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TIBCO Software, Inc. (NASDAQ:TIBX)

Q2 2009 Earnings Call

June 25, 2009 4:30 pm ET

Executives

Vivek Ranadive – CEO

Sydney Carey – EVP & CFO

Murray Rode - COO

Analysts

John DiFucci - JPMorgan

Derek Bingham - Goldman Sachs

Katherine Egbert - Jefferies & Co.

Yun Kim - Broadpoint Amtech

Tim Klasell - Thomas Weisel Partners

Mark Murphy – Piper Jaffray

Nabil Elsheshai - Pacific Crest Securities

Brent Williams - The Benchmark Company

Kash Rangan – Banc of America

Operator

Good afternoon ladies and gentlemen. Welcome to TIBCO’s second quarter 2009 conference call. (Operator Instructions) Today’s call is being recorded and will be available for playback from TIBCO Software’s website at www.tibco.com.

In addition, a replay will be available through Premier Global Services for one month following today’s call by dialing 888-203-1112 from the US or 719-457-0820 internationally. The confirmation code is 2404640.

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, forecasts of revenues, operating margins, operating expenses, outstanding shares, and earnings per share for future periods.

Our actual results could differ materially from those projected in such forward-looking statements. Additional information regarding the factors that could cause actual results to differ materially are discussed in the Risk Factors section of TIBCO’s most recent reports on 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 development or otherwise.

This conference call also includes certain financial information that has not been prepared in accordance with generally accepted accounting principles, as we believe that such information is useful for understanding our financial condition and results of operations.

For a presentation of the most directly comparable financial measures calculated in accordance with GAAP and a reconciliation of the differences between non-GAAP and GAAP financial information, please see our website at www.tibco.com.

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

Vivek Ranadive

Thank you all for joining us today. I will open with a few summary remarks on our performance and position in the market and then I will turn it over to Murray and Sydney to discuss further details.

We produced solid earnings this quarter, well above expectations in what continued to be challenging times. Some highlights include total revenue for Q2 was $142.7 million, license revenue was $50.5 million, non-GAAP operating margin was 19% versus 12% a year ago, and fully taxed non-GAAP earnings per share for the quarter were $0.11 versus $0.07 a year ago.

Year to date non-GAAP earnings per share were $0.20. This reflects growth in EPS of more than 40% from the same period last year. As we said we would, we are managing carefully through the storm and working to expand the leverage in our model.

At the same time we continue to invest in the business and we remain the innovation leader in this market. TIBCO spends over $100 million a year on focused R&D and our commitment to innovation today is stronger than ever.

The result of these investments is a set of catalysts for growth and market differentiation. In the near-term catalysts include TIBCO Business Events, the market share leader in complex event processing that has powerful real world applications and is increasingly being considered the application server for events.

TIBCO Collaborative Information Manager, which takes a unique and holistic approach to the complexity and size of the 21st century master data management challenge and TIBCO iProcess, our leading VPM suite, which helps customers manage and optimize across functional [silos], get more value from their ERP implementation, and squeeze hard dollars in the form of inefficiencies out of their business.

Long-term catalysts for growth include offerings such as TIBCO Silver, our brand new platform for application delivery on the cloud and TIBCO Active Spaces, our in-memory distributed cache.

These new offerings will give our customers real vale from the cloud and expand the reach of our middleware platform as customers increasingly move from database driven architectures to event-driven in-memory architectures that leverage the cloud.

Our focus right now is on execution. We’re using this current environment to increase our overall productivity and constantly looking for ways to improve. The key to our success today and always is working closely together with our customers to make sure that they are a success.

With that I’ll turn it over to Murray.

Murray Rode

Thanks Vivek, I’ll go over some of our key operating metrics for the quarter and our operating focus for the remainder of the year. On a year over year basis, revenue for Q2 declined by 5% but actually rose by about 1% on a constant currency basis versus the same period last year.

Non-GAAP operating income increased by 56% versus last year or about the same on a constant currency basis. Remember also that this is not a Q4 for us and given the environment our constant currency revenue performance is significant and we continue to show increased leverage in our model.

In terms of deal activity, we had 11 deals over $1 million in license, versus seven a year ago and 88 deals over $100,000 in license versus 91 a year ago. New license customers numbered 50 in the quarter, generally consistent with both last quarter and Q2 of last year.

The average deal size per transactions over $100,000 in license was $504,000. While deal size has dropped some from last year, it is still within our historical range of $500,000 to $800,000 and our transaction numbers and new customer acquisition remains strong.

In terms of geographic mix, total revenue broke down exactly as it did in Q1 and as follows: Americas 53%; Europe, Middle East, Africa 39%; and Asia Pacific 8%. From a vertical market perspective, total revenue was as follows: financial services 20%; telecommunications 13%; government 13%; energy 11%; life sciences 6%.

No other vertical was 5% or greater although transportation and logistics, manufacturing, and retail were each close to 5%, so overall we had a diverse mix of business across verticals.

From a product perspective, the breakdown of license revenue among our major product families was generally consistent with past quarters at SOA 58%, business optimization 30%, and BPM 12%.

At the half year point we look back and we see we made a variety of important and sometimes hard choices to ensure we’re focused and running efficiently. But we’ve done this while protecting our execution capacity in both sales and R&D. We believe this capacity will serve us well now and will help drive growth as the broader economic environment improves.

That said we’re not simply waiting for the economy to get better. We have new product initiatives like Silver that Vivek mentioned, and we have ongoing investments in all three of our major product families. And we’re constantly assessing how best to target our sales and marketing resources for maximum return now and over the long run.

With that I’ll turn it over to Sydney for the full Q2 details.

Sydney Carey

Thank you Murray, first I will provide additional details on our financial performance in Q2 and then I will provide comments on our financial outlook for Q3. I’ll review our financials on both a GAAP and a 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 second quarter results are as follows: total revenue was $142.7 million, down 5% year over year but slightly up about 1% on a constant currency basis. License revenue was $50.5 million, down 13% year over year or 5% on a constant currency basis.

Services revenue was $92 million essentially flat with last year, or up 5% on a constant currency basis. We saw a sequential increase from Q1 in our professional services revenue as we saw budgets stabilize and projects get funded.

Maintenance revenue remained strong in the period and we continue to see renewal rates in the range of 90% to 95%. Non-GAAP gross margin for Q2 was 75%, up from 73% last year. Non-GAAP operating income was $27.1 million, up $9.7 million or 56% from the same period a year ago.

This resulted in an operating margin of 19% versus 12%. Q2 cash flow from operations totaled $42 million. Non-GAAP EPS was $0.11 versus $0.07 a year ago. On a constant currency basis earnings for Q2 were impacted by less than 1% as compared to the prior year period.

As these results show we continue to carefully manage our expenses and profitability again delivering earnings ahead of our guidance. EPS growth is a clear focus of mine and there are basically four levers at our disposal to deliver it; internal revenue growth, expense controls, acquisitions, and share repurchases.

Over time we expect to use all of these levers to varying degrees depending on the specific opportunities and market dynamics.

Now turning to our balance sheet, we ended the quarter with approximately $330 million in cash and short-term investments. Deferred revenue including both long and short-term components totaled $155 million. This is slightly up from Q2 of last year. Cash collections for the quarter were strong, the DSOs at 62 days compared to 68 days in Q2 of last year.

Also during the quarter we repurchased approximately 2.3 million shares at an average price of $6.41. Now turning to our outlook for the business, visibility continued to remain limited and as a result we are only going to provide guidance for Q3.

While customer budgets have stabilized since beginning of the year, we are providing a broader range for guidance this quarter largely to accommodate the variability of timing as to when deals get approved and closed.

For Q3 2009 our outlook is as follows. We expect total revenue to be in the range of $140 to $147 million. This suggests a currency headwind of approximately 5% to 7%. We expect license revenue to range between $50 and $57 million. The non-GAAP operating margin is expected to be between 17% and 19%. Non-GAAP EPS for the quarter should range between $0.09 and $0.11 with an assumed tax rate of 32%.

GAAP EPS should range from $0.04 to $0.06 with an assumed tax rate of 31% to 33%. We expect cash flow from operations to range from $10 to $20 million. And with that we’ll be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of John DiFucci - JPMorgan

John DiFucci - JPMorgan

Nice job here, cash flow was really strong again this quarter, but deferred revenue was down a little bit sequentially; just wonder if you can comment on it. I think your guidance was something like $17 to $20 million and as you just said, like $42 and I know part of that is coming in from the net income which is a nice way to see it come in there, and it’s a little surprising to see the negative contribution there from deferred revenue, so if you can comment on that a little bit.

Sydney Carey

Our cash flow was stronger than we had originally provided guidance on. We found that our DSO for the period was better than anticipated at 62 days. That coupled with the additional profit caused our cash flow to be $42 million. In regards to our deferred, what we see is our deferred revenue, our pattern of deferred is that in our Q2 and Q3 we see deferred decline and then it typically builds back in the Q4 timeframe.

We expect to see a similar pattern. This quarter we had the timing of June 1st being in Q3 and that impacted some of the timing of the deferred revenue.

John DiFucci - JPMorgan

We’re seeing companies out there like Oracle continue to execute on its platform expansion strategy both on the application side and on the middleware side, so for a company like Oracle integration becomes more important to it and then with Sun I think if that we to close, they get [inaudible] there too. I’m just curious how do you think that affects TIBCO. Does that make TIBCO more important to the other application vendors out there especially the other leading vendor SAP, who seems to have had some issues with its own middleware strategy?

Vivek Ranadive

Well it does may TIBCO more important and there’s a couple of things going on. The first thing is there is a backlash we’re starting to see from customers who don’t want to keep putting more and more eggs in the Oracle basket so that’s one factor. The second factor is that Oracle has multiple offerings, some of their own [Ciebion] and so there’s uncertainty as to which horse they’re going to back even within their own company and so people start gravitating toward the neutral third party which is us.

And as you mentioned others like SAP also see us as a bridge between these different worlds. So the general perception that we’re seeing with customers is that this is helping us in our positioning in the market.

John DiFucci - JPMorgan

Could we see any closer relationships with TIBCO and the likes of SAP going forward?

Vivek Ranadive

Well obviously we can’t comment on things that might happen in the future but we are constantly working on closer relationships.

Operator

Your next question comes from the line of Derek Bingham - Goldman Sachs

Derek Bingham - Goldman Sachs

Let me add my compliments on a nice job, I wanted to ask last quarter you talked about seeing some real improvement in March kind of versus, in terms of customer intent and customer activity versus what the case was in January and February, and I was just curious to get a little more granularity on this recent quarter. If things felt better in March how different does May feel from the month of March. Have things continued to improve or have things kind of plateaued a little bit in terms of the feedback you’re getting from customers and their activity.

Vivek Ranadive

What we’re seeing is that the nature of the conversations is changing and so the early part of the year the focus was on cost cutting and now we’re starting to have conversations about how do you start growing revenue again. So we’re seeing a shift. People have cut all the costs and now they’re looking to start making investments and growing their revenue and how do we serve our customers better.

We’re also seeing certain areas, even areas like financial services, maintenance continues to be strong, but internationally we’re actually starting to have conversations again about how they can start investing and growing revenue.

So the window, we can see the light at the end of the tunnel, the nature of the conversations is more positive than it was a few months ago.

Derek Bingham - Goldman Sachs

I think the [conventional] has always been that Europe is kind of lagging the recovery by six months or so in terms of what’s happening in the US, do you agree with that assessment from what you’re seeing.

Vivek Ranadive

We wouldn’t agree with that assessment. We’re actually, it depends on the sector. Some sectors like financial services we’re actually seeing more strength in Europe or internationally then we’re seeing within the United States. We’re obviously seeing strength in government in the United States so it really depends on the sector.

Murray Rode

I think that is the important point, it does vary by sector. Europe still seems to be pretty strong for us so I’m not sure at least at this point that we’re seeing what you referenced.

Operator

Your next question comes from the line of Katherine Egbert - Jefferies & Co.

Katherine Egbert - Jefferies & Co.

I just want to add my congratulations as well, good job. I had a question about the guidance, you’re guiding for flat licenses at the low end of the range. Can you handicap that range for us, why would you guide for flat as sort of things improve or are you just being conservative and what are you assuming as you offer that guidance.

Sydney Carey

We’re still taking a conservative view on our close rates and assuming lower than normal close rates as compared to last year. At the lower end of our guidance we’re assuming close rates similar to Q2. So again we’re seeing some of the timing of deals creating an element of uncertainty so feel at this point the broader range is appropriate.

Katherine Egbert - Jefferies & Co.

Your margins have been ramping quite substantially over the last couple of years, where do you think they go longer-term, can you lay out sort of a range for us.

Sydney Carey

At this point in time we’re focused on Q3 guidance and we are seeing even some expansion at the high end of our range there over Q3 of last year and we’ve had good margins so far year to date so I think that is implying that we’re expanding our margins.

Vivek Ranadive

But I think it would be fair to say that as we approach the billion dollar mark that we’ve historically spoken about a 25% to 30% range being achievable so I don’t know if you want to comment on that as we’ve said in referencing our past comments.

Murray Rode

I think maybe that is a good way to put this in context is we’ve said for a long time we believe as we, as Vivek said, as we get closer to a billion in revenue we should be driving margins above 25% so I think some ways you can look at the margin expansion we’ve been experiencing as just sticking with that longer-term goal.

Operator

Your next question comes from the line of Yun Kim - Broadpoint Amtech

Yun Kim - Broadpoint Amtech

Again congratulations on a good execution, what was the final sales headcount at the end of the quarter and what is your plan regarding your sales force size for the rest of the year.

Sydney Carey

We ended the quarter at 169 [quota] carrying heads which was slightly down from last quarter. We are still making targeted investment in the sales force and hiring back in positions. We still would like to see ending the year somewhere between the high 170’s, 180 headcount.

Yun Kim - Broadpoint Amtech

And were there any $5 million plus deals in the quarter and what was the revenue contribution from the top 10 deals.

Sydney Carey

There were not any deals above $5 million in the period and the revenue contribution from the top 10 was right about 20%.

Yun Kim - Broadpoint Amtech

And do you see, so that 20% seems to be quite low versus the historical averages, is that something that you are expecting going forward, go forward with that number of large deals kind of contributing less of the overall revenue or do you expect that to spike back up to more like high 20’s, low 30% range.

Murray Rode

Normally we run kind of a little bit over 20, it’s kind of 22%, 23% has been the trend for the last few quarters so I don’t think we saw that as being too far off the past performance and I think we’ve been pretty consistent in that range so I’m not sure we’re expecting it to change dramatically.

Vivek Ranadive

Just a couple of comments, we have been striving to expand the capacity of what we call our machine and historically if you look at our numbers, we’ve always been at the high end of productivity when you look at the average, what the average sales guy does. And I think most people will acknowledge that we’ve been good at doing that and what our goal has been is to expand that machine and I do want to say that we’ve actually, we’re pleased with what we are seeing on that front.

So the new people that we’ve hired are productive sooner than we expected even in this challenging environment and we’re pleased that we’re actually driving deals at the lower end as well.

Yun Kim - Broadpoint Amtech

If you can just talk about how much of the large system integrators are playing a role in your business especially as you roll out some of the new initiatives such as cloud computing, obviously the appliance [quarterback], if you can just comment on some of the partnership ecosystem around some of the new initiatives that you have.

Murray Rode

We continue to see the major systems integrators as important partners for us and they’ve continued to become I think a stronger and stronger ecosystem. With some of these new initiatives we just think there’s new opportunities to broaden the relationships with those partners because I think they’re interested in pursuing these same kinds of things.

Particularly things like cloud computing is a whole new market for the products and a whole new opportunity for a lot of these partnerships.

Operator

Your next question comes from the line of Tim Klasell - Thomas Weisel Partners

Tim Klasell - Thomas Weisel Partners

Just a quick question on the sales and marketing line, the headcount has been, it’s down a little bit but your savings there on that line have been pretty substantial, what are you cutting out, is it the marketing spend or where are you finding the efficiencies on the sales and marketing line.

Sydney Carey

I think similar to Q1, we’ve had less variable costs kind of related to the general business and we’ve seen travel, marketing programs, events spending all be lower than last year.

Tim Klasell - Thomas Weisel Partners

And then sort of getting back to some of the veiled questions around SAP, it’s been a while since Net Weaver was sort of declared let’s say not a good product or failure if you will, and how has your relationship with SAP evolved since that time. Have they come back to the fold and partner in closely with you like they used to or have they stayed fairly distant.

Vivek Ranadive

At this point all we can say is that they are a good partner and we can’t comment on it any more than that.

Tim Klasell - Thomas Weisel Partners

I missed, what was the FX impact that you implied in guidance.

Sydney Carey

Our guidance is a revenue headwind of 5% to 7%.

Operator

Your next question comes from the line of Mark Murphy – Piper Jaffray

Mark Murphy – Piper Jaffray

I was wondering if you can just talk about what’s going on on the government side of your business, it looks like a record contribution that vertical, is the stimulus bill starting to increase demand in that sector or are you adding sales reps in that vertical and do you see that vertical continuing to perform well for the rest of the year here.

Vivek Ranadive

We were slow in getting traction in the government sector. We were slow to arrive there but we kept at it and its starting to finally pay off. Initially we are seeing success at the federal level in defense and intelligence where messaging and so on is becoming somewhat of a standard, but we’re also starting to see success at the state level now.

We aren’t seeing, I can’t point to something specific that says we are getting benefit from the relief effort, but we are well positioned. We’re excited about the opportunities we have in this market and so it’s just that we’ve been at it for a while and its finally starting to pay off. Murray do you want to add anything to that?

Murray Rode

No, only just to reinforce the, if you think about the kinds of things that core to the value that we add to the customers, integrating a whole variety of systems, moving information around in real time, improving efficiency of processes, those are all things that are major areas of focus for the government now in a way that I don’t think has been there for a long time so, that is to us a really good opportunity.

Vivek Ranadive

Yes, and in addition to the areas I mentioned like defense and intelligence, there’s lots of opportunity at the state level just tying silos of information together and also as we get into healthcare and tying that together and into the energy grid and tying that together. We see lots of opportunities for the company.

Mark Murphy – Piper Jaffray

And you mentioned in your commentary that the maintenance was strong and your renewals were steady, is it possible to comment on what you saw in regards to your pricing on maintenance and if that revenue did grow either year or very or sequentially.

Sydney Carey

We have continued to have strong maintenance renewal rates in the 90% to 95%, both on a year over year and sequentially, maintenance revenue did grow. We are seeing that our maintenance rates for new license maintenance are staying strong and relatively unchanged from last year.

And our renewal rates also are very strong.

Vivek Ranadive

In fact I just want to comment on pricing power in general, even in this environment we have maintained very, very strong pricing power and so the revenues we’ve achieved have been, we haven’t done the, you know give everything away for a million dollar deal. Its been very, very strong pricing power. I would even say it’s been the strongest and we’ve been towards achieving this and we’re seeing that.

Operator

Your next question comes from the line of Nabil Elsheshai - Pacific Crest Securities

Nabil Elsheshai - Pacific Crest Securities

Real quick, I was wondering if you could provide the revenue from the installed base versus new customers.

Murray Rode

We didn’t but it was very typical to past quarters, it’s over two thirds of the revenue is from existing customers.

Nabil Elsheshai - Pacific Crest Securities

And then stepping back looking at spot fire in particular and cross sell, can you comment on success you’ve had and taking into your installed base and then maybe with some of the efforts to create more synergistic products where you can do joint sales or cross sales.

Murray Rode

We have made some progress there. We still think there’s a lot of opportunity in terms of the cross sell. We saw some good transactions during the quarter and we were pleased with that but generally cross selling is still a big opportunity in our view and I think as far as joint products go, that continues to be a focus as we go forward.

As you know we created the operational analytics offering a little while ago, we’re starting now to integrate spot fire more with BPM and I think over time you’ll continue to see us leveraging spot fire with other elements of the platform.

Vivek Ranadive

But I would say, it would be fair to say that even this last quarter we saw a significant jump from a year ago in terms of what we’re seeing with cross selling but there’s a lot more we can do.

Operator

Your next question comes from the line of Brent Williams - The Benchmark Company

Brent Williams - The Benchmark Company

I wanted to go to one of my sort of favorite geeky technology areas, that is Business Events and the whole of complex event processing, can you give any quantitative or qualitative look on how that business did on the quarter perhaps including things like the verticals, new customers that are coming into the fold, and using that as an entry point to the whole TIBCO offering, any effects on deal size, what are people doing out there.

Vivek Ranadive

I’ll give a qualitative assessment and Murray you can take it from there, but this is one of the hottest areas bar none. As we move from the database disk drive, ask a question get an answer world, to the event driven world, business events is kind of the killer app for that in memory event driven world.

And we’re seeing it not only a great differentiator but a tremendous value app. Citibank in Asia wrote a paper on how their revenues in the areas where they implemented were up 20% using this technology. So this is a significant door opener for us. It’s a significant differentiator for us. It’s something that nobody else simply can even talk about and there’s applications in all kinds of areas from customer loyalty to fraud detection to service provisioning.

But increasingly we’re starting to see that people are looking at is as the apps server of the cloud in memory era so if you want to build the old what I call enterprise 2.0 database app, you used an app server. Now as you move through the in memory event service bus era, people are looking at complex event processing and Business Events as a programming tool with which to build very quickly leverage events and build this new breed of real time applications.

Murray Rode

We don’t break out the products at that level of granularity but remember Business Events is a big part of the business optimization category we do talk about and that category did well again in Q2. It continues to be as Vivek said, generally is a product space for us are, the fastest growing part of the business.

I think from a vertical perspective its really starting to broaden out. It started in mostly in financial services and Telco, but now we’re really starting to see traction in many of the other verticals as well including government and logistics and transportation. And even the retail and manufacturing spaces.

Brent Williams - The Benchmark Company

And then who do you see out there because you talk about fraud detection prevention, there’s the old HNCP [inaudible], there’s SPSS is talking about that, more than app level, they’re not jumping up and down and saying it’s all about CEP tools, and you’ve got a bunch of private little start-ups out there. So who are you seeing, are people still really even trying to roll their own here.

Vivek Ranadive

What people need is they need the whole stack. So any of these things by themselves are hard to do so they need the bus to gather events, then they need the real time rules engine that can perform at very high speeds in real time which nobody else can do. And then it’s nice to have a VPM engine to actually take actions once you’ve decided what’s happening and what you need to do.

So we’re in somewhat of a unique position on this. Certainly there’s niche players that solve a point problem but customers are increasingly looking to solve that class of problem and we really are unique in being able to do that.

Brent Williams - The Benchmark Company

Is there any change in the set that, of tools customers are looking at more or less in the last six months?

Vivek Ranadive

Well as I said the change that we see is customers are increasingly looking at Business Events as a development, a general purpose development tool. Much as they looked at an app server as that and when building database applications, they’re looking at this and building cloud or service oriented or real time event messaging oriented applications.

Brent Williams - The Benchmark Company

That’s really an important sort of qualitative distinction then when they start to look at it as the hammer and they start to look for nail looking things to pound in with it instead of thinking of it as a one narrowly focused tools. That’s pretty cool.

Vivek Ranadive

Exactly.

Operator

Your next question comes from the line of Kash Rangan – Banc of America

Kash Rangan – Banc of America

Two questions, one is we’ve not really asked about IBM and software [AG] for a couple of quarters, I was wondering if you could give us an update how the competition besides Oracle looks on that front and secondly as you look back over the last few years I think we’ve really tried to use the messaging backbone, the strength of the company, we’ve always viewed it as the portion of the integration business and we’ll try to position a team around it. I think we tried SOA a couple of years back and I think this time around we’re talking about the complex event processing as a team and I completely get it as to why we could be doing more messaging center applications but how real could this be compared to SOA which was all well intended by the industry but didn’t quite take off, it didn’t gather quite the momentum. So as you look at complex event processing positioning around the core messaging business, how real could this be, what could be different about CEP relative to SOA?

Vivek Ranadive

I would categorically agree with just about everything you said. I believe that if you look at, it’s not a debate anymore. Every single corporation that we work with is moving to an in-memory service bus architecture and so it’s not something that hasn’t happened, it has happened. Every company is moving in that direction.

The scope and velocity of life in business is such that there’s simply no other way, you can’t keep going back to the database. The law of physics doesn’t allow you to make that round trip when that scope and velocity is increasing in that fashion.

So what we’re seeing is every single company is moving to a service bus in memory architecture with BPM as a way to do end to end business processes and Business Events as kind of the killer app for building new classes of applications that they simply couldn’t do before. But I would say that this is not a nice to have, it’s become a survival thing for these companies.

Murray Rode

I think that was a pretty complete perspective. I think we generally, we think that the interesting thing too about the CEP space and the opportunity there is that maybe a bit unlike SOA, CEP is a much more solution oriented kind of market and so I think customers see ways to deploy it and see the value of the solutions that use CEP much faster maybe then kind of pure SOA oriented deals or opportunities.

Kash Rangan – Banc of America

If that’s the case I can certainly see some layers of technology that you probably need to build underneath this architecture. I mean I can think of high volume data processing engine that can do the complicated analysis almost like [Hardoo] implementation but not on a [inaudible] level but in a different flat file oriented database. Are you giving thought in that direction because if this thing were to take off, then you have to build other layers or acquire competencies to build out the entire stack for the, for how you define the world going forward.

Murray Rode

I think a lot of that is already there with the Business Events product and its ability to handle large volumes of events or large volumes of data and perform the correlations and the rules on those data streams. In terms of the underlying data structure, we’ve already announced our intention to release a product called active spaces which will be a high speed cache effectively that underlies the architecture so that is one of the steps forwards with the overall solution.

Kash Rangan – Banc of America

It’s all very interesting. It looks like you might have to get a new practice going on with the [inaudible] to brand around this area. It looks like it’s certainly gearing up to be an [inaudible] of the cloud. The [SI] community has not quite kept pace with what’s going on there.

Vivek Ranadive

The new cloud will be an in memory cloud and as it starts emerging we are positioning ourselves as the enterprise cloud because the more things that happen the more [inaudible] the more need there is to tie it together and to tie it together in real time with the high level of performance and that’s kind of what differentiates us from what I call the enterprise 2.0 vendors which is around a disk drive database, ERP orientation.

We think the future is around in memory, service bus. You still have the database but it’s more for storage.

Operator

Your next question is a follow-up from the line of John DiFucci - JPMorgan

John DiFucci - JPMorgan

You opened up the call by saying that these continue to be challenging times, but a lot of the conversation and even if you look at the results, you look at your deal count, the 88 deals over $100,000, the 11 over $1 million, things look good here and I’d say that over the last year or so TIBCO is a company where you’ve seen a certain level of execution may have been a little different in the past. I’m just trying to get it, because we all cover a bunch of different names and we’re trying to figure out what’s happening with the economy and if things are really getting better or if it’s still just really tough, how much of what’s happening with TIBCO has to do with some of the things that you’re trying to do internally and kudos to you for it appears to be making a difference and things look better just for TIBCO itself and how much of it is, is the economy, are things, is the environment improving for you now do you think or is it at least stabilized or do, in looking forward, what do you think is going to happen even in the near-term.

Vivek Ranadive

I can’t comment if what we’re seeing is just for us or for everyone else. We haven’t done any meaningful acquisitions in the last couple of years unlike some of the other enterprise guys, Oracle and [Formatica], whoever who bought bunches of companies and yet our revenue has remained somewhat stable.

Even in a bad environment when you allow companies to get more juice from their existing assets people still continue to spend with us. Now we do think that as things get better and we think that the worst is behind us and things are getting better than our investments in our sales force and all the products that we have and the product cycle that we’re in will have a substantial payoff for us.

We’re seeing a lot of engagement. We’re seeing customers very, very interested in all of these things that we talked about and we’re seeing them get past cutting cost to growing the top line. But they also want to do it by leveraging the investments they’ve already made and it’s not clear to me that they’re going to be continuing to invest in what I call enterprise 2.0 in a large ERP type systems.

I think they’re going to more look for enterprise 3.0 business processes, complex event processing, those kinds of things.

Murray Rode

I think that’s a pretty complete view of our outlook. One thing we did mention in the comments and I’d maybe just reiterate is there’s still uncertainty I think in the general environment and hopefully that starts to diminish as the general environment gets better but I still think there is a higher level of variability that one has to apply to your view of close rates and just the timing of purchase processes.

Operator

There are no additional questions at this time. That concludes TIBCO’s Q2 2009 earnings conference call.

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Source: TIBCO Software, Inc. Q2 2009 (Qtr End 05/31/09) Earnings Call Transcript
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