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Jive Software (JIVE)

February 26, 2013 3:45 pm ET

Executives

Anthony Zingale - Chairman and Chief Executive Officer

Bryan J. Leblanc - Chief Financial Officer and Principal Accounting Officer

Analysts

Adam H. Holt - Morgan Stanley, Research Division

Adam H. Holt - Morgan Stanley, Research Division

We'll go ahead and get started. In the interest of time, I know

[Technical Difficulty]

Is that better? Can you guys hear me? All right. So I'm thrilled to be starting the afternoon session with Tony Zingale and Bryan Leblanc from Jive Software, a company that went public a little over a year ago. It's had a tremendous track record of quarterly results. It is in one of the most strategic positions in the marketplace. As you all have heard, lots and lots of companies over the last few days talked about the importance of collaboration, social, et cetera and the enterprise. And maybe that's a good place to start, Tony. This -- when you went -- this time last year, you were a newly public company and it was still a little bit of a missionary sale. Now, a year later, you're doing million-dollar deals. Your name's all over the place. Can you talk a little bit about how you think the market has evolved over the last 12 months and where we are now from an adoption perspective?

Anthony Zingale

All right. Thanks for having us today, and we're glad to see the room filled up so we're feeling bad about that. But the difference between 2013 and 2012 is as we move through last year, it became clear to us as we entered 2013 that the market for social and collaboration and ultimately changing the way work gets done is now moving to the mainstream. I think we're done with -- as we've talked to you about, Adam, we're done with companies saying, "Let's do the social thing for social's sake or let's do Facebook for the enterprise or Twitter for the enterprise." I think we're done and over with all of those experiments because they largely failed, right? What's really important in moving to the mainstream is delivering on the promise of business value in the enterprise. There was a landmark study that was done July of last year by the McKinsey group that talked about $1 trillion worth of waste in the enterprise, waste as measured by an unproductive workforce. 28 hours of the 40-hour work week, in fact wasted, looking for information, looking for people, trying to do -- find work through your email inbox, going to mindless meetings. So there was a real opportunity to work differently.

We, in fact, after the study came out, in fact engaged with McKinsey to go into our customer base, which is 800 strong, and mine the use cases that customers were using the Jive platform to deliver business value, we find 32 use cases. And on average, customer saw a 15% uptick in the productivity of their knowledge workers, which yielded an up to 4% increase in terms of the top line revenue growth through a more productive workforce. And we went use case by use case by use case, and we have pivoted the company's selling model and product line to deliver on these use cases because what we've learned, Adam, is when we go department by department, find a business sponsor working in conjunction with corporate IT, delivering on a specific use case that delivers the value from the social platform rather than leading with "I have the social platform, what can you use it for?" The resonance with the customer and the speed at which they engage and the speed at which they adopt and use the platform and ultimately add more seats or more licenses, in fact, will go much, much faster. So we think 2013 is the year of this market going mainstream finally.

Adam H. Holt - Morgan Stanley, Research Division

And just to sort of drill down on that on a couple of different layers, first is the selling motion. So the 32 use cases, is the selling motion then more about verticalizing the sales organization or is it about changing the way that you go to market with the product?

Anthony Zingale

Right, I think it's more of the latter. I think it's still premature to verticalize our selling force. But to give our selling organization, which is global in nature, and we do it over the phone as well as in the geographies, giving them specific targets. When you go into this class of customer, find the CMO and articulate this kind of business value. That's backed up by the product that delivers on that. Same for the customer service executives. Same for if you happen to call on the CEO. This is the kind of value proposition you should be selling when you go into and setting the ground rules for evaluation in the client base. So we have really trained our selling organizations to be very well equipped and adept at finding those kinds of opportunities in the customer base versus a year or 2 ago, where we walk into corporate IT and go, "We have a social networking platform. How's that feeling?" And we did well doing that, differentiating ourselves from an innovation point of view and our ability to do that very well. But what we've learned from our years of experience is there's a better way to go to market, and that better way is by use case, by line function and by delivering on business value statements accordingly.

Adam H. Holt - Morgan Stanley, Research Division

And what has been the impact in practice to that change? Bigger deals, shorter sales cycles, better close rates, all of the above?

Anthony Zingale

Right. Certainly, those are the goals and we're early on the McKinsey work we've completed in December of last year. We were fortunate enough to attract and bring onboard Jay Larson to run our Worldwide Field Operations at Jive in August of last year. Jay was with me at Mercury Interactive, where we doubled the size of the company, when we did a similar pivot from selling test automation tools to selling business technology optimization. Jay was also at SuccessFactors when they pivoted from selling HR automation solutions to selling business execution solutions. We hope for a similar kind of pivot here at Jive, but we're early in the year and all of those metrics you described, a more athletic sales cycle as measured by time duration, as well as setting the ground rules for evaluation and a much more effective way to unseen incumbents and get them out of the process sooner.

Adam H. Holt - Morgan Stanley, Research Division

Just 2 follow-up questions to that. One is on Jay specifically. A lot of us in the broad community know Jay, right, and have had great success owning stocks to where Jay has been there. In the 6 months he's been at the organization, what are some of the key things that have changed beyond maybe what you've just described?

Anthony Zingale

Right. Well I've gotten a lot of questions that Jay is coming to come here and blow everything up and redo it. Quite the contrary, I mean, Jive did very well as you introduced us going from 0 to $113 million in revenue in 2012. Jay's here to take us to the next level of growth. And within that next level of growth is obviously international expansion. In 2012, we did 24% of our business internationally, largely from Europe. We think there's even more opportunity in Europe. We think there's opportunity in Asia, in Latin America, in South America, as well as in global systems integrators that we, in fact, announced one of the more blockbuster partnership arrangements with PwC at the very beginning of this year, where we will go to market with them, they won't resell our product, but they will in fact find opportunities for Jive to be this change agent as it relates to increasing workforce productivity and up-leveling the amount of revenue in our organization. So Jay owns that. Jay also owns our Professional Services organization. Obviously, the knowledge that is in our strategic consulting organization on how you unlock the value from the Jive platform through the 800 instances we've deployed en masse to our customer base is something that we bring to bear in the selling organization. And then lastly, of course, tweaking things. The collaboration inside Jive between our field sales force, our telesales force, our sales development resources. Obviously, Jay is an experienced executive. His impact on how we go to market, his interactions with the marketing organization and the like are substantial. So it's really how do we go from the level we're at now to the level that we aspire to get to several hundred million dollars over the next coming years.

Adam H. Holt - Morgan Stanley, Research Division

And on the international side, as you noted, 24% is not as high as some bigger companies, but it's a very respectable number for a company of your size. How have you historically expanded internationally? Are you following companies? Are you following clients? Or does that model change going forward to start out in countries and build around it?

Anthony Zingale

Well I think what we've learned since a lot of us at Jive have been in the enterprise software market for a while, you start in the geography where there's a real appetite for consuming enterprise applications. So not unlike every enterprise software company, we start in the U.K., Germany and France ideally. And then you expand northward in the European geography, probably stay away from the Southern parts of Europe because they're troubled economically as we all know. In Asia, you go to the Europe -- sorry, the English-speaking countries. Obviously, Singapore, Australia, New Zealand, India, for example. And you really contemplate when do you enter geographies where language becomes a barrier like in Japan or Korea or China itself. So Jay has done this twice already. I've done it a number of times. Bryan has done it as well. So we look to where are the markets. And again now, with our use cases, where is there a real opportunity to sell the value of our platform based on the companies that are resident in those geographies, so we're investing. Part of our 2013 agenda is to invest even further in the international geographies to take advantage of what we think is an untapped market potential for our product line.

Adam H. Holt - Morgan Stanley, Research Division

When you started to talk about the landmark study that McKinsey did and then some of the work you've done with your installed base, you called out a few metrics around knowledge expansion, about revenue growth. Did you feel like in your selling cadence you've gotten to the point where the ROI case is now more definable, it's more -- you have more evidence to be able to show customers how they can actually drive real business value?

Anthony Zingale

It's a great question because until we had all the substance, we had done surveys before. We knew through the use of the Jive platform that organizations did less email. We knew that customer service organizations when they deployed an external platform, deflected first calls from their service organization, which can cost anywhere from $200 to $300 from the time the call hits the call center until the time that the issue or trouble ticket is resolved. So we have some evidence of business value. Now as we go to market, we're really crisp on what the ROI is. We are really crisp because not only do know what the use cases are, but we have a wide range of metrics. And here's the best part, here's the punchline. We didn't do the measurement. This highly regarded consulting firm did the measurement in our installed base without our assistance whatsoever, and they, in fact, extracted these metrics out of the use cases that I described earlier. So most importantly, our sales organization is able to go in and lead with that conversation. Every customer service executive on the planet would love to reduce the amount of cost that they incur in customer service. Most selling organizations would love to reduce the time it takes to onboard new sales people. Most marketing organizations, who are measured by how effective is the salesforce's ability to prosecute the opportunities in the market, really in fact, embrace this kind of business value statement that we have to offer. So we go in and set those ground rules. We're not backing away from the feature-function platform fight that we've been fighting for a long time. Certainly, the Gartner Group and Forester still recognize Jive as the premier broad and deep fully function platform in the industry. It's just that we follow with that after the business parameters have been set rather than lead with that.

Adam H. Holt - Morgan Stanley, Research Division

Got it. I want to drill into a few specific initiatives that you all have underway right now and then I want to drill down some product questions and competitive landscape. So Try Jive has been in the market now for several quarters. Could you talk about what Try Jive is? What the intent was behind Try Jive and what you think the benefit has been? If it's getting a little tight over there, there's a little bit of room on this side as well.

Anthony Zingale

We have a couple of seats up here.

Bryan J. Leblanc

That's right, yes.

Adam H. Holt - Morgan Stanley, Research Division

That's right. Now that we're officially standing room only, we want to make sure that some of these...

Anthony Zingale

You can answer some of these questions.

Adam H. Holt - Morgan Stanley, Research Division

Yes, we've got some room over here.

Bryan J. Leblanc

So I'll take the Try Jive question. You remember Try Jive was put out a little less than a year ago and its primary purpose was to make sure that in all sales situations, we could immediately engage a customer with the product without having to go through a formal sales cycle. In the past, it was the old school, get the SE, set up the sandbox, and these were, as a cloud-based vendor and certainly someone who's espousing Web 2.0, it made a lot of sense for us to make this move and we did. And I think it's been phenomenally successful there. Anyone here in the room and certainly anyone that's in the selling process with us regardless of where they are in the selling cycle can get on to jiveon.com and start a Try Jive instance. And those instances are designed to have a clock associated with them to prevent people from just trying the product out without an eye to eventually making the commitment to pay for it. We're not a freemium company. We don't believe that freemium is the way to proliferate inside the enterprise when you're really doing something of business value. The other thing that we've had a tremendous amount of success with is having a lead behind in that selling process. So in the first meeting where the customer is interacting with us, you've got the ability to say, "Hey, look." And at end of the meeting, "Go online and try it out." And certainly, that's been -- it's been very successful for us in the sense that it's helped get people closer to the product faster. And that's been now, what, 7, 8 months or a little bit more of time for us to watch this. We have the advantage of seeing how people are on-boarding. We've been baking lots of new experiences and if you go to Try Jive today and look at the way that you're being on-boarded as part of that process, it's dramatically different from when we set it up back in May. Since it's a cloud offering, it can change all the time. We can do A/B testing. We can see how people are interacting with us and I think as you go down the path where Tony was describing some of these business value metrics, from the work that we've done around how you get ROI goodness from Jive, you'll see, I think, more of that on-boarding built into Try Jive over time as well.

Adam H. Holt - Morgan Stanley, Research Division

And on the other end, you've actually started to see some pretty significant customer conversions. I believe you had your first million-dollar deal out of Try Jive?

Bryan J. Leblanc

That's correct. Back in Q3, a customer in Asia -- actually, it was introduced by the folks at PwC and immediately went to the website, got into a Try Jive instance and inside that same quarter, a 7-figure deal. This was a division of AIG in Asia, very nice kind of corner case study. They don't all go that way, but certainly that's the idea is that we want to be able to speed that time to get exposed to Jive and to the extent that it helps get people right into the product. It's a fantastic win for us.

Adam H. Holt - Morgan Stanley, Research Division

Another key initiative that you all have is continuing to go and drive customer expansion so more seats, more usage, more penetration and broader access to your different services. Could you maybe walk through a couple of examples of where you've been successful there and how that initiative is tracking?

Anthony Zingale

As I've said earlier, we really guide our sales force, even before the work we did on use cases, to land and expand. It doesn't always go that way. There are situations that are in the minority, not rare, but in the minority. Where we go in, we find an innovative CEO, an innovative CIO or a line of business leaders that wants to, in fact, have adoption happen across the enterprise right out of the chute. More often than not, the way the opportunity unfolds is we start in a department and I mentioned a number of them, sales, marketing, HR, engineering, you name it. And we'll start there and we'll land an initial bite of the apple of Jive whether it's an internal community or an external community, and then sell a 1-year term license obviously. We'll see how they progress during that 6 to 9 months early phase of their experience. And as the 1-year renewal time comes up, I call it the moment of truth, we, in fact, show back up in and we have measured the business impact they've seen, how much engagement that they have, what kind of results have they seen. And then we in fact, to Adam's point, we upsell. We might sell that department more seats, more modules. A module for us is something that we add on to our platform for mobility or business analytics or video capabilities or the links we have to Office and Outlook and SharePoint, that Microsoft stack to embrace those applications right in the Jive platform directly. Or we'll sell an external community if we sold internal or vice versa. So we have lots of opportunities to add on to the initial sale, and that's why we are ruthlessly focused on that initial implementation because from there, if we're successful, yields the upsell opportunity, which we are very good at. And given that SaaS nature of our business provides us the opportunity to do it on a fairly regular basis.

Adam H. Holt - Morgan Stanley, Research Division

And you all along that line have been renewing and upselling it more than 110% of the original deal value?

Anthony Zingale

That's correct.

Adam H. Holt - Morgan Stanley, Research Division

Is that the right way to sort of think about the going-forward level or do you expect that to get better or how does that work?

Bryan J. Leblanc

Sure. And we've consistently reported out on this over 90% retention on base dollars and over 110% on upsell. We also give out some other stats on the call back for Q4. The amount of upsell can be quantified in kind of that annual value of the Jive customer, which now is just a little under $150,000 a year from that $110,000 initial bite, which is kind of the new customer size on average. So if you think about it, that upsell potential from a percentage standpoint is pretty significant. And then back to Tony's point, it's where we're absolutely riveted in our go-to-market model.

Adam H. Holt - Morgan Stanley, Research Division

There was a period last year where you all were working through some customers that were effectively, I don't want to say intentional churn, but they were customers that you didn't necessarily want to have and so the customer count was showing some volatility. But then in the back half, you started to see a nice acceleration in your customer counts. As you look at 2013, do you feel like you're through that transition on the customer sort of churn side and the momentum from the second half continue on the customer add side?

Bryan J. Leblanc

Yes. I mean we're not giving specific color on certainly what to expect from a numerical standpoint. But conceptually, that's absolutely correct. The churn for these legacy customers, it was really a 2012 phenomena, and 2013 really is more of a steady state for us. That number does bounce around quarter-to-quarter. You pointed out correctly so that the second half of the year, those ads were just under 100%, a little over 90%. In the first half, it was right around 40%. So some good acceleration first half relative to the second half. I think it bounces around quarterly, but generally growing with the business and absolutely part of that model as well.

Adam H. Holt - Morgan Stanley, Research Division

If I touch on just another sort of, as I think about it, transition that you all went through last year and that's around your Pro Services business, where you made a conscious effort to de-emphasize Pro Services and you're going to start to lap that decision. And so that actually should be an accelerant to some extent in the model this year. So could you basically set -- I mean, I set the table, but can you just walk through what exactly happened there and how we should be thinking about going forward?

Bryan J. Leblanc

So yes, I mean, the product and if you look from 4 to 5 to 6 and now to 7, as you think about the product releases, these releases have all been taking into account more and more of the things that we used to, from a historical standpoint, used to charge for from a Professional Services organization standpoint. That's not to say that PS is not important for us. When it matters for the customer to theme and customize the product or to tie it in with other things that they've got inside the enterprise, these are areas where we absolutely think PS is important. So from an attached rate standpoint, it certainly doesn't go to 0. But I think you made an important point, the amount of PS has been slowly creeping down over time. The attached rate I think is now in the teens. And that's, I think, for a company like ours and in the space that's a SaaS-base like this, that feels right. I think, again, you have a lot of big deals. Some big deals come with more PS and certainly the change management associated with that as distinctive separate from the customization of the product does make a difference as well. And I don't want to predict what I think the exact mix is, but we did say in the call in terms of guidance to expect that theme of product revenue growing faster and services revenue to be a theme for 2013, as well as it was for 2012.

Anthony Zingale

And just one more this distinction, when we do Professional Services, it's nothing like customizing SAP or Siebel and all the heavy lifting that goes with those traditional enterprise applications. As Bryan, people usually take Jive and they theme it. They name it something that's specific to their brand, particularly when they expose it externally and even internally. The PwC instance internally is called Spark, Thomson Reuters is just called The Hub and they put their color scheme, they move the widgets around but it's still Jive there. That's what they do. It's a matter of days to do it. The bulk of our Professional Services consulting is on this expertise on how you do it, how to approach it, where to deploy, how to build in the sense of community and engagement. It's all on the more strategic elements of consulting rather than Java coding, right?

Adam H. Holt - Morgan Stanley, Research Division

Got it. A couple of quarters ago, you all were one of the first company that we followed that called out the macro. And one of the reasons is because you're having more strategic discussions with your customers than some of the vendors that we follow. As you look at 2013, given that you're sort of in that unique position, what's your current view on the spending environment?

Anthony Zingale

Yes, I think we've been consistent that when we said that in the third quarter, we kind of got punished for it and then everybody came out and said, "You know, we kind of see some economic headwinds." So we kind of got on in front of that. But it's what we saw, and so Bryan and I having done this for a number of years, we want to be very transparent on what we're seeing. And so when we were asked about it in the fourth quarter, we said, "Hey, look, the environment was largely unchanged." As we head into 2013, it's largely unchanged. We believe that it's consistent with what we saw in the second half of last year. We've got -- as we've been spending the time here this afternoon, we've gotten more focused on how we go to market, how we have a business level conversation around value rather than spending on enterprise software for spending on enterprise software's sake. And so it's the classic, "You got to spend some money to save some money," which are the conversations we are very adept at having now. But at the same time, the headline for us is largely unchanged.

Adam H. Holt - Morgan Stanley, Research Division

Got it. Time for 1 or 2 from the audience.

Unknown Analyst

You've been getting rid of customers. Why did you get rid of these customers where they're not profitable?

Bryan J. Leblanc

We didn't get rid of them, but there was a subset of the customer base that was on old legacy product. There is an express product that we had brought out in 2009, which was kind of an evolutionary dead end relative to the main code base. And there were a couple other point tools that were older technologies. To the extent that those customers could migrate and be part of Jive, we're happy to do that, but given the dollar size that they represented, they just didn't -- I mean they weren't worth fighting after.

Unknown Analyst

[indiscernible]

Bryan J. Leblanc

Yes. And well -- and the fact that they in aggregate, they all didn't add up to very much from a dollar standpoint.

Unknown Analyst

Do you think there were customers that you've got that now use you product to measure top line growth.

Anthony Zingale

Sure. For sure, yes. PwC is a great example. So they have 180,000 people in the company. About 100,000 of them utilize the Jive platform to do internal collaboration. One of the lifebloods of PwC is generating proposals for their clients to such that they can do consulting services. The ability to generate those proposals usually spans across countries because they have large global strategic clients and cuts across lines of business within the company. They measured the time it took to generate one of those proposals and they were -- before Jive and then after Jive, and they cut the time in half because the ability to collaborate and communicate very effectively on the document that absolutely gets produced for the client was just that much more expeditious rather than email attachment revision, did you call the person I got and who has them. It's all right contained in the Jive system, and they were much more effective at being able to produce proposals faster. That's an example.

Adam H. Holt - Morgan Stanley, Research Division

Tony, earlier today, Microsoft was talking about their acquisition of Yammer. Oracle now has a social offering.

Anthony Zingale

They do?

Adam H. Holt - Morgan Stanley, Research Division

They do. Do you feel like these larger organizations are helping proselytize the message and effectively building a bigger market that you could benefit from? Or have you actually seen sort of a change in the competitive landscape?

Anthony Zingale

I think there's goodness if articulated correctly. I mean when Salesforce came out a couple of years ago and talked about the social enterprise, we happened to agree wholeheartedly with what Mark was describing that there's a new way to work, there's a better way to work that was leveraging the consumer model of an activity stream and collaboration and those types of things and mobility and iPads and what have you. But we're done with that phase of "Social's cool and you should try them." We're in the phase of "Show me what's the value." And that's the phase we've moved to through our experiences so there's some benefit from a market awareness point of view certainly. But also, during 2012 where some of the social properties took some shots. It was a little problematic, right, with respect to social for social's sake. And so you see us leading with business value and return on investment and use cases and whatever. And yes, we deliver those use cases through the use of a social business platform, but we don't lead with that. So while that's helpful and it shows the strategic nature of the need for something like this, it's got to be done correctly. And just saying, slapping the word "social" on your existing product doesn't necessarily do the market any justice when it comes to speaking to C-level executives about the value. Sometimes, it takes us a little while to get over some of the damage that's been done as it relates to the value that they're going to see.

Adam H. Holt - Morgan Stanley, Research Division

Got it. All right. With that, we're about out of time. Thanks, everyone.

Anthony Zingale

Thank you.

Adam H. Holt - Morgan Stanley, Research Division

Thank you, everybody.

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