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TIBCO Software (NASDAQ:TIBX)

Q1 2013 Earnings Call

March 21, 2013 4:30 pm ET

Executives

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

Murray D. Rode - Chief Operating Officer and Executive Vice President

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

Analysts

Karl Keirstead - BMO Capital Markets U.S.

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

Kash G. Rangan - BofA Merrill Lynch, Research Division

Nicole Hayashi - UBS Investment Bank, Research Division

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Raimo Lenschow - Barclays Capital, Research Division

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

Brad A. Zelnick - Macquarie Research

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

Mark R. Murphy - Piper Jaffray Companies, Research Division

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

Operator

Good afternoon, ladies and gentlemen. I'm Kateena. Welcome to TIBCO's First Quarter 2013 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. Passcode for both the call and the replay is 19449674.

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 revenue, 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 Forms 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. We believe that such information is useful for understanding our financial condition and result 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 this 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

Well, thanks, Kateena, and thank you, all, for joining us. I will begin with a few remarks on our Q1 performance. Murray and Sydney will then discuss operating details before turning it over for Q&A.

In summary, we met expectations on EPS this quarter, and demand for our professional services, maintenance and cloud offerings was strong. However, we fell short of our objectives on license revenue growth.

As reported, total revenue came in at $238 million. License revenue was $78 million. Non-GAAP operating margins were 19%, and our non-GAAP EPS was $0.18. We are not happy with this performance. While demand for our products and solutions remained strong, execution issues continued to hinder our results. While it is possible that macro pressures had an impact in select corners of our business, that does not explain this quarter's performance. Our issues are primarily execution-related, and there remains work in process on some of the positive changes we instituted beginning last quarter.

We still closed a number of large and strategic transactions this quarter. And as Murray will discuss, our midsize deal mix is performing well. Our cloud business is building at healthy rates. But for the exaggerated effect of a handful of deals, our performance this quarter would have looked markedly better. And I can truly say from my many conversations with customers and prospects, our value proposition and differentiation have never been greater. The market appetite is there and growing.

While our work is not complete, I am confident that we are doing the right things to steady our performance and deliver our next leg of growth. We are addressing targeted areas of development and need across our organization, and I look forward to keeping you appraised as to our progress in future quarters.

Since our earliest days, we have committed to being the best-of-breed platform for infrastructure software. I have also long maintained that the line between infrastructure and applications would increasingly blur over time. The conjunction of these 2 realities presents new challenges and opportunities for us.

Firstly, on the infrastructure front, the battle for best of breed, we have fought and we have won. Many smaller players and competitors of years past are no longer in business. SAP, IBM and Oracle all tried their hand. But let's not forget, we created this market and we have grown and thrived in this market. Still, the landscape evolves. Today, larger players such as IBM and Oracle have effectively given up competing for functional equivalence, and they now tout a notion of good-enough infrastructure software.

Let me make this clear, there is no such thing as good-enough infrastructure. Enterprises today require a platform that marries transactions with events, one that makes sense of both data addressed and data in motion, and a platform that sits at the intersection of cloud, mobile, social and big data forces. Oracle doesn't do this. IBM, SAP and Microsoft don't do this. So quite simply, good enough isn't.

We need to do a better job of making this notion clearer in the marketplace. Take a recent example from the travel and hospitality industry. In Q1, we were told that we had lost the deal to IBM that we cultivated for weeks, but that was not the end of the deal. Our team committed to the customer success and certain that our solution was the best and only solution that would meet their strict requirements. Fought back, escalated to the CIO, and a few weeks later, we signed a 7-figure deal. Our message to him was simple. First, our technology is simply better, but you already know that since we won every single evaluation. More to the point, the other technologies just will not work. Second, we're going to command fair value for our software. Let us clearly explain for you exactly what it's worth. We have the agility you need and the time frame that you needed it. And last and most importantly, we are offering you the right kind of relationship, one committed solely to your success, with both the people and products to back it up.

This is a good example of us selling extreme value, if belatedly. Every one in our organization needs to be able to sell this. Marketing needs to market it. We will line up our references, provide unmatched validation and dispel this mythical notion of good enough. If you want to survive today, there is no such thing.

I've also described the blurring line between infrastructure and applications, increasingly helping our customers build infrastructure applications using our platform. An infrastructure application is a 21st century application, and it has the following attributes: it's core like infrastructure; it involves exponential amounts of data, both data addressed and data in motion; it solves a business problem like an application; and it generally cuts across silos. It could be and increasingly is hosted in the cloud, but it needn't necessarily be so. It is less about Software-as-a-Service, but rather software as a sales service.

The range of these applications is broad, powerful and increasingly a must-have. They include offerings for big data analytics, master data management, enterprise social collaboration, fraud detection, real-time customer engagement, business process management, mobile payment processing and many more. We're seeing a strong demand and growing opportunity to work with our clients to support these types of applications.

In closing, I would say, we will continue to innovate with new offerings. We will continue to protect and evolve our core franchise. We will continue in new areas such as cloud, social and mobile. We will get back to growth and more consistent execution. And as always, we will continue to manage our business responsibly and create shareholder value.

I will now turn it over to Murray.

Murray D. Rode

Thanks, Vivek. I'll start by reviewing some key operating metrics. In Q1, we had 104 deals over $100,000 in license revenue, up slightly from 102 1 year ago. We had 12 deals over $1 million versus 20, 1 year ago. Average deal size for deals of $100,000 or greater was $652,000 versus $737,000 one year ago and $646,000 in Q4. Our top 10 customers comprised 21% of revenue compared to 22% last year. Looking at the geographic mix, total revenue was as follows: Americas at 54%; Europe, Middle East, Africa at 36%; and Asia Pacific and Japan at 10%. In terms of our sales capacity, we ended Q1 up about 12 reps at 304 quota-carrying heads.

Shifting to vertical markets. Financial services comprised 22% of total revenue; communications was 13%; life sciences was 9%; retail, 7%; manufacturing, 7%; energy, 6%; and government and transportation and logistics were each just over 5%. Among the verticals, some of the key year-over-year changes were as follows: finance was down 8% year-over-year; communications grew over 50%; life sciences grew 18%; and government was up about 8% over last year. Insurance, media, CPG and healthcare all showed strong growth, but none individually reached 5% of total revenue in the quarter. So we saw a broad diversification in our vertical performance.

The breakdown of license revenue among our major product families was as follows: SOA and core infrastructure, 45%; business optimization, 47%; and process automation and collaboration, 8%. Core infrastructure and process automation categories were both down year-over-year, while business optimization was up, continuing several quarters of strong growth. And about equal contribution to license as that of SOA and core infrastructure this quarter, the optimization category continues to show its importance to our event-driven platform story. The optimization category is also central to our big data value proposition, so its growth highlights our progress in that market opportunity.

So looking at our results, there are some key points that stand out. First, if one looks at our deal stats in more detail, there was a big increase in the revenue contribution from deals between $100,000 and $1 million in license revenue. And while deals over $1 million were down, we still had 2 deals over $5 million in the quarter, which is strong for Q1. The upshot is that midsize deal activity improved year-over-year and even showed improvement over Q4 in terms of percentage growth and percentage revenue contribution. Closure of only a couple more of the larger deals in our pipeline would have put us into our licensed guidance range.

Second, the Americas infrastructure business is clearly not back on track quite yet, but we have made and continue to make good progress against our plans.

Third, Europe, after many quarters of outperforming the larger markets, did not meet expectations in the quarter. And it's worth noting we have particular weakness in the U.K., and the overall performance of the division suffered as a result.

Fourth, our Asia Pacific region showed strong growth at 27% year-over-year. Performance there was up across all 3 of our product license categories, again, suggesting that execution was more the issue in other regions, not products. This -- despite the performance this quarter of SOA and core infrastructure, we continue to see a large and important market opportunity there and strong interest from our marketing efforts. It's also important to remember that it, along with process automation, correlate directly with infrastructure sales performance. So a return to strengthen the Americas should drive better SOA and core infrastructure sales.

Also, as we've said in the past, this category of products is very, very important to our broader platform capabilities.

Sixth, we also continue to see strong demand for our professional services, again, being another positive indicator of demand overall for our offerings.

And lastly, our pipeline continues to be strong. We did see a slightly lower-than-expected close rate in Q1. However, pipeline is there and it's large, so even a small improvement in the close rate materially impacts revenue performance.

In response to what we've seen this quarter, we will continue with our plans to repair the Americas infrastructure sales organization while continuing to fuel growth in key areas such as analytics and big data, event-driven systems, cloud offerings and growing regions and verticals. As we navigate these changes, we will also watch our investments and costs closely and not hesitate to eliminate costs or reduce investments where we are not getting the right return. We see a big opportunity, and we clearly understand the need to capitalize on that opportunity on a consistent basis. All our efforts as a management team are focused on returning to consistent performance.

I'll now turn it over to Sydney.

Sydney L. Carey

Thank you, Murray. I will begin by providing details on our financial performance in Q1, and then I will provide comments on our financial outlook for Q2. I'll 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.

Some key performance data on our first quarter results are as follows. Total revenue was $237.8 million. License revenue was $78.3 million. Services revenue was $159.5 million. Non-GAAP gross margin for Q1 was 71.4%. Non-GAAP operating income was $44 million. This resulted in an operating margin of 18.5%. Non-GAAP EPS was $0.18 versus $0.20 1 year ago. Q1 cash flow from operations totaled $63 million, up 54% from 1 year ago. Deferred revenue, including both long- and short-term components, totaled $276.8 million, up 13% from 1 year ago. On a sequential basis, total deferred decreased 4% due to a decrease in deferred license as it was recognized into revenue in Q1, partially offset by strong maintenance renewals in the quarter. DSOs for Q1 came in at 64 days versus 75 days 1 year ago. Also, during the quarter, we spent $22 million in share repurchases.

As we look forward to Q2, we see strength in our pipeline, with growth across all product groups. For Q2 guidance, I'm assuming similar close rates to what we experienced in Q1. I expect gross margins to be in line with the first quarter. Operating margins will continue to reflect our investments in sales capacity, as well as other new growth initiatives, all which represent yet to be realized capacity. And Q2 has 3 fewer days than Q1, and this is reflected in the total guidance.

For guidance, we expect total revenue to range from $242 million to $252 million. We expect license revenue to range from $78 million to $88 million. The non-GAAP operating margin is expected to be 18% to 20%. Non-GAAP EPS for the quarter should range between $0.17 and $0.19, with an assumed tax rate of 25%. GAAP EPS should range from $0.03 to $0.06, with an assumed tax rate of 17%. Our actual GAAP and non-GAAP tax rates can vary depending on the mix of foreign versus domestic process.

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

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Karl Keirstead with BMO Capital Markets.

Karl Keirstead - BMO Capital Markets U.S.

Address the issue of the demand backdrop. Obviously, with Oracle's miss yesterday, everyone's wondering about the demand environment, and they, too, talked about a sales execution issue. I just wanted to ask you how comfortable you are with the execution issues having contributed to the license performance versus maybe something in the demand backdrop on the U.S. infrastructure software side.

Vivek Y. Ranadivé

Yes. We -- the reason that we believe that the demand is strong and growing, the appetite is strong and growing, is because, well, firstly, there's pockets where there was great success, and then there's other pockets where there wasn't. And we went back and saw this bad leadership and bad execution in those areas. Secondly, we look at the pipeline, and the pipeline is as strong as ever. So we saw that. Number three, even other things like -- we just look at things like the -- we do a blog, and from last quarter we had, I think, like 1,000 people looking at it. Two months later or 3 months later, we have 20,000 people looking at it. And so we look at other measures of that kind. So -- and there's parts of our business, the business optimization or the big data part, that is actually up 37% year-over-year. So we believe that -- if it was a question of a dropoff in every geography and every area, then we would say, well, maybe it's an issue that's more demand-related. But we see that it's much more specific to geographies and areas.

Operator

Your next question comes from John DiFucci with JPMorgan.

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

Vivek and Murray, you said there were a handful of deals that slipped. And if you had hit those or signed those deals or if they came in this quarter, it would look a lot different. Can you -- was there any particular vertical or region where this happened? And can you note whether or not any of those deals have closed yet?

Vivek Y. Ranadivé

Yes. So the Central region was an example of an area where things got out of hand. And then, yes, there has been -- I know 1 or 2 deals that I'm personally aware of that had slipped and are now closed. But Murray, I'll let you talk more to that.

Murray D. Rode

Well, just that -- I think it was more of a phenomenon in the Americas and in Europe, obviously, less so in APJ, given their performance. And Vivek says there have been some of these that have closed after the fact.

Vivek Y. Ranadivé

Yes. And so the places where we have weak leadership, it's been -- there's been impact. So even within Europe, because Europe was generally good, except we have -- we don't have a good leadership in the U.K. right now, and that was the weak area, and Americas, same thing. Places where we were not executing well were the ones that saw negative results.

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

Okay. That's helpful. And if I might, a follow-up. And this is more of a general, sort of a higher-level broad question. I think -- can you give us any thoughts on sort of the potential for broader penetration of your product portfolio into your existing customers? Because when we talk to customers, and we talk to a lot of them, it seems like a really big opportunity here, given what is generally a very positive view of TIBCO technology, the quality of TIBCO. But less awareness, it's really the breadth and depth of what you have to offer. I mean, I think that's true in the investor base, but surprisingly, I think it's also true in the customer base. And I guess -- I know you've had some changes, and Matt's now the Chief Marketing Officer. Is there anything -- I don't know, have you guys -- is there anything you could do -- well, first of all, is my assessment, do you think it's accurate? And if so, is there anything you're doing now to try to, I guess, get better penetration and -- or broader penetration?

Vivek Y. Ranadivé

John, well, you're 100% right. And so when we get the story out to the customer, the customer ends up buying substantially the whole stack. And so we've started doing that in geographies and in vertical markets. But we're doing kind of an across-the-board attack on that issue, and so the example I gave where, literally, we've gone from 1,000 unique visitors on our blogs, which gets this message out to -- from a few months ago to 20,000 now. And so there's all kinds of metrics. The number of downloads of our products has gone up dramatically. So we're -- we have effort, and we need to do a lot better job of getting that message out. When we do get the message out, then we're very successful with it. So that's all the blocking and tackling that we need to be doing right now.

Murray D. Rode

Yes. And we started, too, John, with trying to address this problem in earnest last year. As Vivek says, with some of these -- some of them called the more digital channels like blogs and our website and the access to products, making that a lot easier, but we're also doing it with much more targeted events into the installed base and customer outreach to really get that story about the full platform out to the installed base.

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

So is it fair to say that this sort of -- there's an effort in process to try to, I guess, I don't know -- I guess it's marketing, right?

Murray D. Rode

Absolutely. Absolutely.

Vivek Y. Ranadivé

Yes, without a question. It's -- we're a bigger company. We have, as you say, lots of customers. And if we're -- we can get that message to even a fraction of them, then it becomes -- we can translate that very quickly into lots of license revenue. And the other thing, John, is that we just want to make it really easy to consume our intellectual property, whatever shape or form that takes. And so some of the new things we are doing -- and those are all additive, they're not in place of -- but our cloud offerings in tibbr is, I think, up to 2 million users now. Our other offerings are doing really well. So whatever it is, we just want to make it easy to get the message out and then easy to consume the whole stack.

Operator

Your next question comes from Kash Rangan with Merrill Lynch.

Kash G. Rangan - BofA Merrill Lynch, Research Division

It looks like SOA definitely had a stretch of really good quarters. I mean, fiscal '11, the business grew mid-teens. So obviously, you know how to execute an SOA. You've scored some really big deals against the competition. My question is, what has really changed about the sales execution? And also, Vivek and Murray, wondering if you can give us a quick update on how the new transition to North America's sales leadership is happening as we speak? And also related to this, there's a string of sub-questions but all really aimed at SOA. You can talk to the pipeline, the win rate, when you do go hand-to-hand combat against your larger competitors, what kind of win rate are you seeing? And at this point, are you still looking to add sales capacity or you're looking to get the best out of what you have before you add more?

Vivek Y. Ranadivé

So Kash -- and, again, you're absolutely right that we've had great success in SOA, and now we saw a 37% uptick in the big data business optimization sector. And so actually, we did get -- the competitors, they kind of shifted the game the last 3 to 6 months, and our salespeople have not made that shift. So it used to be that -- it used to be a flat-out technical battle. And we would win that battle hands down, and then we would win the deal. So what I saw increasingly happening is that they now concede that ground very quickly, and they basically have shifted the battle from the technology to basically saying, "Hey, we're good enough, but let's look at the business model and let's look at the relationship and with the incumbents." And so we actually lost -- but then I was supposed to be involved with and aware of. There were a couple of biggish deals that we lost because we won the evaluation unanimously, and then they shifted the battle to what is -- it's good enough. What we have is good enough. And so in one case, we just plain lost it, we didn't do anything about it. In the other case, we -- our sales guys went back in there and battled it and said, "Hey, look, good enough isn't. And you really need this because, otherwise, you won't be able to do these kinds of things. And sure, given enough time and money, you can strap the moon to the earth, but you don't have that kind of time and money." And so we were able to -- in the case of the hospitality leisure company, we were able to reverse that and go back and win the deal. And then after the quarter closed, we closed a 7-figure deal. So the competition has actually kind of changed the game on us. And there's parts of our sales organization that are good at dealing with this, and there's other parts that are less good. Now I feel very confident that with the new leadership under Raj Verma, that we're being systematic about how we approach this, and I fully expect that we will once again show that -- the differentiation with the whole SOA thing. And in terms of the sales capacity, we feel that we really need to train people and get them ready for this new type of battle with the capacity that we have right now. So Murray, I'll let you add if there's any parts of the question I missed.

Murray D. Rode

I think you covered most of it. Perhaps the only thing I'd add is, some of what -- when Vivek talks about the new leadership in the Americas, part of what that involves is focusing more on segments of the platform to see better attention to these -- the core area of the platform. And we see better results when we get the sales force focused on particular segments. I think the other thing is, if you look at the -- as you point out, the kind of past trends with SOA, it has grown well in the past. When we started having the issues really in the Americas is in retrospect, where we see some of the falloff and SOA start to happen. So again, as I said in my prepared remarks, as we start to see repair in the Americas infrastructure sales, we think that, that's going to correlate pretty strongly with SOA performance.

Kash G. Rangan - BofA Merrill Lynch, Research Division

And if I could slip 1 in. Have you been through a similar transition point in your history? And can you give us some feel for how you work through this from a competitive positioning standpoint that we can get more comfort that you can get through this?

Vivek Y. Ranadivé

Kash, that's a great question. And so we've actually been through several points like that in our history, and we kind of grow. And people then -- people said, "Is there a market for integration?" And we had to kind of go get the message out. And then, yes, there's a market for integration, so grow, grow, grow. "Then wait a minute, there's like 10 players, and it's hard to distinguish if you guys are going to win and the other guys are like giving it away. And you're charging for it. And so how do we know that you're going to win that battle?" So we were battling the little guys, and then we kind of battled that. And we dismissed all of them, and we won that battle and then grow, grow, grow again. And then we basically have with us and the big guys, and the big guys are like, "Hey, we're bigger, we're better. And can TIBCO do this?" And we proved that we could beat them, and we beat them and we beat them and then we grow, grow, grow. And then now what happened is that there's only like 3 of these guys, and they -- and particularly, 2 of them have basically given up competing on technology. So now they're saying, "Look, they'll just say okay, we're not -- it's good enough. So that's kind of -- so we've been through this several times, and we feel very, very confident that -- and we have evidence of beating them all the time. And so -- and we've had this battle to fight. And so there's any number of accounts where we can give examples of that. And in some instances, like in the case of a Canadian bank where they actually won based on the business model and the relationship, in that case, it was IBM, and then it didn't work and then they called us back in. So it's a battle we have to fight. We have to arm our people, give them the right training, the right materials and the right positioning. And we feel very good that we're going to do that, but it's not done until it's done. And, Murray, do you want to add anything?

Murray D. Rode

No, I think that point, it's not done until it's done.

Vivek Y. Ranadivé

Yes. But we're -- we have lots of evidence of success.

Murray D. Rode

Yes.

Vivek Y. Ranadivé

Yes.

Operator

Your next question comes from Brent Thill with UBS.

Nicole Hayashi - UBS Investment Bank, Research Division

Hayashi on behalf of Brent. Just wanted to get more color on which specific products saw strength versus products that were weaker within SOA and the BPM segments.

Murray D. Rode

So SOA as a category really was a bit soft across the board. The one -- a couple of better elements within SOA were the MDM segments, the B2B section, some of our -- again, some of our connectivity products for business-to-business integration. Those are probably the bright spots around SOA. BPM was a little off. We've seen a lot of strength with the ActiveMatrix BPM product in BPM through last year. And I think that left it with a little harder quarter in terms of a Q1. But, again, we continue to feel like the -- particularly, the ActiveMatrix BPM product has a lot of market opportunity. And then...

Vivek Y. Ranadivé

And also the analysts are all saying that, right? So basically, the analysts are saying that, arguably, one of the strongest areas of growth looking out over the next 2 or 3 years is, in fact, SOA/BPM integration.

Murray D. Rode

And then, of course, we -- on the business optimization category, we talked about it already, but that overall was -- really, everything within that category had a good quarter. So Spotfire, BusinessEvents, all the products in that category did well.

Operator

Your next question comes from Greg Dunham with Goldman Sachs.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

And I'm going to do one more on SOA and really just trying to get a better handle on what are the biggest kind of drivers to some of the weakness in that business. And I was under the impression that some legacy products sunsetting and declining was some of the issue when you look back to last year. But how do you rank the impact of older product falling off, what you're now talking about kind of more competitive price competition? It sounds like from some of your competitors and then maybe the attrition in the sales force, following the management changes last year in the Americas business. Which one of these factors is really driving the slowdown?

Vivek Y. Ranadivé

Yes, I think the 2 are related. It's a lack of quality execution, because as I said earlier to Kash's question, that it's -- we win hands down on the technical evaluation, but IBM and Oracle, the 2 biggest competitors, they say that, "Hey, look, what we have is good enough, and that's all you need." And so if we don't have a quality representation in the field, then they're not able to make the case for why the differentiation is essential. And that is the #1 reason for the lack of expected success in those areas. I think that -- I don't know, Murray, do you want to add to that? Or...

Murray D. Rode

I think that's the point, that it's not just 1 factor that we're talking about. This notion of lack of quality execution and that really showing up in the Americas in the second half of last year clearly had an impact on this category. For a lot of that sales organization, selling SOA is pretty core to what they sell. I think if you look at the products within, yes, there are -- that is getting to be a bigger category, and so it has more products in it. And some products are less of growth drivers. We talked in Q4 about the fact that within SOA, if you look within that category, the core leading components of it are ActiveMatrix platform. Those products really did quite well through Q4, had some weakness unfortunately in Q1, but I think the trend there through 2012 was still pretty good, despite those sales execution issues we talked about.

Operator

Your next question comes from Raimo Lenschow with Barclays.

Raimo Lenschow - Barclays Capital, Research Division

A quick one. Just briefly, if I -- I'm still trying to add this up. So if I look at the guidance for license revenue, it's at the midpoint, about minus 10%. But you still then talked about kind of deals that slipped and came in to the quarter. So can we talk a little bit about the close rate assumptions? Because minus 10% is worse than a minus 5% we just saw now. And then just maybe any update. Last quarter, you talked about expanding the sales force on tibbr. Just talk a little bit about the opportunity you see here and how excited you are about the expanded sales opportunity.

Vivek Y. Ranadivé

Yes. So we're very, very excited about the opportunity and the appetite, and they are, like I said, pockets of business, growth of 37% and so on. But we're also just being cautious. We know that we need to retrain our sales force. I think when you have the technology differentiation we had and it's an easy sell, and that masks a lot of evils, and then when the composition shifts based to something different, then you got to be agile and nimble and you got to be able to compete. And so we're just being conservative and saying, "Hey, we're rolling up our sleeves, and we're going to battle it out. And we're going to win all these deals." And we are coming, at the same time, changing players in the U.S. We're letting -- we let go of some people. We're bringing in new people. And so there's a transition that we are going through. And we feel -- and then we're also doing things -- new things, and some of those new things have great future potential. But there could be cloud- or time-based deals, and those things are things we need to keep investing in. So we look at all of that and we just want to be conservative. We don't want to come back, and we just want to start to get back on a winning streak again.

Sydney L. Carey

So just even more specific into the close rates, we are assuming similar close rates what we experienced in Q1, but those are fairly down from what we saw last year. So again, just even slight improvements in the close rates will have a material impact on the revenue. So again, we did see a little bit of a downtick from Q4 and Q1, and we're using that same assumption.

Murray D. Rode

Yes. And I think the only other thing to point out here is, from our perspective, it seems more rational, if you will, to look, in this case, at the sequential movement than to look back at last year. I think we know what we did in Q1. That's the most recent data point, and I think it's just rational and kind of conservative to use that as baseline going into Q2.

Operator

Your next question comes from Derrick Wood with Susquehanna Financial.

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

A couple of questions for Vivek. You mentioned that you don't have the right leadership in the U.K. right now. Is there a change going on there? And can you just update us with what the plan is there?

Vivek Y. Ranadivé

Yes. We are looking -- we actually don't have anyone there right now, and so we are looking at different possibilities. And Murray, do you have more of an update on that?

Murray D. Rode

At this stage, no. As Vivek says, we're looking for -- we're looking to fill that role. We do have some ideas already in mind. It is a priority for us to get someone into that position. It has been and we expect it to be going forward an important region for us.

Vivek Y. Ranadivé

Yes. And we have some interim plans while we find a long-term solution to that.

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

Would you put some of the weakness in the U.K. as a result of some of the management changes there?

Vivek Y. Ranadivé

Yes. We -- absolutely. Absolutely. And, again, Europe's been strong for us. The area that was weak was the U.K. area, and that was -- basically, they did not have leadership over there.

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

And then another question. I mean, Vivek, you mentioned that the infrastructure products are critical to the entire portfolio and to the strategic growth products. So we're clearly seeing a pretty big divergence in growth between the 2. So I'm curious what kind of gives you the evidence that there are synergies between both the integration and the optimization products.

Murray D. Rode

Well, I think -- I'll actually answer part of that first. The -- remember, for us, a core part of our value prop is that when we talk about analytics or we talk about complex event processing and how these products work, there is this platform -- this integration platform behind it that makes those products easier to use. So even though they may become the leading edge of a sale or even the predominant portion of a software that a customer buys, that vision of the platform is an important part of what makes buying from TIBCO valuable.

Vivek Y. Ranadivé

Yes. So basically, if you want the visualization, then you still have to bring the data from somewhere, and so if you have the platform that brings the data. And then you don't want to just look at stale data, you also want to look at live data. So then, again, TIBCO platform becomes applicable. So just integration real-time, moving things, transforming them, all the things that you think of as integration are very much key for the platform because the customer is going to have to do all those things in some shape or form, anyways.

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

Okay. Last question. On the Spotfire business, obviously, it looked like it did well. Are you and your guidance expecting that kind of 30%-ish growth to continue?

Murray D. Rode

We continue to think Spotfire is a growth product for us, yes, and, really, the whole business optimization category.

Operator

Your next question comes from Brad Zelnick with Macquarie Securities.

Brad A. Zelnick - Macquarie Research

Murray, I'm hoping to dive a little deeper into the sales execution issues as I'm trying to understand how you define good execution and how long do you think it takes to get there. I appreciate the confidence in Raj Verma and why it made sense to put a new leader in North America, but can you talk about what's happening from the perspectives of people, processes and technology, and what remains to be done?

Murray D. Rode

Sure. So as we talked about coming off Q4, part of the -- a critical part of this is getting the right leadership. I think there's 2 other pieces in broad terms. Second piece is the approach, the methodology, the process that you enforce in a disciplined fashion across the organization. Raj has started to update those processes, that methodology, to ensure that it's consistently applied. And then the third piece is really measuring performance as you go along and adjusting your strategy based on the feedback that you're getting. So I think we feel like we're well into the -- addressing the people issues and getting the right leaders, not just Raj but leaders beneath him, sorted and any changes that we need to make. And Raj is also well into implementing some of those changes in terms of process and behavior and discipline. So as we said coming out of Q2, we said changes like these are 1 to 2 quarter kind of thing usually. Clearly, we didn't complete all of that coming through Q1, but again, we feel like we're well into the process.

Brad A. Zelnick - Macquarie Research

So just a follow-up on that, Murray. I mean, we've been talking about this since last June when Robin departed. And can you just maybe help us understand against that 1 to 2 quarters how far are we into the 1 to 2 quarters? I mean, do you have confidence that you're there? Or is this still maybe another 1 to 2 quarters?

Murray D. Rode

Well, it's clearly 1 more quarter at least. And I think that our -- again, as we said, in response to something else, you're not -- you're really not done until you're done. And there is some latitude that we have to leave ourselves, that if we feel like we need to make more changes as we go along for the long term, we're going to do that. But we do feel like we're starting Q2 in a better position or a much better position really than we started Q1.

Brad A. Zelnick - Macquarie Research

That's helpful. And if I could sneak one -- last one in for Sydney. Sydney, can you just tell us all where the deferred license balance finished at the end of the quarter?

Sydney L. Carey

Well, we had -- we did see, as expected, some deferred rollout of license deferred and into revenue, but I really can't be more specific than that.

Operator

Your next question comes from Rick Sherlund with Nomura.

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

A follow-up on Brad's good question on this execution issue. I'm just curious, what's changed in the market? Why are we having such execution issues over the past year? Was there some change in the environment, the competition, the market that's kind of surfaced the issues of sales execution across the globe?

Vivek Y. Ranadivé

It's not really across the globe. So there were areas where we performed well, even against the backdrop of a difficult economic situation. So if you look across Asia and Europe and many parts of the Americas, we performed well. And even in the Americas, we performed well in parts of the business, like the big data, business optimization business, which is up substantially. So really, it's in our -- it's areas like the U.K., Northern Europe where we don't have leadership, it's the Americas where we made a change. And now we're having to go through and put new leadership and do the training. And so it's -- again, it's pockets where we were not executing well. So that's one element of it. And then the other element of it is what I've been saying all along, that the competition, which is mostly the big guys, IBM, Oracle, they've conceded that they don't have the technology as good as ours. And so they've shifted their message to saying what we have is good enough, and it's all about the business model and the relationship and the incumbency. And so we have people who are good at fighting that and proving that, that's not good enough. And then because we had such technical superiority and we were winning easily, I think a lot of the people just didn't -- they got lazy, basically, and didn't adjust Windows. Competitors shifted their message. So that's what you're seeing. It's a combination of certain territories not executing and then the competition indeed shifting the battleground.

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

And there's some issue of the government sequester, which kind of coincided with the end of the year quarter. It looked like government maybe did a little better this quarter. I'm not sure on the federal government. Any observations on that?

Vivek Y. Ranadivé

Yes. We -- again, I would hold our -- the only person I can blame is myself. We don't -- we just didn't have good execution in that sector. And so I can't really blame anything else other than my own execution. I mean, I can't tell you that because of sequestration these big deals got delayed, and we did everything right. That's not the case.

Operator

Next question comes from Mark Murphy with Piper Jaffray.

Mark R. Murphy - Piper Jaffray Companies, Research Division

I was wondering if you could update us on your sales hiring plans, your target for year-end, and maybe wondering if you have any inclination to tap the brakes a little, just given the variance in the close rates.

Sydney L. Carey

Yes, we ended the quarter at 304 quota-carrying heads, and we set a major target of about 310. We kind of like where we're at. We're okay if we see that increase or decrease some. We're going to continue to add in certain geos and product groups as we see the need to do that. But right now, we're really focused in on training and process and execution.

Vivek Y. Ranadivé

And also, one of the things...

Mark R. Murphy - Piper Jaffray Companies, Research Division

Any thoughts on where it could be by year-end?

Sydney L. Carey

Right now, we're only looking through mid-year at this point. So that's...

Vivek Y. Ranadivé

Yes. And the one thing I do want to add is -- and what's left unsaid is our cloud and tibbr and hosted businesses are growing very rapidly. And so we are actually -- we have added quite a few salespeople in those areas, and that's delivering a great result. But, again, it's -- those things are time-based revenues, and so it doesn't have the immediate impact that the onetime license sales have.

Sydney L. Carey

And in addition to that, we look at those resources in our quota-carrying heads, but any -- the revenue that they generate that's hosted will actually show up in our services line. So just as a footnote there.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Okay. And then, Vivek, in addition, just observing in recent months, it's pretty difficult to identify any on-premise software companies that are reporting stronger results. And, really, the vast majority have been disappointing, and it includes organizations like VMware and Oracle and TIBCO and really many, many others. And it's a little perplexing to see multiple companies simultaneously pointing the finger at their own sales execution. So I'm just wondering, what is it that gives you the confidence that we're not seeing something else in terms of just a shift in buying preference to public cloud architectures for various applications and also for the infrastructure that runs underneath them?

Vivek Y. Ranadivé

Yes. I think -- you got to remember that some of those companies, the cloud ones, they have -- their revenues are smaller, so it's easier to grow off smaller revenues. But without question, the world is shifting into the cloud. And -- but the biggest beneficiary of that is us, because when you introduce yet another variable into the equation, then that means more integration. That's why there's -- the analysts are all saying that integration is one of the strongest categories of enterprise spending. So we're actually beneficiaries of that, and we have a lot of cloud offerings. And we have a lot of ways that we help you get into the cloud. And we also allow you to integrate between the cloud and cloud and premise and everything else. So entropy is our friend, so you introduce something new and if you have something else to integrate with. So our -- there is also the direct evidence, which is the pipeline is very big and very good and as good as we've seen. We have -- as we said, when we put out our blog, we've gone from like 1,000 people looking at it in 1 week or something to over 20,000, and that was just from a couple of months ago. And then we look at the downloads we're getting. And so we're seeing all kinds of evidence. We're seeing that in the pipeline. We're seeing that in our services business. We're seeing that in certain geographies. So I think there is a shift away from the old database architectures, and I've been talking about that for some time. And there's a move to kind of in-memory. There's a move to real-time. There's a move to cloud. So we think we're right in the middle of all of that.

Mark R. Murphy - Piper Jaffray Companies, Research Division

One last one, Vivek. I think you had also commented that you said we went back and saw bad leadership and bad execution in certain areas. I guess I'm just wondering, can you provide an example of how do you identify and maybe isolate what the bad behavior is? Is it slowness responding to RFPs? Is it something else that you identified?

Vivek Y. Ranadivé

Well, it's at all levels. So it's being -- talking to a customer who was very happy and then going in and finding out that the customer doesn't have a clue that we do these 4 other things. And so that's that or not having the requisite expertise in a certain office in certain product categories or not doing -- or not getting -- in some cases, I mean, I'm embarrassed to say people not even being in the office. And so there's all kinds of things that I can point to where, literally, there's -- we had such a void in leadership that there was -- Murray, you wanted to add to that?

Murray D. Rode

Well, it's not staying in touch with the customer continuously over time. A lot of our business comes from repeat purchases from customers, so you need to keep up that relationship. It's giving up too quickly on a deal in a competitive situation, and it's simple things like not listening to what the customers telling us as a deal cycle progresses. So you start to misjudge where you really stand and where you're hitting and missing in terms of meeting expectations with the customer.

Vivek Y. Ranadivé

Yes. And also just -- it's been too easy to just win technically. And then the salespeople get lazy because they get technical superiority, and we win that 10 out of 10x and unanimously. And then you just assume that you're going to get the deal. And so you don't really do the hard work that you have to do because the competition is not just sitting there. They know they've lost technically, so they're trying to compete on other ways. So it's all of those things, not having precision in terms of what's going on where, who's doing what, who's -- where it is in the cycle, what we need to do. It's -- I mean, I can go on and on and on all day, but it's just basic blocking and tackling.

Operator

Your next question comes from Matt Hedberg with RBC Capital Markets.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

I'm wondering on the linearity in the quarter, 64 days. Did trends decelerate or -- kind of walk us through the linearity in the quarter.

Sydney L. Carey

Well, we did have some deals that we talked about slipping from Q4 into Q1, and we saw some of those close. But other -- we have that every quarter. So I would say that we saw a pretty normal linearity in Q1 for us. And like any enterprise software company, we do end up closing quite a bit in the last month and last few weeks.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

And then, Sydney, maybe as a follow-up to your license guidance, how dependent is the low end of the range on outsized deals?

Sydney L. Carey

Well, again, we look at the pipelines. We look -- we do an inspection as to what's in the pipelines and the risk around that and coverage. And we look at the larger deals, and we put a bigger spotlight on those. So we look at that at the lower end of the range.

Operator

We have now reached the end of the allotted time for questions. Mr. Ranadivé, do you have any closing remarks?

Vivek Y. Ranadivé

Yes. We will now conclude this call. And thank you, all, for joining us, and have a good day.

Operator

Thank you for joining us. We will now conclude TIBCO's Q1 2013 Earnings Call.

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