very much.

I appreciate that.

Yes.

Good morning and thanks for taking my questions. I got two things.

First, I mean for David, can you give us a sense of where you are in terms of what percentage of that $30 million or $35 million in cost reductions, have you realized so far as of fiscal Q2?

Okay, good question Gabe. I think we are seeing sequential improvement in sort of implementing that was cost savings.

While we said that the impact will be fully baked by first quarter in fiscal year ‘16, I don’t have an exact percentage but I still feel that $30 million, $35 million improvement we are certainly on track for. So we have got a bit more to go between now and the first quarter of fiscal ‘16, but we have seen very good impact of those initiatives would show up in our results to-date.

And where should we see the majority of the remaining cost reductions, is it more cost of goods or somewhere within the operating expense lines?

We have – what we have talked about in the past, the restructuring is really focused on both the cost of goods sold and in R&D that’s where the bulk of the activities and the actions have been focused. And we have seen improvement in gross margin and we have seen – certainly we have seen improvement in our R&D line.

We are not expecting much in the way of cost reductions in sales and marketing or G&A from restructuring that’s an area where we are going to continue to try to improve leverage G&A and improve leverage in our sales marketing.

That’s great. And then for Lucas I mean there has been a lot of data points over the last little while just around continued softness and care spending more on the network equipment side, but I mean are you – what are hearing from your customers, are you worried about potential near-term impact on close rates or deployment cycles just based on the discussions you are having with your carrier customers?

That’s it from me. Thanks.

I think we do see as customers make decisions to either consolidate or themselves look to restructure the organizations they are impacting some of the discussions. I feel we have enough to hit our plan but our ability to exceed really will depend on some of the near-term pressures our customers are experiencing with changes in the vendor length scale.

I think operators that we have engaged do see value and needs what we do in fact speak to the [indiscernible]. I hear about how they have a need for improved revenue or improved functionality to be able capture revenue subscribers in more data centric environment more Smartphones and more dependent environment.

I think Redknee is able to help them with that as we have demonstrated with existing customers. So the way the business cares to really translate those pressures that they are experiencing into opportunity.

That being said, I think I mentioned earlier on this call we are in existing customer sales cycle of 12 months and new customers 24 months, these things take time. And there are other things we are posing right now as we have been worked over last 2 years.

So I would say software I continued to be vigilant. Our view is to make sure we have the right cost discipline.

And I am always ready for lots of lumpiness but our objective is to minimize that continuing to drive in closed business.

Okay.

Thank you.

Thanks. Just a follow-up, obviously the industry consolidation was Nokia and Alcatel merging here, what are your thoughts on that and is there an opportunity also to maybe displace some of the components that are currently within the Alcatel BSS was offering, obviously they are using competitors that are quite detriment to their own because of the direct components versus using another independent?

I think that’s a good question Eyal. I think this will play out over the next 12 months once the business closes.

I think Nokia would have a goal on its hands, I am not sure how big of new priority currently it is. I will say from a customer perspective we have had a very good traction in helping our customers provide evolution to some of the more legacy products that we have deployed historically in markets.

We will differentiate the market trajectory. We saw CN move and are relatively, keenly working with Nokia to be the partner of choice in the areas that we specialize in.

So, I think that’s kind of [indiscernible].

Okay, alright. I mean, there could also be potentially some of the structure in there as well, so you couldn’t go after some of the accounts and some of the legacy accounts?

Yes, I mean, I think there is – there will be quite a bit of disruption, but obviously I am sure Huawei are also looking at. So, I mean, I am being touched of course to that plane.

I do feel that both as the equipment providers’ consolidation as well as vendors in BSF consolidation, these create opportunities that we are keenly looking at how to exploit. And I think we are well positioned to exploit them to our benefits.

Okay. And just on the M&A that you talked about previously just is there any point solutions that you would add on top of what you currently have just to expand your offering?

I mean, I think what we have compared is that we will look at more DSS, which is subscriber oriented, because as we look at orchestration of services, as we look at analytics, we definitely think we have products in those areas that we will have bolstered them and maybe increased the breadth of it. And I think from us especially, we also look at additional business capabilities for marketing dealers and distribution to be able to sell both in conjunction with our co-product, but also independently and directly to customers that might not leverage our core DSS product.

So, I think it is fairly broad in our target range, where we feel we have the capability and operating model which will allow us to both integrate and make it accretive, but stay tuned as we, our view is to continue to bolster our first engine of cash flow and profitability, which is obviously our telecom business. And then we will see how we also bolster our second engine of growth being the IoT non-telecom business, so because I think they will book leverage to have Unified product line in R&D investments we are making there.

Okay, thanks. I will pass the line.

Thank you.

Thank you, Eyal.

Thanks for the repeat offer here. Lucas, when you described the new customer in the Americas and that they are using a cloud solution raises a question of context here, if you could offer a view.

My sense is that your cloud or SaaS solution, it’s still very early days in terms of most telcos deploying that, but you have got a multinational group operator looking at it. Is that something – is that a kind of roadmap point that other group operators are starting to gravitate towards or is this new customer a little bit of the exception ahead of the packing?

So, I think we have few several examples in last year we have deployed the cloud solutions within the group operator specifically looking about from Germany, which I think has significant size and requirement. This utilization probably will be one of the largest implementations we have done in Americas.

It’s significant. And from our perspective, it’s something that is I think good for differentiator and a competitive advantage and it’s definitely a milestone strategically, both for winning this customer, but also from our ability to prove that you [indiscernible] operate our product, but we can really have the cloud’s capability for the mission-critical technology.

And I think what we have seen historically as you I think ask me about on few occasions. Our customers have been reluctant looking at these areas, but I think as they look at consolidation in maturing of the market, they do have to leverage latest technologies and approaches.

And I think we hope to be able to build on this. I do expect that more often than not, our customers will run the private cloud implementations of the virtualized solution because they are in fact one of the largest card providers today in a lot of the markets they operate in.

So we see it as a very big, they are complementary. But the idea that we are able to scale and provide millions of subscribers to start with on to a platform I think is very encouraging and we want to build on that.

And is this central issue or one of the central issues for adopting this technology really like I am group operator based in some country and I want to have a single billing system or an ability to control my multinational operations through a single platform, is that the driving factor?

It’s a combination of that ability to have common promotions in companies across all the different business units, ability to centralize expertise as you don’t have to have it across companies that obviously lowers the operational costs for the operator on their own personal side. Really it gives them flexibility without having to invest heavily in infrastructure, because they can have more of a cloud virtualized infrastructure.

So they can spin up more CPUs if they have more demand and they can also assign those to other maybe functionalities they want in a business. So I think it gives them unsurpassed accountability.

Obviously, it’s a big trend to address network virtualization and service virtualization for our customers. So I think we have been on that bandwagon I would say for over 5 years pushing that.

I think the customer’s pressure on OpEx is causing them to really having higher consolidation and spend money in the area and so on.

Okay, thank you. I appreciate the detail.

Great, thanks. Thank you, Michael.

Great. Thank you for attending this conference call.

And we look forward to updating you ongoing – through press releases on ongoing developments and also look forward to reporting our Q3 results in August. Okay.

Thank you. Have a good day.