Jive Software, Inc. (NASDAQ:JIVE)
Q4 2012 Earnings Conference Call
February 5, 2013; 05:00 p.m. ET
Tony Zingale - Chief Executive Officer
Bryan LeBlanc - Chief Financial Officer
Adam Holt - Morgan Stanley
Jason Maynard - Wells Fargo
Brent Thill - UBS
Michael Nemeroff - Credit Suisse
Mike Huang - Needham & Company
Walter Pritchard - Citi
Terry Wang - Goldman Sachs
Steve Ashley - Robert W Baird
Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Jive Software, fourth quarter 2012 earnings conference call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. In addition today’s conference is being recorded.
And now I will turn the conference over to Mr. Bryan LeBlanc, Chief Financial Officer. Please go ahead, sir.
Thank you. Good afternoon a welcome to Jive Software’s fourth quarter 2012 earnings call. We will be discussing the results announced today in our press release issued after the close of market. As the operator mentioned, I am Bryan LeBlanc, Chief Financial Officer of Jive, and with me on the call today is Tony Zingale, Jive’s Chief Executive Officer.
During the call we will make statements related to our business that are considered forward-looking under federal securities law. These statements reflect only our views as of today and should not be reflected upon as representing our views of any subsequent date.
These statements are subject to a variety of risks and uncertainties that could cause are actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, both of which are on file with the SEC.
Also during the course of today’s call, we will refer to certain non-GAAP financial measures. There is a reconciliation schedule showing GAAP versus non- GAAP results currently available in our press release issued after the close of market, which is located on our website at www.jivesoftward.com.
With that, let me turn the call over to Tony and then I’ll come back at the end to provide details regarding our fourth quarter results, as well as our guidance for 2013. Tony.
Thanks a lot Bryan and thanks to everyone for joining us today to review our fourth quarter results, which exceeded our guidance for both revenue and profitability. We experienced strong customer demand and executed at a high level on a global basis, leading to a strong finish for a record year.
During the fourth quarter, there was growing evidence of the social business market moving to the mainstream, and Jive continued to solidify our clear market leadership position. Once again, closed a record number of $1 million transactions, including the largest annual contract value deal in Jive’s history.
We had another strong quarter of blue chip customer additions and we had great diversity with each of our top 10 deals coming from customers in different industries. We delivered Jive 6 to our customers with more than 100 improvements.
Our acquisitions of Producteev and Meetings.io further expanded our innovation and product lead and we announced a strategic partnership with box that will deliver unprecedented integration between our two platforms, as well as the sales and marketing relationship to jointly bring our targeted, integrated solutions to market, and we made great progress enhancing our global distribution and go-to-market strategies.
Specifically, we had a record number of new hires in our sales organization during the fourth quarter. We recently announced a business relationship with PWC to go-to-market jointly with social business solutions, and we released results of research conducted by a top three global business consulting firm, which showed companies using Jive reported up to 15% increase in workforce productivity and a 4% increase in top-line revenue.
This is due to a 34% reduction in time looking for information and expertise, a 16% reduction in meetings and a 21% reduction in email load. This data and the detailed customer success stories coming out of the research provide Jive’s global distribution channels with a powerful sales tool based on our highly differentiated ability to deliver a substantial ROI to our customers.
We are very excited about the future of Jive. We believe 2013 will be the year that social business goes mainstream and Jive is well positioned based on our product leadership, proven track record of delivering measurable business value to our customers. I have never felt better about the strength of our innovative product portfolio and roadmap, our market position and our growth strategies, and I believe we will capture even more shares of this large and growing market.
Taking a look at our financial results for the fourth quarter, revenue of $32.5 million grew 44% year-over-year and was driven by even faster product revenue growth of 49%. Total billings, which we define as revenue plus the change in deferred revenue were a record $52 million and grew 44% year-over-year. Non-GAAP gross margin expanded to a record 67% and non-GAAP loss from operations of $8.9 million was better than the favorable end of our guidance.
For the full year of 2012, our growth was amongst the best in the staff universe. Revenue exceeded the $100 million revenue mark for the first time at $113.7 million, representing a 47% year-over-year growth, and total billings were $152.9 million or growth of 46% year-over-year.
In reviewing the fourth quarter and the full year 2012, we are very pleased with the development of the social business market and the progress Jive made breaking away from the competition. We believe that Jive was the hands-down winner of the first stage of the social business market, which was all about features and functionality.
We were the pioneer of the social business market, and Jive has continued to set the agenda of the market by delivering the industry’s most robust and innovative social business platform. The strength of our products and technology are reinforced by every major industry analysts, as well as blue chip companies that continue to vote with their wallets.
During 2012, we introduced an unprecedented level of innovation. With Jive 6 we delivered new capabilities such as Jive Present, external groups, user-defined activity streams, social search that leverages our big data expertise, native IOS mobile experiences, along with greatly enhanced and highly automated on-boarding processes to accelerate engagement and usage of Jive across organizations.
Earlier in the year we launched significant innovations such as Jive Anywhere, Jive Edge, and our next generation cloud architecture. We delivered important functionality improvements every 90 days through our quarterly cloud releases, and we further expanded our product portfolio during the fourth quarter via the acquisitions of Producteev and Meetings.io.
We continue to believe that Jive is years ahead of the competition from a product perspective. Moreover, as other vendors play feature catch-up to our rapid pace of innovation, Jive has changed the market dynamic by increasingly focusing on our proven track record of delivering business value, over and above the features and functionality advantages delivered by our platform.
The comprehensive customer research that I referenced earlier showed that having a robust set of features and functions is only the entry to participate in the game. While early adopters primarily focus on features and functionality, mainstream buyers are more concerned with quantifying the business value social business solutions will deliver to their organizations.
They are demanding answers to the question such as, what type of productivity gain, cost-savings and revenue uplift will I see from using your platform? And, how many customers have deployed your solution at scale and what kind of business results have they seen or experienced?
These are the questions that our prospects are asking. Not questions around activity streams, the number of free users or iball. Those are essentially advertising metrics, that don’t work in the enterprise and business leaders don’t care about them, because they don’t a drive business value. Jive is the only company that can answer the business value questions, period.
As the social business market goes mainstream, we are the only vendor that has hundreds of customers on record, describing the quantifiable business value they have achieved by utilizing Jive within their organizations. Our ability to combine this unmatched record of delivering business value with the most innovative social platform will enable Jive to further expand our leadership position as we enter this exciting second stage of growth for the social business market.
Industry experts such as Forrester, Deloitte, Gartner and McKenzie site that when a social business appointment begins as a technology center initiative and not a business driven initiative to achieve specific business goals, there is a failure rate of approximately 70% to 80%. At Jive, our selling and services strategies has always been to align with business leaders and IT within an organization, to help solve their greatest business challenges, and that’s why Jive customers have a dramatically higher success rate versus our competitors customers.
The approach to social business taken by IT centric, legacy vendors such as Microsoft and IBM have consistently failed to deliver tangible business value and has wasted millions of customer dollars in the process. This is a critical disadvantage for them, as business leaders in sales, marketing, HR, finance, engineering and customer service are now the driving force behind social business purchase decisions. They are focused on how a social platform delivers measurable business results that truly matter, increased workforce productivity and top-line revenue growth.
In 2012 we saw Microsoft’s latest attempt to make SharePoint social. In addition to IBM’s attempt to reinvent, reinvigorate their decades old Lotus Notes platform. Not only do they both have inferior products, they cannot compete on the basis of delivering business value across multiple business functions in highly scalable environments, both internally and externally.
Jive’s differentiation is one of the reasons that we saw a significant acceleration in the expansion of our customer base over the course of 2012. We went from 32 net new customers added in the second half of 2011 to 40 in the first half of 2012, to 93 in the second half of 2012. This growth is an important first step in our land and expense strategy, as we have a proven strategy of significantly increasing our presence within customers, after our social platform is initially deployed.
The growth in large transactions is a positive indicator of the growing importance of social business; Jive’s market position and customers paying for value. During the fourth quarter we had another record quarter for new business transactions that exceeded $1 million in value.
One of the highlights of the fourth quarter as I indicated earlier, is that we signed our largest deal in the history of Jive. This company is among the Fortune 50, and as you would expect from a company of this size, the process was an exhaustive and lengthy technical and business evaluation. With this win, Jive is now used by three of the most established and respected brands in all of the technology industry, which collectively generate over $300 billion in annual revenue. Deployments like these, major corporations, are helping to drive the market towards mass adoption.
The diversity of our business during the fourth quarter was very encouraging. Our top 10 deals were spread across technology, telecommunications, financial services, airlines, e-commerce, automotive, pharmaceutical, oil and gas and mining. It was not just technology and financial services companies. We see major companies across virtually every industry, moving forward with social business appointments.
Our performance in the fourth quarter reflects the horizontal market opportunity, and shows that the market is maturing beyond the typical early adopters. We signed new and expanded relationships with blue chip customers such as Anglo-American, AutoTrader.com, BMW, Cameron International, Givaudan, Hitachi Data Systems, McMillan, Michelin, Morgan Stanley, Novartis and Ricoh Americas Corporation among others.
While we made tremendous progress in establishing Jive as a leader of the social business market, we are not resting. We are highly focused on increasing our lead in 2013 and beyond. A key priority to do so is expanding the size and scope of the sales reach, and we have made great progress on that front in recent months.
Our recent announcement of a joint business relationship with PWC is an exciting opportunity that well team up Jive’s industry leading social leading platform with PWC’s world class business consulting services, in order to better serve the enterprise markets. This new go-to-market relationship offers Jive the opportunity to leverage PWC’s huge global footprint and relationships with many of the world’s largest enterprises.
We have seen extraordinary success with PWC over the last 12 months as a customer. What Jive deployed to more than 100,000 PWC employees globally, and their success as a user will be powerful validation for Jive in our joint go-to-market activities. PWC has already been an effective influencer on deals, as evidenced by the last quarter seven figure deal with AIA in Asia and we believe this relationship has significant potential going forward.
Expanding our alliances business is one of the areas that Jay Larson is focused on after joining Jive as President of Worldwide Field Operations during the third order of last year. Jay also has a particular focus on expanding our global distribution model. We made good progress building out are direct sales capabilities in Europe and Asia-Pacific during 2012 and we are seeing good momentum in both markets, particularly in Europe, which delivered a very strong performance in the fourth quarter. However, we have barely scratched the service of the international market opportunities.
As we turn the page on 2012 and look ahead, we are very bullish about Jive’s future. Our optimism regarding market demand and Jive’s momentum is reinforced by the investments we are making in the business. The fourth quarter represented the largest quarterly increase in headcount in the company’s recent history, with new additions primarily focused on sales and marketing, as well as product development.
We believe Jive is well positioned to gain share and expand our market lead over the course of 2013 and beyond, and we are investing in the business to capitalize on our unique market opportunity. Our momentum is already strong and we expect to gain increasing benefits from our enhanced go-to-market strategies, expanded sales organizations and new strategic partners over the course of 2013.
At the same time, we plan to continue setting the agenda of the social business market from a product innovation perspective. Perhaps most important, we believe our competitive position is strengthening as the social business market moves to the second stage of growth. We have a unique opportunity to pull away from the pack even further, as announced adoption ramps and customers select vendors based on a proven track record of delivering business value.
These are very exciting times for Jive and we believe we have the right strategy, vision, products and domain expertise to ensure that we are the primary beneficiary of the $26 billion social market opportunity.
With that, let me turn the call back over to Bryan.
Thanks Tony. Jive ended 2012 with a strong fourth quarter performance, which as mentioned earlier exceeded our guidance both from a revenue and a profitability perspective. Total revenue was $32.5 million, up 44% year-over-year. Breaking this down further, product revenue, which is again the fastest growing segment of our revenue was $28.6 million, an increase of 49%, while professional services revenue was $3.9 million, an increase of 70%.
Our revenue mix has continued to shift towards product revenue due to the increasing percentage of public cloud deployments and lower professional services revenue due to the improved out-of-the-box functionality of our product offerings. Our total billings were $52 million for the fourth quarter, which represented a growth of 44% on a year-over-year basis.
Let me turn to the supplemental metrics that we share on a quarterly basis. We ended the fourth quarter with 800 customers, compared to 761 at the end of last quarter and 667 in the year ago period. The 39 net new customers added during the quarter represented the second highest quarter total in Jive’s history, and it continues to provide Jive with a growing base of opportunities to expand on over time.
Our customer count metric only reflects customers who are running our core Jive engaged platform and excludes the customers we acquired from Producteev and Meetings.io during the fourth quarter.
Our dollar renewal rates for customers that spent over $50,000 annually with us, was again over 90% when including up sales and over 110% when including up sales. This is at a best-in-class-level for a SAS company and the fact that companies not only renew, but continue to expand their deployments at the time of renewal is evidence of the value they are receiving from their Jive deployments.
In terms of the mix of our business, internally focused communities represented 69% of our product revenue, and externally focused communities represented the remaining 31%. This compares to a 59%-41% mix respectively in the fourth quarter of last year.
With respect to how customers are deploying our social business platform, 64% of our product revenue for the quarter related to public cloud deployment and the remaining 36% related to private cloud deployments. We anticipate that the mix of our business will continue to remain more heavily weighted towards public cloud deployment, due in part to the fact that we are innovating an essential rapid pace in our public cloud and those customers gain access to new features every 90 days.
From a geographic perspective, the U.S. generated $24.8 million of revenue for the fourth quarter, representing 76% of our total revenue and international generated the remaining $7.7 million of revenue or 24% of that total revenue.
Our average new customer deal size for the full year 2012, excluding Try Jive customers was consistent with 2011 at approximately $110,000. Average new customer deal size was approximately $60,000 when including Try Jive. It’s important to note that Try Jive is targeted at planning seats for future expansion within departments and divisions of larger companies.
The annualized subscription value of our average customer in the fourth quarter was $147,000, an increase of 27% compared to $116,000 in the year ago fourth quarter. So in addition to accelerating the growth of our customer base during 2012, we also had good success in expanding the scope of our existing customer relationships.
Moving down the P&L, our non-GAAP gross profit was $21.7 million, representing a year-over-year growth of 61% and a non-GAAP gross margin of 67%, up two percentage points sequentially and up approximately 700 basis points from the year ago period. This marks the seventh consecutive quarter of non-GAAP gross margin expansion.
Our gross margin continues to be positively impacted by the migration of our U.S. customer base to our new data center, which is approximately 75% complete and on track to be completed during mid-2013.
Non-GAAP operating loss was $8.9 million for the quarter, which was better than our $9 million to $10 million guidance range. Non-GAAP net loss per share was $0.14 for the quarter based on 64.2 million shares outstanding. This was ahead of our guidance for a loss of $0.15 to $0.17 per share and compared to a net loss share per share of $0.28 on 32.5 million shares outstanding in the year-ago period.
On a GAAP basis for the fourth quarter of 2012, gross profit was $20.5 million, operating loss was $15.7 million and net loss per share was $0.24, based on 64.2 million shares.
Let me quickly run through the summer level financials for the full year. Total revenue for 2012 was $113.7 million, up 47% year-over-year. Non-GAAP gross margin was 65%, compared to 59% in the year ago period and non-GAAP operating loss of $26.2 million, compared to a loss of $32.2 million for 2011.
Headcount ended the quarter and 527 regular employees, up from 485 employees at the end of Q3. The growth in headcount was again concentrated in product development and sales and marketing roles.
As Tony mentioned earlier, we accelerated our sales hiring in the fourth quarter in order to expand our sales coverage and have them onboard in time to participate in our recently completed sales kickoff.
Moving over to the balance sheet, we ended the quarter with cash and cash equivalents and marketable securities of $168.1 million, down sequentially from $176.9 million at the end of last quarter. The sequential decline is largely due to the $7.6 million of cash we paid out as part of the acquisitions of Producteev and Meetings.io.
From a cash flow perspective we used $1.6 million in cash from operations for the fourth quarter. We invested $1.3 million in capital expenditures, leading to a negative $2.9 million in free cash flow, which is an improvement from the negative $6.4 million of free cash flow in the fourth quarter of 2011.
For the full year 2012 we generated $3.1 million of operating cash flow and we invested $10.6 million in capital expenditures, resulting in a negative $7.5 million in free cash flow. This represents a significant improvement from the negative $19.3 million of free cash flow in 2011.
Total deferred revenue was a record $117 million at the end of Q4. This was up $39.2 million from the end of 2011, the largest year-over-year increase in deferred revenue in Jive’s history. Our total deferred revenue was also up 20% sequentially, a significant increase due to the combination of year-end seasonality, significant growth in customer deals and solid execution from our sales organization.
Breaking this down further, short-term deferred revenue was $87.7 million and up 18% from the third quarter of 2012, 2011 rather, while long-term deferred revenue was $29.3 million and was up 27% compared to the end of last year.
At the end of 2012 our backlog was $21.3 million, up from $26.7 million at the end of 2011. Backlog is defined as the amount of subscription revenue under contract that is not yet invoiced and therefore is not reflected on our balance sheet.
With that, let me close with Jive’s outlook for 2013, starting with the full year. We are targeting revenue of $148 million to $153 million, a growth of 30% to 35%. While we are not breaking out our revenue guidance by line item, I would note that we expect our product revenue to continue growing faster than our total revenue.
We are expecting our full-year non-GAAP operating loss to be between $33 million and $37 million, leading to a non-GAAP loss per share $0.53 to $0.60, based on 66.2 million shares outstanding. We expect free cash flow to be between breakeven and a positive $3 million for 2013, which will represent an important milestone.
We have shared in the past that are first focus from a leverage perspective was to generate positive free cash flow, with a P&L profitability following thereafter. To that and, the first quarter is the first time we will have Producteev and Meetings.io related expenses in our results for the full quarter, and we expect to show improvement in our operating loss sequentially over the course of 2013.
We are very confident in the long-term scalability of our business model, particularly as our gross margins continue to scale. From a near term perspective, we believe that 2013 is the year social business will go mainstream, and we are investing in our product and sales organization to ensure we are properly aligned to take advantage of this opportunity.
Turning to our guidance for the first quarter of 2013, we are targeting total revenue of $33.5 million to $34.5 million, non-GAAP loss from operations from $9.5 million to $10.5 million and non-GAAP loss per share of $0.15 to $0.17 based on 65.2 million shares.
In closing, Jive delivered better than expected fourth quarter results. We are very optimistic about our outlook for 2013, and we are even more excited about the long term. We believe that Jive has an unmatched ability to deliver real business value for customers, which uniquely positions us to become the pure play winner in the multi-billion dollar social business market.
With that, we’d be happy to take any of your questions. Operator.
Thank you Mr. LeBlanc. (Operator Instructions). We’ll go first to Adam Holt with Morgan Stanley.
Adam Holt - Morgan Stanley
Good evening and congratulations on a nice end of the year.
Adam Holt - Morgan Stanley
My first question is about the larger deals. Can you talk about any common denominators in terms of scope and nature of those deals? And if you can, what’s the duration like on some of those larger transactions?
Adam, this is Tony and thanks again. We saw a mix like we did last quarter of existing customers doing multi year, seven figure transactions, as well as new customers doing seven figure transactions that were both single year and multi-year. So I would tell you they are typically larger enterprises as I mentioned in the prepared remarks, across a variety of industries. It was a record in the fourth quarter. They typically are purchases that involve what we call the social intranet. So embracing all of the work force in these larger global companies.
But there wasn’t one common denominator of one year or multi-year international or U.S. based. It was pretty broad with respect to the kind of profile of the company with saw buying at that level.
Adam Holt - Morgan Stanley
That’s helpful, and if I could just turn to the forward-look, it looks like you are going to continue to pace this investment into next year. Can you talk a little bit about where we should expect to see the biggest incremental increase and how you are thinking about framing those investments throughout the year? Thank you.
Sure, this is Brian. I think part of the key to that is to look at the difference in the run rate expenses between Q3 and Q 4. Most of those expenses break down between product development and the teams that we’ve built out, particularly around our new technology, the Meetings.io and Producteev, as well as other areas inside the engineering organization.
And then of course as we scale out or go-to-market under Jay, that’s both sales, as well as additional marketing investments in the marketing line to support those selling efforts. I think those are the places you will see the most increase quarter-on-quarter in terms of dollars. The other important point that hopefully came across in the call is that we expect to see incremental improvement obviously from a profitability standpoint based on that new run rate from Q1 to Q2 to Q3 to Q4.
We have stated in the past that we were working on making a steady sequential sort of progress towards operating and cash flow profitability and we continue to do that as part of this new run rate, which obviously you are going to see in the full quarter guidance that we are giving out here for Q1.
Adam Holt - Morgan Stanley
That’s helpful. Thank you.
Moving onto Jason Maynard with Wells Fargo.
Jason Maynard – Wells Fargo
Hey guys, I just wanted to follow-up on a couple of things. First, on the OpEx guidance or the non-GAAP operating loss guidance for next year, how much sort of ramp did you guys build in because of the accelerated hiring in Q4? I’m curious. Was that ahead of plan or was that just a shift if you will from Q1 into Q4.
And then the second one maybe for Tony, just to talk a little bit about again the sum of the bigger transactions, the commonality that you saw, maybe at least in terms of who was the champion inside the organization that was actually driving the product? Was it coming from C-level exacts, specific line of business or IT. Thank you.
Sure. I’ll take the first part of that question. Certainly, if you look at the migration of expenses from Q4 to Q1 and then obviously the full year guide, well this was all part of our go-to-market plan if you will as we built out the product and sales go-to-market for 2013. So I don’t know if you call it a pull forward if you will, but it was certainly part of a conscious plan to continuing to make those investments and as we said earlier, they are split, almost evenly down the middle between the product group and the sales group.
And then Jason, this is Tony. So on the seven figure deals, almost always the C-level executive from a line of businesses is involved and actually even I’m looking at the list right now, two of the deals that I’m aware of and in particular the CEO directly was involved.
Almost always the CIO gets very much involved, because there’s probably a legacy, dusty enterprise system in there that needs to be evaluated against Jive, but as we move to the C-level, Jive is becoming the safe choice. The proven business value delivery system and as the market moves towards mainstream, that becomes the primary, if you will evaluation criteria by the C-level.
Now that’s not to say that you don’t have to win and compete from a technology point of view, particularly when IT is almost always involved in these larger, all employee wide deployment. So you have to prevail in both dimensions, and so what we do is, as I said we always go in and try to find the business sponsor. Its almost always at the C-level, CEO, CMO, Head of Sales, Head of Customer Service, just to name a few, CIO gets involved and in the backdrop of business value, we in fact differentiate both on the technology, as well as what we’ve done in our customer base to date.
Jason Maynard – Wells Fargo
Great, thanks and good finish to the year.
Thank you, Jason.
We’ll now hear from Brent Thill with UBS.
Brent Thill – UBS
Good afternoon. Just on the billings, you exited that 46% growth, but you had 30% to 35% revenue growth. Is their something I’m missing in terms of how you are thinking about ‘13 or is this just a conservative first stance and had a quick follow-up?
Sure. Well yes, you saw the numbers correctly, that’s the correct 2012 growth and certainly we gave revenue growth for 2013, we didn’t give billings growth. I do not know that I want to put color on the revenue growth in context with the billings number.
What I would say is, we’re obviously baking everything we know into that guidance as we always do and it’s certainly in the year and it’s the first quarter. So, it’s usually how we do things.
If you look at last year, obviously we applied the same kind of thinking to the way we built guidance for last year, and I don’t know that I would tie the two directly together, but I would say that we look at all those things and we’re really pleased about the 2012 growth and we think there’s some exciting growth in the market for 2013 as well.
Brent Thill – UBS
Okay. And maybe a question for Tony, just as it relates to your go-to-market for ‘13, with Jay’s arrival and I think we’ve all had history with Jay’s success. Is there any differential this year versus what you did last year in terms of your go-to-market, whether it’s vertical or GO or maybe just give us a sense of any changes, if at all?
Yes. I’d call them Brent, I would call them additions to our strategy. Consistently, as we said, Jay’s here to take us to the next stage of growth and to accomplish that certainly international expansion is required, and we address that in the prepared remarks.
Go-to-market partnerships, both from a technology point of view (inaudible), as well as from a global business consulting or system integrated point of view, in addition to our previously announced extensive relationship, the PWC announcement is super important.
And then lastly, I would tell you as the market goes mainstream, much like we saw Jay and I at Mercury, much the way you saw its success factors, this pivot if you will to delivering on business value as measured by an increase in workforce productivity and revenue gains, more departmental solutions for sales enablement and marketing and customer service and social alignment, if you will all of those plays work across the verticals, which we referenced again in the remarks in the call that we saw growth and all of our deals across all of those verticals.
I would tell you that Jay’s here to expand what’s been working during the first chapter of the social market, which again was largely built on who has the most innovative platform. I think we won that one, and then as we go to the mainstream, you have to add all those other components that I just rounded off.
Brent Thill – UBS
Our next question comes from Michael Nemeroff with Credit Suisse.
Michael Nemeroff – Credit Suisse
Thanks for taking my question and nice quarter. I was just curious, what kind of revenue contribution do you see PWC giving you guys in 2013 and over the next couple of years? Are these significantly large deals that you are going after with them?
And then also another one is as it relates to SAP, and since Jay Larson is now with your company, clearly the Q3 products that they thought really had jammed, I was wondering if you have heard anything from SAP on whether they plan on releasing jam as competitive products. I know that they are a customer too. Thanks.
Absolutely, yes, so I’ll take that first piece. Now I don’t know that we want to speculate on the dollar amount specifically, but we think it can be substantial. Over time as that channel builds, remember those guys have access to the highest level of folks in some of the largest companies and they are a trusted advisor and when they walk in with a solution to a business problem, people are paying attention and I think they help accelerate the process of getting those folks up to speed on what Jive can do and they help bring in the sales cycle, so that you can get right to the decision makers a lot faster than we could internally.
Does that result in incremental business? It should. I don’t think we want to speculate on how much just yet, but we are really excited to be partnered up with them. We think the fact that they are using the technology internally and they understand the business value that it brings to them and they can articulate that in an incredible way with 100,000 people plus people inside of PWC using it everyday is a massive, massive game changer for us.
As we work to educate the mainstream part of the market, and you tie that together with some of the work we have been doing with McKinsey and the folks that are in and around this space with their report that they put out over the summer, as well as other Sis that are also writing some fantastic peaces on business value and you got a really great combination for helping crack the code on they get customers in the mainstream to see the value that Jive can bring.
So Michael, this is Tony on the SAP. As you correctly identified, I mean they are an extremely valuable and strategic customer of Jive for over three years now. All of the internal SAP employees use Jive as their internal, social collaboration platform, not to mention the SAP community network, which has millions of SAP customers engaged as an external community, is a very vibrant piece of the SAP overall strategy for service and product innovation.
So regarding the product you mentioned earlier, I think it’s beyond all that and certainly inferior to what Jive has to offer. I’ve heard the about the jam product, maybe combining that and some other pieces of technology that they’ve acquired or developed internally. The bottom line is, we don’t see them in the market as a competitive offering and my sense would be that it would be very soloed to sit on top of the application suite that comes from SAP, rather than be an agnostic, complete, broad social collaboration platform that extends both inside and outside the enterprise.
Interestingly, and ironically enough just the way SAP uses Jive internally and externally. So, haven’t seen them in the market and I think they’d be way, way, way, way behind with respect of what they have to offer.
Michael Nemeroff – Credit Suisse
Thanks very much. Very helpful.
Our next question comes from Mike Huang with Needham & Company.
Mike Huang - Needham & Company
Thanks very much. So a quick question on the customer adds. I know it was the second largest ever from a net add standpoint, but it was down sequentially despite would I think would be favorable Q4 seasonality. So the question I have for you is, were you happy with the new customer ad metric year and did you see any slippage into Q1 and ultimately how should we think about this trending going forward, especially as some of these new sales guys ramp-up. Thanks.
Yes, this is Bryan. So we’ve said this before, we don’t focus exclusively on that customer metric. We think that, to answer your question, we are very pleased with the way customers came out in the fourth quarter. We’ve said before that this is going to be a lumpy metric in the sense that it comes down to the amount of business we are getting into the building and that comes from both large and small customers and all of those things in between.
One of the things we’ve noticed, as part of our business model, its certainly part of our conscious go-to-market strategy is that the up-sell component is as important, if not more important than the initial customer bite, and the fact that we are planting more seeds and harvesting those is exactly the business model that we’ve got.
We think the customer count itself is an interesting metric, but it is not exclusive to how we grow the business and we feel very good about where customers came out, both in Q3 and Q4 as well.
Mike Huang - Needham & Company
Got that. Actually maybe one more follow-up. In terms of the largest deal ever that you guys signed in Q4, was that one with an existing customer or was that new and was that a competitive win over somebody else?
This is Tony. It was an existing customer. Is a very large fortune 50 company as we described and you can imagine, it was super competitive as I said both, technically and from a business value point of view. In fact to Jason Maynard question it was led by our CXO line of business and sponsor inside this company.
Certainly, a big corporate IT organization was directly involved in comparing Jive’s features and functionality. But at the end of the day, that the breadth and depth of the platform together with the business value we were able to deliver to the pilots that we had conducted, as well as some of the existing pockets of installations that we had inside the company, both internally and externally at the end of the day prevailed in Jive’s favor, against some very large competitors.
Mike Huang - Needham & Company
Great. Thanks so much.
We’ll now hear from Walter Pritchard with Citigroup.
Walter Pritchard – Citi
Thanks. Bryan, I guess my question on the kiosk (ph) difference in terms of your current billing, if I do that calculation, it looks like they’ve kind of slipped from that 35% in Q2 down to 29% this quarter. I’m wondering, I know some a large deals and it sounds like those are longer in nature. Could you help us understand other than that what’s causing that and do we except that trend will continue to work out into ‘13?
Yes, so we said over the course of the last couple of quarters that obviously that the trend in long-term deferred generally relates to larger, more strategic multi-year arrangements. We are thrilled to have those kind of relationship with customers. We think it’s great while people are putting their money where their mouth is, in terms of making that commitment to Jive for more than one year.
I think to speculate on what that differed revenue, that source from billings metric would be, it would be additional guidance that we just don’t give out. I would say though that we are obviously baking in everything we know into our guidance and we’ve got the revenue guidance out there now, 30% to 35%, still kind of mid-30s growth.
I think that’s what I would see here, in terms of what do we think about the future. I wouldn’t tie exclusively the short term differed, that’s not a metric that we spend a whole ton of time tracking. But in terms of where we are see thing going, I think we’ve got good guidance out there for Q1 and for the year.
Walter Pritchard – Citi
Great and then Tony just on the sales cycles. I think you referenced that very large win. It was a long sales cycle. I’m wondering, you guys were one of the first to talk about the macro getting tougher, impacting the sales cycle and we’ve seen quite a competitive noise over the last, say two quarters at a meeting out of Microsoft. Just wondering how you would count the sales cycles that you saw, not necessarily the ones you closed in the quarter by kind of helping to progress into the pipeline here is Q4 versus what you saw back in Q2 when you started to see some length in there.
Yes, I would tell you that as we said in our remakes and over the summer as we said in our remarks in our November call, our guidance reflects the global economic environment remaining unchanged, meaning the way its been, and as that relates to IT budgets or buyer perspective, certainly we believe the market goes mainstream.
I think you’d see that reflection in our aggressive investment strategies, both in our product development organizations, as well as in our go-to-market organizations, both in sales and marketing that we think the opportunity is robust to exploit our highly differentiated position, both technically and from a business value delivery point of view, against the competitors.
Yes, as we said the competitors made some moves largely in 2012. We think their hands are played out, because they are large companies, they have very long development and release cycles, two to three years. We release very 90 days. 70% of our business is out of the cloud. So our customers are seeing that kind of innovation organically and inorganically from us at a very high rate.
So we expect things to largely remain unchanged, but you should read into the fact that we are investing at a rate that we believe that we can exploit our differentiated, highly differentiated position and this large market opportunity in front of us.
Walter Pritchard – Citi
And just Tony to clarify now, its sounds like macro clearly has been over the last six months a factor. Would you say that the competitor environment has been an incremental factors in terms of sales cycle. Is that why’s there’s been noise that we are reading about in the press and otherwise, but not really impacting what you are seeing out in the field.
Yes, it’s a huge market opportunity. Going into the 2013 I think our competitive position is even stronger than it was in 2012. There is always competition, but its highly differentiated. Its important to note that the two large competitors I referenced in my prepared remarks are taking old antiquated gusty systems that were built for something else and trying to parlay them into social systems; its not working.
While we are delivering the social platform that’s delivering business value as we reported from the analysis and research that was done at a whole level higher than what’s been describer there. So the competitive competition landscape remains the way it was. It will always be competitive. We are moving to the next phase of growth in this market and I think our position is stronger than every.
Walter Pritchard – Citi
Great, thanks a lot.
Moving on to Heather Bellini with Goldman Sachs.
Terry Wang – Goldman Sachs
Hi, this is Terry Wang for Heather. Thanks for taking my question. Just had a question about revenue guidance from March as well. I mean it looks at though I think it’s a mid-point. The implied growth for product revenue is sort of in the mid to high single digit range sequentially. I guess this kind of compares to sort of low double-digit range historically for the March quarter.
How should we think about guidance, sort of adjusting for a strong fourth quarter finish, combined with kind of a macro background or are there any other factors maybe that we should we thinking about.
Sure. Well, this is Bryan. I think all of the things that pertain to Q1 are baked into that guidance, but for sort of a statistical analysis of Q4 to Q1 kind of go back in time. I think that’s interesting, but obviously we have a much better sort of data on how we think revenue is playing out. I think it’s a factor of all the good things that drive our revenue growth around billings and things that are coming out of revenue from the balance sheet.
One thing to note and this has been true as a more recent quarter phenomena in Q3, Q4 rather than Q1 of last year is the fact that professional services is a smaller mix of our revenue and so if you think about that, that’s obviously part of it. But if you have a question on product revenue, I don’t know that we have a statistical answer for you. We feel good about what we put out there.
Terry Wang – Goldman Sachs
Got you, thank you.
We’ll now hear from Steve Ashley with Robert W Baird.
Steve Ashley - Robert W Baird
Thank you. I was wondering if you might be able to give us some kind of sense of how your sales capacity, it looks this year entering, beginning the year versus a year ago. How much more quarter you might have in place, something like that?
It’s bigger. We don’t break that out. I think all getting aside, it is bigger, obviously. We made those hires that Tony’s talked about in the fourth quarter in advance of our normal sales kickoff and we continue to increase the size of that sales organization on a quarterly basis as is our normal practice. So that’s been part and parcel of Jive’s strategy to continue increase our selling force on a regular basis, because we think that’s the right way to grow that group.
But you do more of it in the near part of the year, so that you can take advantage of getting everyone at one sport and getting them trained up and that’s what we’ve done. But we are not going to give out specific numbers or a quantification of what those are. Suffice to say, it is large, because this is the time of the year when you start that building process for the next full fiscal year.
Steve Ashley - Robert W Baird
And seasonally where you hiring people earlier in the year this year than you would have a year ago?
Our strategy was largely unchanged. I don’t know timing wise whether I could give you that kind of a color just off the top of my head. But I would say, we are always making opportunistic moves where we can pickup sales people and we typically try to get them early in the first quarter, because that’s when you can train them.
Steve Ashley - Robert W Baird
My next question is just kind of a high level question. If you look at some of your older, larger customers, you mentioned SAP, kind of older groups, if you look at their participation of their employees using your product and they’ve had it in place for several years. Is that something you watch and is there anything you can tell us about the participation rates at those companies over time.
Yes, this is Tony. So, an important fact that we missed was since we started doing multi year deals back in 2009, a number of those deals came to contact conclusion in the fourth quarter of 2012. We had a number of those clients in fact too not only revenue but renew from multiple years, which speaks to a different dimension on your question is how mission critical is the Jive application becoming in these large global organizations and I think you have to go right to renewal rates and our renewal rates in the 90% range.
In almost every quarter we reported, in every quarter we’ve reported since being public speaks to, is the product being used otherwise why renew it. So we do pay attention to a great deal of specifics with respect to those customers who are deployed in the public class, where we can see the level of engagement across a wide variety of metrics. We don’t disclose any of it, but I assure you who are watching very closely and the ultimate measure that we provide externally, that in effect integrates all those facts; under the curve is the renewal rate.
Steve Ashley - Robert W Baird
Our next question comes from Karl Keirstead with BMO Capital Markets.
Karl Keirstead – BMO Capital Markets
Well, thank you. I got a question for Bryan. I just like to zero in for a minute on the guidance for the $33 million to $37 million non-GAAP operating loss in ‘13.
Hey Bryan, can you disclose what the losses are from the two acquisitions you closed in 4Q and secondly, of the core Jive losses, I know you mentioned that the bulk of the investment would be going in the sales and product debt. I don’t want you to give away the family secrets, but can you be a little bit more specific as to where those investments dollars would go. Thank you.
Sure. So yes, we said on the call last quarter that Producteev and Meetings.io were going to run $0.03 or $0.04 of dilution in that quarter and yes, we didn’t break that out obviously for the year in this guidance, although the full year impact from both of those teams is now baked into that guidance itself.
I think it’s probably fair to say that what we saw in the fourth quarter represents a reasonable run rate for both of those teams. Obviously, particularly the part C product starts to ramp up and beginning to be a bigger peace of our selling efforts. Here you’ll see a little bit of the top-line cover some of those expenses and somewhere through that period in 2013 you see it off-laid from being dilutive to being breakeven and then eventually accretive.
We don’t have obviously that level of detail broken out in the guidance, but I think its reasonable to expect that you got a diminishing impact from the dilution from Q4 to Q1 to Q2 and then obviously you start to see it become breakeven to accretive after that. That would be the way I would think about both of those acquisitions.
On the color around where are the ads, I don’t know that we are going to get into the details or inside of product development and the sales organization, beyond the fact that the increase that we had in the Meetings.io and the Producteev teams are obviously are part of that and we continue to increment the core engineering team and a lot of the other work that’s going on. There is a lots of innovation that are coming out of that products group and obviously hiring in the product sort is going to be both for these new teams as well as for innovation that we have yet to announce and you will see the result of that as we put out quarterly updates on what we are releasing as we go through the year.
And on the sales side its across the board in all of the various regions we’re putting increases in North America, Asia and Europe. Anyhow, its consistent with where we think the market opportunity is on a global basis.
Karl Keirstead – BMO Capital Markets
Good color. Thank you
We have no further questions Mr. LeBlanc. I’ll turn the conference back to you for closing or additional remarks.
Thank you. We appreciate everyone today. Obviously we are very excited about 2013 and we look forward to talking with you all again when we release our Q1 numbers. Thanks everyone for joining.
And again ladies and gentlemen, that does conclude our conference for today. We thank you all for your participation.
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