Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

TIBCO Software (NASDAQ:TIBX)

Q4 2012 Earnings Call

December 20, 2012 4:30 pm ET

Executives

Vivek Y. Ranadivé - Founder, Chairman, Chief Executive Officer and President

Murray D. Rode - Chief Operating Officer

Sydney L. Carey - Chief Financial Officer and Executive Vice President

Analysts

Brad A. Zelnick - Macquarie Research

Kash G. Rangan - BofA Merrill Lynch, Research Division

John S. DiFucci - JP Morgan Chase & Co, Research Division

Brent Thill - UBS Investment Bank, Research Division

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Raimo Lenschow - Barclays Capital, Research Division

Karl Keirstead - BMO Capital Markets U.S.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

Matthew J. Coss - Piper Jaffray Companies, Research Division

Steven R. Koenig - Wedbush Securities Inc., Research Division

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Operator

Good afternoon, ladies and gentlemen. I am Dustin. Welcome to TIBCO's Fourth Quarter 2012 Conference Call. [Operator Instructions] You can also listen to this call via the Internet at www.tibco.com. Today's call is being recorded and will be available for playback from TIBCO Software's website at www.tibco.com. In addition, replay will be available through InterCall for 1 month following today's call by dialing (800) 585-8367 or (404) 537-3406. The passcode for both the call and the replay is 77950749.

The following conference call includes forward-looking statements, which represent TIBCO Software's outlook and guidance only as of today and which are subject to risks and uncertainties. These forward-looking statements include, but are not limited to, forecast of revenues, operating margins, operating expenses, outstanding shares and earnings per share for future periods. Our actual results could differ materially from those projected in such forward-looking statements. Additional information regarding the factors that could cause actual results to differ materially are discussed in the Risk Factors section of TIBCO's most recent reports on Form 10-K and 10-Q filed with the Securities and Exchange Commission. TIBCO assumes no obligation to update the forward-looking statements included in this call, whether as a result of new developments or otherwise.

This conference call also includes certain financial information that has not been prepared in accordance with Generally Accepted Accounting Principles, as we believe that such information is [indiscernible] useful for understanding our financial conditions and results of operations. For a presentation of the most directly comparable financial measures calculated in accordance with GAAP and a reconciliation of the differences between the non-GAAP and GAAP financial information, please see our website at www.tibco.com.

The participants on the call are Vivek Ranadivé, TIBCO's Chairman and CEO; Murray Rode, Chief Operating Officer; and Sydney Carey, Chief Financial Officer. I would now like to turn the call over to Vivek.

Vivek Y. Ranadivé

Hello, everyone, and thank you, for joining us. On today's call, I will provide some opening remarks on our Q4 and full year performance before turning it over to Murray and Sydney to discuss details and outlook.

As we reported earlier this month, we fell short of expectations this quarter. Total revenue grew 2% over Q4 of 2011 and came in at $296 million. License revenue grew 1% and came in at $136 million. And non-GAAP operating margins were 33%. Non-GAAP EPS came in at $0.42, ahead of our pre-announcement range.

For the full year 2012, total revenue grew 11% to $1.025 billion. License revenue grew 9% to $410 million. Non-GAAP operating profit grew 11% to $276 million for an operating margin of 27%. And non-GAAP EPS for the year came in at $1.15.

In reviewing the quarter's performance, I'll share a few summary remarks. First, as we highlighted on our Q3 call, we had strong pipelines coming into the quarter. Clearly, close rates did not materialize as we expected. Second, the weak performance was concentrated primarily in the Americas infrastructure business. Third, there were 10 to 20 deals that we were expecting that slipped or didn't close for a variety of reasons. I am not going to make excuses. The fact is we simply did not execute this quarter, and I am disappointed in the result.

Let me offer some additional color on the Americas infrastructure business. We were expecting $6 million to $8 million from the U.S. Federal Government, and we got well less than $1 million. In telco, we had a number of key deals that slipped, though some of these have since closed. Energy didn't live up to my expectations despite growing year-over-year. And yet, at the same time, other elements in our business performed better. Three of the major Americas infrastructure divisions, West, South and Northeast, grew by more than 60% year-over-year.

Spotfire had another fantastic year, growing by more than 50% overall both globally and in the Americas. Europe continues steady and strong for us, once again growing in the double digits, 12% on the quarter, 13% on the year. And demand for cloud offerings continues to build, in particular, with TiVo, where we've doubled new customer accounts year-over-year. So demand is strong. Execution was the issue.

Despite a solid organization overall, we saw a number of execution issues that we are actively addressing. As the world continues to shift more and more to realtime and as businesses struggle with integrating and making sense of big data, we are in a very strong position. We will continue to invest for innovation and growth. We'll continue delivering, what I call, extreme value to our customers, and we will strive to execute with monotonous consistency, such as we have done over the past many years. We believe we're the right company with the right capabilities that is just the right size and at the right time.

Finally, in closing, I want to acknowledge our employees for their unwavering commitment to our customers' success and for all of their hard work in 2012. This was the first year that we, as a team, crossed the $1 billion revenue mark. Thank you, and I'll turn it over to Murray.

Murray D. Rode

Thanks, Vivek. I'll provide some additional operating details, and then turn it over to Sydney to go through the financials in more detail. I will start with our license transaction numbers.

During Q4, we had 195 deals over $100,000 in license, up from 181 a year ago. We had 25 deals over $1 million in license revenue as compared to 28 a year ago. Despite a drop in total deals over $1 million, average deal size in this category actually went up from last year, and we had 4 deals over $5 million, which is the same as last Q4. Our deal size for the broader category of deals over $100,000 in license declined slightly to $646,000 from about $688,000 last year, but is still well within our norm. And our top 10 customers comprised approximately 21% of our total revenue versus 20% a year ago.

In terms of our sales capacity, we ended the quarter with 292 quota-carrying reps and have continued to add since. This means we started Q1 with 25% more capacity, giving us a good base with which to begin 2013. As Vivek described, despite a good pipeline entering the quarter, we saw lower-than-expected close rates due to several particular areas of weakness in the Americas infrastructure business.

When we talk about execution issues, what we really mean is a lack of sufficient focus on deal process and followthrough and the lack of appropriate sales discipline. There were other factors that played out in certain deal cycles, such us storm Sandy delays in November and even outright cancellation of funding or projects, and these compounded our execution deficiencies. We normally compensate for such issues and unforeseen events with better-than-expected performance in other segments. But this quarter, the better performing segments could not overcome our shortfalls.

Looking specifically at our product segments, the breakdown of license revenue among our major product families in Q4 was as follows: SOA, 45%; business optimization, 44%; and BPM 11%. Within these categories, a few important trends are worth noting. First, our core SOA product, such as ActiveMatrix and BusinessWorks, were up 35% over last Q4. Weakness in some of our other smaller legacy areas, dragged down the overall category. Second, Spotfire had another very strong quarter at 48% growth. And third, ActiveMatrix BPM grew 55% year-over-year. We saw similar growth, albeit off a smaller base in our Nimbus process government suite. The overall category was still weighed down by the decline of our legacy BPM product, which was expected as we continue to transition from the old to the new BPM offering. ActiveMatrix BPM generated over 4x more license revenue in the quarter than our legacy offerings, so it's rapidly overtaking the old.

In terms of geographic mix, total revenue was as follows: Americas, 53%; Europe, Middle East, Africa, 38%; and Asia Pacific, Japan, 9%. From a vertical markets perspective, we continue to see a diverse mix this quarter.

In total revenue, government declined; financial services was close to flat; while energy, life sciences, retail and manufacturing all showed good year-over-year growth.

The breakdown of total revenue by verticals greater than 5% in the quarter was as follows: Financial services, 21%; energy, 12%; telecommunications, 11%; life sciences, 10%; manufacturing, 8%; and retail, 6%.

When you take into account our deal metrics and geographic, vertical, and product results, several key observations emerge from the quarter. First, core SOA, BPM and Spotfire were strong. Second, while there were some pockets of regional weaknesses in the infrastructure business, other regions held steady and outperformed. Third, big deals performed well, but we didn't close enough of them in the quarter to compensate for our shortfalls elsewhere. In recent days and weeks, we've taken action to address our issues along 2 key dimensions: organizational and sales process.

On the organizational front, we have a new head of Americas sales in place for infrastructure products effective December 1, which we are confident will provide new focus and energy for the group. We are also adjusting mid-level sales management in the Americas to increase the ratio of management to account execs to provide better inspection of deal cycles, better mentoring and coaching and increased sales discipline.

For sales process, we are redoubling our efforts on enforcing a consistent sales methodology to improve deal qualification, value-based selling and followthrough. We're also increasing our focus on segmentation for sales personnel, so we deploy our resources in a more targeted way at the most qualified opportunities.

So looking ahead to the next year, for the business as a whole, we see a lot of opportunity ahead of us, and we'll focus on several key areas in 2013. First, doubling down on our strengths in our core platform and in analytics, while continuing to incubate the future with our offerings in cloud and social. Second, enabling our sales teams for greater consistency and concentrating our sales efforts on the highest opportunity geographies and product segments. And third, continuing to mainstream our platform for more industries and more use cases.

And with that, I'll turn it over to Sydney.

Sydney L. Carey

Thank you, Murray. I will break my comments into 3 parts: first, I will provide additional details on our financial performance in Q4; next, I will provide full year details on our 2012; and then I'll provide comments on our financial outlook.

I will review our financials on both a GAAP and non-GAAP basis. A full reconciliation was included with our press release, along with an explanation of our non-GAAP measures.

For the fourth quarter, total revenue was $296.5 million, up 2% year-over-year and up 5% on a constant currency basis. License revenue was $136.3 million, up 1% year-over-year and up 3% on a constant currency basis.

Services revenue was $160.2 million, up 4% from last year and up 7% on a constant currency basis. I would remind you that we had 5 fewer days this Q4 versus a year ago. Despite that, we saw increases in both our professional services business and our maintenance revenue.

Also this quarter, non-GAAP gross margin was 76%, just down over a point from Q4 of last year. Non-GAAP operating income was $98.2 million, down 2% from the same period a year ago. This resulted in an operating margin of 33%.

Q4 cash flow from operations totaled $72 million. Non-GAAP EPS was $0.42. For the fiscal year 2012, total revenue came in at $1,025,000,000, up 11% year-over-year and up 15% on a constant currency basis. License revenue came in at $410 million, up 9% year-over-year and up 12% on a constant currency basis. We generated cash flow from operations for the year of $237 million, up 14% on the year. Non-GAAP operating profit for the year was $276 million, 11% higher than in 2011. This resulted in an operating margin of 27%. Non-GAAP EPS was $1.15, and GAAP EPS was $0.72.

Turning to our balance sheet. We ended the quarter with approximately $762 million in cash and short-term investments. Deferred revenue, including both long and short-term components, came in at $289 million, up 28% from Q4 of last year. On a sequential basis, total deferred revenue increased by 3%. And as expected, deferred license decreased as it was recognized into revenue in Q4. DSOs in the quarter came in at 71 days, compared to 61 days in Q4 of last year.

Now looking forward, we will continue our investment for growth with a focus on improving our execution in the Americas infrastructure sales organization. We will continue to add sales capacity, albeit at a slower pace than what we did in 2012, in selected regions and product groups, and we'll continue to focus our discretionary spend on field enablement and cloud initiatives. As we enter Q1, we continue to see growing pipelines and demand, but we'll remain cautious in our close rate assumptions.

For our financial outlook, I will comment on 3 components: Q1, full year 2013, and our longer-term EPS growth target.

For Q1 2013, our guidance is as follows: We expect total revenue to be in the range of $241 million to $245 million. We expect license revenue to range between $84 million and $88 million. The non-GAAP operating margin is expected to be 19%. We expect non-GAAP EPS for the quarter to come in between $0.17 and $0.18 with an assumed tax rate of 27%. GAAP EPS should range from $0.04 to $0.05 with an assumed tax rate of 25%.

For 2013, we are not providing specific annual guidance for revenue or earnings at this time. Over the longer term, we will strive to achieve 15% to 20% EPS expansion, but our focus today is on capturing the opportunity before us by improving execution and funding growth.

With that, we'll be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Brad Zelnick with Macquarie.

Brad A. Zelnick - Macquarie Research

Murray, I wanted to dive a little bit deeper into the execution challenges that you experienced in the quarter. From a couple of perspectives, if we look at the team that's on the ground today, a lot of them are new hires. But if I look over the past couple of years, this is the same team that achieved an average over 20% license growth. So just in trying to appreciate what's changed -- and I've been getting this question quite a bit over the last couple of weeks, I think what everybody really wants to understand is, how long does it take to really rectify the situation? And what confidence do you have that this is a 1-quarter issue versus a multi-quarter issue?

Vivek Y. Ranadivé

Yes. Murray, why don't you start, and then I'll...

Murray D. Rode

Sure.

Vivek Y. Ranadivé

Take a crack at it.

Murray D. Rode

So, Brad, I think you're right, obviously, that there is a significant part of the team that's been there for a while and has executed well in the past. I think our view is that it's -- the various players on the team are pretty good. It's the coaching and the leadership that's really going to make a difference to get people focused and growing in the right direction. So we don't really see this as being a long process to correct it; it's a quarter or 2 to get people back on track.

Vivek Y. Ranadivé

Yes. And so -- as of -- it's kind of like the Niners, right? It went from being the worst team to the best team just by changing the coaching. And so while we have good salespeople, there's regions even this last year, 2012, where we were up 50% with the exact same team, but with a modified leadership. And so we think that we have the people in place. We need to have the right leadership, the right introspection, the right level of attention to detail. And in places where we were able to do that last year, we actually had great results. We just need to do that across the board.

Brad A. Zelnick - Macquarie Research

Understood. And to the 10 to 20 slipped deals, how many typically slip? I mean, I imagine deals slip every quarter, and does that give you more confidence in the guidance that you've given us for Q1 along with the more conservative close rates? And maybe, Sydney, you can speak to that.

Sydney L. Carey

Yes. We have deals that do slip quarter-to-quarter. We had more slip this quarter than what we've seen in the past. We are assuming close rates similar to what we experienced in Q4. Again, just recognizing that, that's execution issues and don't want to be too aggressive on how quickly those could be fixed, but we see great opportunity with our pipelines and looking forward.

Vivek Y. Ranadivé

Yes. Brad, we just missed, so we won't -- we don't want -- the last time we missed, we had, what, 17 consecutive good quarters. And so we hope we can replicate or even do better than that. So we want to be careful about what we suggest.

Brad A. Zelnick - Macquarie Research

I appreciate that. Well, just one quick one, in terms of headcount, are there any specific numbers or objectives that you can give us for the next 6 months or even year? I imagine a lot will be based on the year and as it unfolds. But if you can quantify that, that would be helpful.

Murray D. Rode

Yes. So quarter heads, as I said, we finished Q4 at 292 and we'd -- we're targeting about 310 for the mid-year point of 2013.

Operator

Our next question comes from the line of Kash Rangan with Merrill Lynch.

Kash G. Rangan - BofA Merrill Lynch, Research Division

Vivek and Murray, just to get behind any changes that the new head of sales in the U.S. is going to be implementing -- I guess, sales changes in software usually take a few quarters to pan out, what is it that, that Mr. Verma has uncovered that could be done better? I think every sales leader has his own or her own unique style to approaching the management of sales. That's one high-level question. And one for you, Sydney. The deferred licenses, can you just give us some feel for how much of the deferred licenses have been recognized this quarter from the tremendous backlog that you'd built up exiting Q3? That's it for me.

Sydney L. Carey

So in regards to the deferred, we didn't see much new additions to the deferred license. We did see some roll-off. But as in Q3, I'm not going to be specific as to how that's rolling out over time.

Vivek Y. Ranadivé

Yes. And in terms, Kash, of what Raj Verma has already done, we had our sales kickoff and he's -- he combines both extreme process with extreme customer focus. And so he believes in a lot of introspection and a lot of attention to detail. So basically, there's just a level of focus and intensity with every region, with every salesperson, with every meeting. If we're going to do something for our client then have we first tested it out and made sure that it all comes together and then taken it there. So it's really very basic blocking and tackling that wasn't being done. And there are parts of our business that we just did very poorly and over the course of the quarter and even over the course of the year where there was very little attention to that kind of detail. So he's going to bring and he already has brought a level of scrutiny. I was participating in a prep that he had for a meeting we were having, and the level of attention to detail was not one that had existed in the past. Murray, do you want to add anything to that or...

Murray D. Rode

Only I think in the same vein as the football analogy, it's -- Raj is reinforcing the playbook. I don't think he's rewriting it. He's ensuring that, as Vivek was suggesting, is done with discipline and with focus and that we're doing the right things at the right time to get deals done.

Operator

Next question comes from the line of John DiFucci with JPMorgan.

John S. DiFucci - JP Morgan Chase & Co, Research Division

I appreciate you looking internal to try to figure out what wrong -- what went wrong here. But when I kind of try to triangulate with what you've said -- you talk about America's infrastructure, you talked about financial services, you talked about Sandy. So it makes me think that financial services, which is heavily concentrated oftentimes in the New York metropolitan area and that's where Sandy affected or at least mostly. Maybe it's just financial services are weak. I mean we hear about layoffs across this industry, and we work in the industry. So it's a difficult period for financial services. Maybe this is something that just can't be fixed by Raj or anybody else that you just have to -- and, of course, you just have to deal with it, right? I mean, it is what it is. But how much thought have you given -- I'm sure you've thought about it, but how certain are you that it's just process?

Vivek Y. Ranadivé

We are very, very sure of that, John, and we, actually were fine in financial services. The area that -- the areas we blew up were areas like government. Now it's true that with Sandy one could point blame to that and say when everything's shut down then it's hard to -- and people aren't going to the office and so on. But we're not making any excuses. We could have executed better. The fact is that every one of our products is doing well in some geography, and every one of our geographies is doing well with some of our products or some of our divisions. And so, it's absolutely an execution-related issue, there's no question about that. In Europe, we did fine. We closed a $6 million deal with a Spanish bank. So it's not related to the economy, it's not related to financial services, Spain and a bank and so -- now there's areas where we just simply executed very, very badly like government. And so in our mind, these -- we know what we need to do. Murray, do you want to add to that?

Murray D. Rode

No, I think that's...

Vivek Y. Ranadivé

Yes. It's our fault. I mean, we can't blame anything or anyone.

John S. DiFucci - JP Morgan Chase & Co, Research Division

Okay. I appreciate that. Can you tell me, was the New York metropolitan financial services weak?

Vivek Y. Ranadivé

Not really. There were people in the East Coast like telcos and -- that were flooded and government offices that were shut down. So that had some weakness, right?

Murray D. Rode

I think it did have some effect on New York financial services. But as Vivek pointed out, where financial services was really strong for us in the quarter was more in Europe.

John S. DiFucci - JP Morgan Chase & Co, Research Division

Okay, okay. Because we really haven't heard anybody else -- and I know you're not necessarily trying to point blame, but we haven't heard anybody else talk about Sandy. I guess, if I could ask a follow-up question, you've talked about 15% to 20% non-GAAP EPS growth, and I know, Sydney, you didn't say anything about that this time. Even with this miss in this quarter, you were close to it, 13% for the year and you're -- I just wonder, is that something, well, you can comment on now or here. And when I look forward and I think about EPS, there are 2 things that drive that: number one is the top line and number two are expenses. And I see the margin -- why is there such a big margin decline in the first quarter being assumed? Whereas you're actually -- there's a couple of things here that I know I'm going to need a lot of questions on, and one is you gave guidance and the guidance is actually less of a seasonal drop than you normally see. Now granted this is -- this was a disappointment this quarter, so maybe that just makes sense. But in -- and then when I see that, and I see that the margins being a lot -- declining like that, I just -- it's just going to raise a lot of questions with investors. So if you could try to address that?

Vivek Y. Ranadivé

So, John, let me answer all the questions as I understood them. So firstly, we believe in growth with leverage. So we believe that over the fullness of time, on a compounded annual basis, we will deliver 15% to 20% EPS growth over the fullness of time. Now what we're seeing is that for this year, for 2013, we don't want to say that we're going to grow over 15% or 15% to 20% for this year. We believe this is a growth year. We've just had a miss. We need to make investments. We're moving -- investing in our field and what we're doing with our cloud infrastructure and so on. And honestly, I mean, if you look at the facts, in the last few years, we've had 28% EPS growth compounded annually. And for the last 5 years, it's been 25%. So it might fluctuate on a year-to-year basis. But over the fullness of time, we're not backing off from the 15% to 20%. As far as Q1 goes, we are making investments in a variety of things. We're making big investments in our cloud business, which is growing very rapidly, and that doesn't always show up as up-front revenue, it's ratable revenue. So we think that the margins and profits are going to be just fine over time.

Operator

Our next question comes from the line of Brent Thill with UBS.

Brent Thill - UBS Investment Bank, Research Division

Vivek, just back to your comment about the Niners and the coaching and the players in the field, I think there's been some concern about some of the players that are on the field in the U.S. beyond the coaches, and just -- can you just give us a sense of why you don't think this is a deeper structural issue from where you stand? This has obviously been brought up in the last couple of quarters, and I was just curious if you could just address this.

Vivek Y. Ranadivé

Well, I think there are areas where that is an issue, and we made changes. And so, clearly, when your government business drops the way it did, then that's an issue. So we've made changes in leadership in certain areas, within the Americas. And what we're seeing is that the places where we made those changes, 6 months, 9 months ago, we've had great results. We're up 50% in those regions. So, yes, there are areas where we have had to make those kinds of changes, but we're -- we feel very good now about the leadership we have, the regional leadership that we have. There are couple of areas where we still need to do some hiring. But we feel, just looking at where we are, just coming out of sales kickoff, looking at the pipeline and looking at the level of detail -- attention to detail. And most importantly, Brent, we really have products that nobody else has. We really are way ahead of other people in all of these areas that we participate in. And so the products do speak for themselves. Murray, do you want to...

Murray D. Rode

Only one other observation, which is if hires demonstrate success in some quarters and not in others, clearly, they can do it, and that's part of -- that's related to what Vivek was talking about with regions that performed well. This is much more of a consistency issue and having all the regions perform well -- the majority of the regions perform well at the same time, and that, to us, goes a lot back to leadership, coordination, being disciplined about how you execute.

Brent Thill - UBS Investment Bank, Research Division

Okay. And just a follow-up, Vivek, you mentioned 10 to 20 deals slipped. I was curious if you've seen the bulk of those deals already come back and close in Q1 or -- you mentioned some deals were canceled. I guess I'm just curious now that the 10 to 20...

Vivek Y. Ranadivé

A bunch of them did close. A bunch of the deals did close.

Operator

Our next question comes from the line of Derrick Wood with Susquehanna International.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

I guess, back on the sell side, are you seeing any challenges in, kind of, getting the new reps to productivity? Are you seeing any kind of change in attrition? Are those some elements to think about, or is it more kind of just the process of legacy reps?

Vivek Y. Ranadivé

Truthfully, the -- you're onto something here that the newer reps are actually succeeding faster, and the areas that we had trouble, like energy, they were actually older reps that we hadn't given it the level of attention to detail that we should have. So we're not -- we're -- if anything, we're seeing that the newer reps are actually -- are able to come up to speed faster than they did, say, a year ago. But we need extreme focus across the board. There's often times, you have reps that succeeded in the past and they just kind of slowed down or didn't have that level of intensity, and we're bringing that back into focus now.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

And how about attrition rates?

Sydney L. Carey

They've remained consistent. I mean, we haven't seen a big change in that, and I'd also like to state that when you look at productivity, regionally and across business units, it's really clear that the productivity shortfall was in the Americas infrastructure.

Vivek Y. Ranadivé

Yes. And also just one other kind of thing I want to mention is that we had this -- just now, just starting this year, one of our superstar sales guys who had left, he came back, and so we're seeing this, that people look at TIBCO as -- if you're a superstar sales guy, it's a good place to be, it's got great products, and you can make a lot of money if you're successful.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

Okay, and then on the -- talking on the deals that slipped, were any lost to competitors? And maybe if you could just touch on what you're seeing in the competitive environment these days?

Vivek Y. Ranadivé

Yes, it's mostly IBM that we're seeing. Oracle doesn't seem to have as much focus in our space as they had, say, a year ago. Some of the other guys, we don't see -- in Europe, we might see Software AG, but it's mostly IBM. IBM is the big gorilla for us that we see as a constant.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

And any deals lost competitively?

Vivek Y. Ranadivé

No. The things that slipped were not lost, they were just for -- they just were delayed or they hadn't yet pulled the trigger on it for some reason. I'm trying to think -- now obviously, in our Spotfire business, the competition is ClickDesk, but we're doing very, very well against them. We're replacing them in client after client. But Murray, do you have any other competitive thoughts?

Murray D. Rode

No, I think that covered it. I think to a -- on the 10 to 20 deals that we talked about, most of those are -- these are really all slipped deals for various reasons. 1 or 2 in there were projects that -- where the funding was canceled or changed or the decision was pushed out to more longer term. But not competitive reasons for those 10 to 20.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

Okay and then lastly, LogLogic, I didn't really hear any mention of that, any -- if you could just give us some color on how that tracked relative to expectations?

Vivek Y. Ranadivé

Yes, we didn't do a good job with LogLogic because that has so much potential for us. So we actually have made some organizational changes within that as well. And so we have high hopes for the future. But that is just one of the catalysts that we have and we didn't really leverage it like we should have. We were just really focused on other parts of the business. But we have very high hopes of what happens in 2013 with it.

Operator

Our next question comes from the line of Greg Dunham with Goldman Sachs.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

First is just a clarification on the regional breakdown. Did I hear you correct that the West, the Southeast, or the South and the Northeast, were all very strong, in the U.S. infrastructure business?

Vivek Y. Ranadivé

That is correct.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

So it is really the Central region and government that were weak? Is that a fair assessment?

Vivek Y. Ranadivé

Yes, and even the Central region was actually up for the year, but...

Murray D. Rode

Yes, Central, including Canada. And really, we didn't have a particularly strong Latin American performance either.

Vivek Y. Ranadivé

That's right.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Well, I guess I'm a little confused. If West, South, Northeast and even Central is up, then outside of Latin America, what else -- what are we missing?

Murray D. Rode

Well, Central.

Vivek Y. Ranadivé

Central was not as strong, [indiscernible] growth not that much. Canada, where Murray is from, was pretty bad. LATAM was pretty bad. And then the government, which we look at as a vertical, was really, really, really bad. So...

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Separate. Okay, that makes sense. Okay, all right. I just want to make sure I got that clear. And then the second question, you mentioned the investment in value-based selling, where are we in that process, and why, I guess, increase that level of investment as you go forward? What are the things that you've learned thus far in 2012?

Murray D. Rode

It's really about applying what we do consistently and it's, again, as we said, it's not so much rewriting the playbook, it's making sure we're applying the playbook. We do know how to sell value, we can sell big deals. We demonstrated that even in the quarter. It's making sure that we're consistently doing what we do well across the whole sales organization, particularly in the Americas.

Operator

Our next question comes from the line of Raimo Lenschow with Barclays.

Raimo Lenschow - Barclays Capital, Research Division

Two questions, if I may. First, Sydney, can you talk a little bit about -- I know -- I appreciate you don't guide for the year and I think that's prudent. And I appreciate that you kind of invest for the future, which also is a good thing. But how do we think about the profitability for the year as a whole? Is that kind of, obviously, you need to kind of think about it as kind of a flattish year, or is there some leverage this year already? Or is it more kind of in the outer years that we need to think about that? And then a question for Murray. If you think about your sales and the different products that you have, is there -- how do you kind of optimize that you get the best buck for your money, given that you're kind of touching a lot of different parts in the organization? How do you think about the structure of your sales force there and how you're structured now, is there any change for -- change potential -- change potential for change there?

Sydney L. Carey

So we still believe in growth with leverage. We are making investments this year. I gave specific guidance for Q1 where margins are down. We're not guiding on the year, margins or revenue, so it's hard to comment on that. But we feel that, that right now, investing for that growth, is the prudent thing to do. Murray?

Murray D. Rode

Yes, so on -- kind of -- if I understood your question correctly, I think what we believe we can do better as we go forward is recognize when we should be focusing on a particular element of the platform and selling -- just focus on selling that into an opportunity, versus identifying upfront those opportunities that are more platform sales and approaching them a little more holistically in terms of how we sell the customer. So Vivek and -- we have talked in the past about the pearls that we've built or acquired and how we can string those together. And sometimes that's absolutely the nature of the opportunity. But sometimes, the optimal thing to do is to sell a pearl at a time. And so it's just focusing a little bit more on when we do -- when we -- when we're focusing on a segment versus when we're focusing on the platform sale.

Vivek Y. Ranadivé

Yes, and so just in expanding on that. So we have the -- Spotfire has its own salespeople and they're really, really good at selling that and getting good value for it. So we try to get as much money as possible as the value can command for the pearls. But then on occasion, when we knit it together to a pearl necklace, that's a very high value-added sale as well.

Raimo Lenschow - Barclays Capital, Research Division

Maybe just one quick follow-up. We -- Oracle commented this week on December and that they haven't really seen fiscal cliff as an issue for them, and what's your -- what are you seeing in the customer base?

Vivek Y. Ranadivé

Well, I would agree with that.

Operator

The next question comes from the line of Karl Keirstead with BMO.

Karl Keirstead - BMO Capital Markets U.S.

Just got 2 questions. First of all, on the license guidance for the first quarter, to get to the mid- to high end, it'll require a little bit better than normal seasonality, and I'm just curious, is that because you expect the sales execution to turn around fairly quickly? Are you assuming that perhaps the government or telco verticals feel a little bit better? Or is it really a function of some of these delayed deals dropping in the February quarter?

Vivek Y. Ranadivé

Yes, Karl, I think it's a combination of all those and so yes, there's some delayed deals. There's some improvement in execution in the areas that were weak. And quite honestly, there's strength in a bunch of areas, great strength.

Karl Keirstead - BMO Capital Markets U.S.

Okay, and then the second question is just on the non-core part of the SOA business. This is the second quarter in a row where it's felt a little bit light. And I just wouldn't mind a little bit more color on what's happening there. Is it -- is this the execution issue? Or do some of the products need a refresh and perhaps, that's where you'll be focusing some of your R&D effort in the next couple of quarters? Maybe a little color on what's happening there.

Vivek Y. Ranadivé

Yes, I wouldn't read too much into that. Because when you sell like a whole necklace, then how you assign value to individual parts is a bit of a black hawk sometimes. So the fact is that those are -- we're doing very well with those areas as well. I think that as we go more mass-market, the price points come down. So there's some of that. But I wouldn't read too much into that. Murray, do you...

Murray D. Rode

I would agree with that. I'd also say, on the flipside, there is an element of demand being strong for some of the core technologies and that's driving the sales cycles and reflecting itself in the numbers. It's certainly not a refresh issue with the products.

Vivek Y. Ranadivé

Yes, those products are absolutely -- one of the things we strive for is, I talk about a 3-year advantage in all of our areas, and we could go area by area by area and show you how we actually do have close to a 3-year advantage in just about every single area we participate in.

Operator

Our next question comes from the line of Aaron Schwartz with Jefferies.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

I just had a follow-up on the reinvestment front. You did talk about slowing the pace of the sales hiring. So I know you tried to provide a little more specifics to where the increase in investment is here in the near term, but I wasn't exactly clear on what that is. So can you provide just a little more detail on that?

Sydney L. Carey

Sure. We will continue to hire selectively in our growth areas for sales headcount. We do feel good about where we're entering the year, up 25% on quota reps. We've made investments. Q1 is our kickoff quarter, so making investments in training and enablement and then maintaining our R&D investment. So kind of a...

Vivek Y. Ranadivé

And also some of it is just -- and just digesting what we've done. So we're up 25%, so we still have to completely digest the investments that we've made. And then there's areas which were very strong, like the OEM business, it was up quite strongly for the year. And so we continue to invest in areas like that.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

But I guess, maybe the follow-up question there is if you digest the sales hires, we would expect to maybe see some leverage out of that, rather than sort of margin contraction.

Vivek Y. Ranadivé

Yes, I think over time, absolutely. And that's why we say that we are strong believers in growth with leverage.

Sydney L. Carey

Yes, as we see productivity come back, especially in infrastructure in the Americas, you should see leverage come back to the model. Yes.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Okay, and then sort of a follow-up question to maybe Murray, what you talked about earlier, that the segment versus the platform selling. Is that a function at all of just a tougher environment from your customers? I mean, are -- with maybe IT spending getting more scrutiny, are you just trying to shift the focus to selling the smaller parts right now? Is that in response to the demand environment?

Vivek Y. Ranadivé

No. If it's anything, it's the other way round. And I said this on the last call, it's actually, in some ways, it's easier to sell a bigger deal because it moves the needle, and people want to move the needle. So we're actually moving more towards being able to sell the whole necklace, the whole platform, rather than selling the individual.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Okay. So would you say, in deals that have slipped or that have since closed, I mean, they're not sort of getting downsized at all, just from sort of macro-related concerns?

Vivek Y. Ranadivé

Yes. I mean, honestly, we cannot put any blame, not even -- there was never a blame on the cliff, on the macro environment, on anything. Okay? This is our fault, my fault. We did not execute.

Sydney L. Carey

Well, yes. We even had one deal that I know of that came in a bit higher because it went past the November 30 date.

Vivek Y. Ranadivé

So usually when it slips, the deals go higher.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Okay, and just last quick question from me, if I could. The tax rate, is that sort of fair to model out for the year at this point?

Sydney L. Carey

The 27% on a non-GAAP basis, yes, and the 25% on a GAAP basis is the best estimate.

Operator

Our next question comes from the line of Jesse Hulsing with Pacific Crest.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

Murray, you mentioned that ActiveMatrix and BW products in your SOA group both had pretty good quarters, up, I think you said 35%. Were the deals that slipped, were those concentrated in these 2 products, or are they concentrated in your other messaging products? Can you provide any color on whether it was areas of strength that slipped, or areas of weakness that slipped across the board?

Murray D. Rode

It was -- yes, it was pretty much across the board. I don't think there was a particular pattern to the products involved. They were all kind of in the SOA -- mostly in the SOA-BPM category.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

And when you look at that group, I know Vivek kind of pointed out that it's difficult sometimes to separate one from the other when you're assigning revenue breakdowns. But how does the mix sit today, I guess, between these products which seem to be doing pretty well and some of your older products that may be on a priority with customers right now?

Vivek Y. Ranadivé

Well, the thing is, again, the things -- some of the other things, they are sometimes part of it and sometimes are actually the differentiator in it. So it's really hard to break it apart. And so you can look at something like BE, it's really not that old a [indiscernible] and it's clear ahead of what anybody else has. And so everybody needs it. Everybody needs an event -- a complex event-processing capability. It's just become a must-have. It's become like a -- basically kind of like an app so -- for events. So we're not seeing weakness in...

Murray D. Rode

It's the blessing and the curse of a platform and a big range of products. Sometimes that range is -- gives you a real competitive differentiation, and sometimes, a specific element in it is the differentiation. So that's more our point, is that what drives a lot of our SOA sales is BusinessWorks and ActiveMatrix is the core element, and other things are perhaps, adjacent areas of functionality that help more or less in various circumstances. I think the core point here is the basis is doing well. ActiveMatrix BusinessWorks, which are core to most sales, are showing real strength.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

Right. And one last one, maybe for Vivek. You talked a bit about your cloud focus over -- in '13. What are your -- what is your strategy there from a technology perspective? And what areas do you see opportunity, I guess, both on the integration side and maybe also on the Spotfire Analytics side?

Vivek Y. Ranadivé

Yes, so there's 2 kinds of opportunities. One is that our own cloud offerings are doing very well. So with TIBCO, we added, I don't know, almost a million new users in Q4, a big number, and they were all cloud-based. And so we see with loyalty, we're managing 300 million accounts now and we're seeing that as one of the hottest spaces there is, nobody else has anything like it. And so we -- we're just working with all kinds of companies in that. So that's one kind of opportunity, is having what I call a "21st century infrastructure applications" that are cloud-oriented, that we offer as a cloud service. And so that's huge. So that's something we'll keep investing in. And then the second is many of our customers want to move to like a hybrid cloud, so they want to cloudify their own IT infrastructure. And so we have a set of tools that allow you to do that, and that also is a very big opportunity because that's really an integration problem. And for that, there's virtually no competition. Actually for all of these areas, there's no competition.

Operator

Our next question comes from the line of Mark Murphy with Piper Jaffray.

Matthew J. Coss - Piper Jaffray Companies, Research Division

This is Matt Coss on for Mark Murphy. Earlier during the call, you talked about continuing to mainstream the platform for more industries and use cases. Can you talk about what some of those new verticals or use cases might be? And then you also mentioned that you had strong pipelines coming into the fourth quarter, but just the close rates weren't that good. Can you talk about your pipeline now?

Murray D. Rode

So on more verticals and more use cases, I think a good -- if you follow the trend of our business, we've gone from a few verticals historically, more concentration in financial services, to now being much more distributed, doing a lot more in the retail sector, for example, which has been one of our fastest-growing verticals in this last fiscal year. So it's continuing to do more in sectors like retail, like manufacturing, like transportation and logistics.

Vivek Y. Ranadivé

Healthcare.

Murray D. Rode

Healthcare and life sciences, all these areas. It's just adding more experience in how to deploy this in different verticals for their particular problem sets. I think we've talked a lot about cross-sell, upsell. There's a whole variety of variations on how that works and whether it's for a telco or a financial services organization or a pure retailer.

Vivek Y. Ranadivé

Or even a sports team.

Murray D. Rode

Or a sports team. How you integrate loyalty into those sorts of programs, how you add Analytics. So it's just continuing to flesh out those kinds of -- those kinds of use cases and being able to help customers deploy those sorts of solutions.

Vivek Y. Ranadivé

Yes, so basically there's 3 things that every customer wants, regardless of sector: One is they want to know how to grow their revenue. And we have a clear solution for being able to upsell, cross-sell, loyalty programs and so on. The second is they need operational efficiency to lower costs and that's something else we're able to do on a 360-degree basis. And then third is they all want to manage risk of some kind, but get ahead of it not after the fact. And so that applies to everybody from retailers to airlines, to insurers to just about every kind of company.

Sydney L. Carey

And in regards to pipeline, we're entering Q1 with strong pipelines up year-on-year. We do, being conservative on the close rate and estimating close rates similar to what we experienced in Q4, we're also seeing a continued strong demand for our services, and we continue to build out that organization to fill that demand.

Operator

Our next question comes from the line of Steve Koenig with Wedbush Securities.

Steven R. Koenig - Wedbush Securities Inc., Research Division

What I'm curious about here, I heard the commentary on adding more sales management in the Americas to help ensure process discipline, et cetera. And just putting myself in Raj's shoes here, I would imagine you all would be thinking about elevating some of the sales performers, the people that have proven they can sell platform, for example, into those kinds of positions. And I'm just wondering what -- how do you avoid any negative impact on line productivity by adding those managements, some of which I would imagine would be from your ranks?

Vivek Y. Ranadivé

And Raj has done exactly what you're saying. So he's actually created a group of the elephant hunters and elevated them as just as you described, and so he's got guys that are selling the whole platform, a select group of people. And then he's also very focused at the other end through process and enablement and training. So we're doing a combination of what you're describing.

Steven R. Koenig - Wedbush Securities Inc., Research Division

But is he taking any of those folks out of quota-carrying roles?

Vivek Y. Ranadivé

No, no, no.

Murray D. Rode

Not really. That's -- there's not a big shift from, say, individual contributors to managers and then having an impact on the line ability to perform. It's more subtle than that. Some of the changes have been in place since earlier in the year, too, and we've had good experience with it so we're doing some more with it. There's nothing here that's a radical reorganization. It's complementing what we have to do, as we said, just improve the ability to enforce the sales discipline and stay on top of the deal process.

Vivek Y. Ranadivé

And also just replicating what's working.

Operator

Our next question comes from the line of Rick Sherlund with Nomura.

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Just first on a clarification. Did I hear you say that the regions, the West, the South and the Northeast were up 60%, 6-0 percent year-over-year?

Vivek Y. Ranadivé

Yes, they were -- that's correct.

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Okay. So the shortfall in government, how much of that was U.S. government versus areas you've noted were weak, which is Canada and Latin America?

Vivek Y. Ranadivé

Yes, so we were just -- with my comments, I was referring to infrastructure, U.S. government. So infrastructure business or the U.S. government.

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Okay. So U.S. government was quite weak, then you said less than $1 million, when the target was $6 million?

Murray D. Rode

$6 million to $8 million for the quarter, yes, and it came in well under $1 million.

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

What -- can you elaborate on that? What's -- anything in particular going on with the government market?

Vivek Y. Ranadivé

I think, again, I think it's our fault. It was a lack of attention to detail and execution. Now it's possible that things with the government slowed down, but we're not making any excuses. We think that we -- even when you look at it on a year basis, the lack of performance we had, I just have to point the finger at myself.

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Yes, I understand in terms of the accountability, you want to fix accountability. But I do note that the September quarter, just about every company noted that the U.S. business was tougher. And if you look at the economic data, capital spending is slowing pretty considerably to less than half the rate it was a year ago in the economy. So I'm just kind of curious if your sales guys had suddenly 1 quarter, like what went wrong? They just had a brain cramp 1 quarter? Or was it the environment just got a little tougher and it exposed weaknesses in the process? It just -- I'm kind of curious why all of a sudden it shows up this drastically.

Vivek Y. Ranadivé

Well, we had -- we were not doing well in the government throughout the year, and often times the nature of the businesses, you get -- it tends to be lumpy and so it's possible that all of the things you said had an impact, but our level of nonperformance there was so big, Rick, that even if I had performed at a small fraction of what we should have done, we would have been okay. So we just really did very, very badly and maybe there's some impact from the government shutdowns and so on. But I'm just looking in the mirror, it's mostly my fault.

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Was there a change at all in the -- in sales processes, or do you think there was just some sloppiness there without adequate management that it kind of all showed up in this quarter for some reason?

Vivek Y. Ranadivé

Yes, it was sloppiness without adequate management, without attention to detail, without follow-through, without like what's next.

Richard G. Sherlund - Nomura Securities Co. Ltd., Research Division

Yes. And I suppose in a good market, it's a forgiving market, you can get away with that. So -- perhaps, there's a role to be played here by a tougher environment, sort of exposing more of that than might have been...

Vivek Y. Ranadivé

Yes, because there's other markets. Like I said, we closed a $6 million deal with a Spanish bank. So it's Spain and it's a bank. So we did just fine in Europe and where there was economic weakness. So again, I think I have to look in the mirror, it's my fault.

Operator

I'll now hand the call back over to Vivek for closing remarks.

Vivek Y. Ranadivé

Okay, well, we'll now conclude this call, and thank you all for joining us and we wish you a happy holiday. Thank you. Goodbye.

Operator

Thank you for joining us. We will now conclude TIBCO's Fourth Quarter 2012 Earnings Call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: TIBCO Software Management Discusses Q4 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts