Qlik Technologies Management Discusses Q3 2013 Results - Earnings Call Transcript

| About: Qlik Technologies (QLIK)

Qlik Technologies (NASDAQ:QLIK)

Q3 2013 Earnings Call

October 24, 2013 5:00 pm ET

Executives

Brett Pollack

Lars Björk - Chief Executive Officer, President and Director

Timothy J. MacCarrick - Chief Financial Officer

Analysts

Brent Thill - UBS Investment Bank, Research Division

Sandeep Madhur - JP Morgan Chase & Co, Research Division

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Keith Weiss - Morgan Stanley, Research Division

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

David Wang - Barclays Capital, Research Division

Matthew Van Vliet - Stifel, Nicolaus & Co., Inc., Research Division

Jamison Manwaring - Goldman Sachs Group Inc., Research Division

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

Stewart Materne - Evercore Partners Inc., Research Division

Robert Chen - Citigroup Inc, Research Division

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

Aashiv Shah - Jefferies LLC, Research Division

James N. Gilman - Drexel Hamilton, LLC, Research Division

Yun S. Kim - Janney Montgomery Scott LLC, Research Division

Greg McDowell - JMP Securities LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to QlikTech Third Quarter 2013 Earnings Conference Call. [Operator Instructions]

As a reminder, this conference is being recorded.

Now I'll turn the conference over to your host, Brett Pollack, Director of Investor Relations. Please begin.

Brett Pollack

Thank you, operator. Good afternoon, and thank you for joining us today to review Qlik Technologies' third quarter 2013 financial results. With me on the call today are Lars Björk, Chief Executive Officer; and Tim MacCarrick, Chief Financial Officer. [Operator Instructions]

During this call, we may make statements related to our business that will be considered forward-looking statements under federal securities laws. Words such as, but not limited to, predicts, plans, expects, focus, design, anticipates, believes, goal, target, estimate, potential, may, will, might, momentum, could, seek and similar words will identify forward-looking statements. These statements reflect our views only as of today and should not be relied upon as representing our views as of any subsequent date.

These statements reflecting our current views regarding the future are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

Any statements regarding our products are intended to outline our general product direction and should not be relied on in making a purchase decision, as the development, release and timing of any features or functionality described for our products remain at our sole discretion.

For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's EDGAR system and our website. We encourage all investors to read our SEC filings.

Qlik Technologies expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements made herein, except as required by law.

Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation to the most directly comparable GAAP financial measures can be found in our press release, which is available at our website, www.qlikview.com, under the Investor Relations tab.

Also, please note that our webcast of today's call will be available on our website in the Investor Relations section.

With that, I'd like to turn the call over to our Chief Executive Officer, Lars Björk. Lars?

Lars Björk

Thanks, Brett, and thank you, all, for joining us today. Q3 was a dynamic and challenging quarter, validating the investments we have made in our strategy, market positioning and product portfolio, even as we identified areas where we need to improve.

We continue to see positive indications of our further advancements into the enterprise space, driven by compelling product and service value creation for our customers.

As we shared with industry analysts and select customers, our strategy to disrupt the BI industry once again, the advances we are making in our products in the solutions portfolio have received very positive feedback.

We believe the market remains strong, as investments in user-driven data discovery continues to be a top priority for organizations globally, and industry observers confirm that QlikView maintains a leadership position in the BI market.

Our view of the long-term market opportunity is unchanged. But as we continue to grow, we also continue to learn, and we are focused on important and growth-related operational challenges within the business, which I will provide more details on shortly.

For the third quarter, we reported total revenue of $104.1 million, representing an increase of 21% over the prior-year period. Year-to-date, total revenue has grown 23%. We also reported non-GAAP operating income for the quarter of $6.8 million and net income per common share of $0.05.

The Americas grew total revenue 35% year-over-year, driven primarily by a meaningful increase in deals greater than $100,000, including 3 deals over $1 million, versus 1 in the same period last year.

By contrast, our performance in Europe fell short of our expectations this quarter. Despite difficult macroeconomic factors, we have performed well in Europe over the past few periods by leveraging existing relationships to expand account penetration. However, near the very end of this quarter, decisions slowed down, and deals we expected to close in several large customers were delayed to future periods.

Rest of World also came in below our expectations, particularly in Asia Pacific, where anticipated close dates for a small number of larger deals moved into future periods.

Overall, as I reflect on my recent interactions with customers and our performance in Q3, it is clear to me that QlikView continues to drive compelling value in the marketplace. This is further reinforced by our deal size metrics, where we saw an increase in Q3 in the number of large deals across all the categories we report on.

Investments we have made in our professional services teams in products like QlikView Expressor for data governance, have supported this expansion and provide a foundation for further growth in this important segment.

For example, a global high-tech manufacturer has deployed QlikView across multiple lines of business and saved hundreds of millions of dollars through 10% inventory optimization, replacement of thousands of legacy reports and the creation of a single market share app that drove cost savings and additional revenues.

Where we deliver this level of strategic value to our customers, we open the door to even greater opportunities. To ensure we capitalize on this evolving market opportunity, we also have to evolve our internal processes and areas of focus to align with the market dynamics that we're experiencing.

Our pipeline continues to grow, and we remain pleased with the opportunities we're seeing. Demand is increasing, with the number and size of opportunities continuing to grow as we move even further into the enterprise space. We have identified areas where we need to adjust our sales management processes and improve operational discipline to ensure that we have the right coverage and capacity across sales organization to further capture the market opportunity we see.

As you know, we spent the last year strengthening sales force execution and improving productivity. As a result, our sales teams are intently focused on closing current quarter deals and also spend less time nurturing the early and the mid-stage pipeline. As deal volumes and deal sizes continue to expand, sales cycles get longer and more complex.

Accordingly, we are adapting our global pipeline management processes to better balance near-term deal closure with the appropriate nurturing of leads several months in advance, so that these larger opportunities mature at the appropriate pace. This approach will help us maintain a better balance and allocation of resources within our land and expand strategy.

We also expect to continue investing in our sales engagement and coverage model to ensure we have the right enablers in place to moderate the right behaviors throughout the sales cycle, not only to close deals in the quarter, but also to create and grow more opportunities over time.

We think these changes in investments will bring more visibility and predictability to our pipeline and will drive success at all levels of the sales organization. However, these actions will take time to properly implement and fully reach through to our results, which is reflected in our fourth quarter guidance.

Let's turn now to our solutions strategy. As indicated previously, we're introducing QlikView.next in a measured and balanced way, starting with a limited availability release this year and ramping to general availability next year. We began in September with our Industry Analyst Summit, where we previewed QlikView.next, as well as new features in QlikView 11, to a broad group of analysts from BI-focused specialty firms and tech industry leaders such as Gartner, Forrester and IDC.

At the summit, we also shared our plans for continued investment in and support for QlikView 11.

Analysts and customers have responded favorably to this approach, which we think creates options for customers and demonstrates our understanding that they drive the upgrade cycle.

QlikView.next goes beyond feature upgrades to deliver a newly envisioned platform that leverages the natural analytics principles that have always informed our approach to software design. QlikView is engineered to leverage our innate capabilities to process information intuitively, by allowing the user to sort and categorize items into groups to reveal deeper meaning, recognize patterns and outliers, anticipate what's next through the context of what comes before and explore information with others to collaborate on decisions. QlikView.next takes the natural analytics experience to new levels, making analysis even more intuitive, visual and collaborative.

Several customers in our limited availability program joined us at the summit to share their experiences with QlikView. Alliance Healthcare Services commented, and I quote, "The thing that is especially interesting to use, for us, is Qlik's take on natural analytics. We've created real-time dashboards and powerful drill-down capabilities, we will be able to transform all that information into meaningful business decisions in new ways, the way people think and operate. Natural analytics allows the business to see what's going on based on its own data storytelling. QlikView.next will put it all in deeper context and accelerate our decision-making abilities."

Feedback on these advancements in our solutions, as well as the stories shared by our customers, was very positive. And starting early in the fourth quarter, we launched the international leg of our Business Discovery World Tour, with events in Europe and Asia Pacific. Attendees see previews of QlikView.next and advances in QlikView 11 and hear success stories from customers including Toyota, Deloitte, KPMG, Capgemini, JAM [ph] Brands and PepsiCo.

Earlier this week in London, more than 1,000 people attended our largest event to-date, with 160 partners and 15 sponsors directly contributing to a very successful event. In the U.S., we will host a virtual user event on November 19, which we encourage you to join. These type of events will continue through the fourth quarter, giving us the opportunity to engage with our customers globally in a very personal way.

Finally, I want to take this opportunity to announce that we acquired our Italian master reseller in October. This is consistent with our stated acquisition strategy and is similar to the reseller acquisition we have completed in the past. We look forward to working with our partners and customers in Italy, as we seek to grow our business in the years to come.

Before turning the call over to Tim to provide more details on our financials results, let me be clear. Despite strong growth in the Americas and continued improvement in large deal metrics, we are not satisfied with our results in Q3, nor our outlook for Q4.

We're taking action to improve our go-to-market model, and we are continuing to invest in important areas related to our sales and marketing, product portfolio and infrastructure. These investments are intended to support our leadership position and enable us to deliver on the potential of the market.

With that, let me turn the call over to our CFO, Tim MacCarrick.

Timothy J. MacCarrick

Thank you, Lars. I'll start by providing further details on our financial performance during the third quarter of 2013, and then I'll discuss our guidance for the fourth quarter and full year.

Total revenue of $104.1 million was up 21% in both reported and constant currency over the same period last year. Within total revenue, license revenue was $54.5 million, an increase of 12% over the same period last year. Maintenance revenue was $40.7 million for the third quarter, increasing 33% over the same period last year, reflecting both the value our customers generate with our software and our increased focus on this important revenue stream.

Professional service revenue was $8.9 million, increasing 32% over the third quarter of 2012, reflecting the increased demand we saw as we continued to further penetrate the enterprise.

The Americas showed strong year-over-year growth in the third quarter, increasing 35% in reported currency and 36% in constant currency. Reflecting the impact of continued challenging economic conditions, European revenue grew 13% in reported currency and 9% in constant currency from the prior-year period.

Rest of World revenue increased 13% in reported currency and 23% in constant currency year-over-year during the third quarter. Given the size of this territory, a few large deals moving in or out of one quarter can have a measurable impact on the growth percentage. We saw a good distribution of deals across our direct sales force and partner network.

During the quarter, 59% of license and first-year maintenance was generated from our indirect partner channel and 41% from our direct channel, which is about the same as last year and generally consistent with our go-to-market model.

We are also pleased with our continued progress in signing larger deals. Overall, large deals made up a greater percentage of total revenue, and the average deal size increased year-over-year and sequentially quarter-to-quarter.

During the quarter, we completed 111 deals over $100,000, compared to 86 in the same period last year. We closed 27 deals over $250,000, compared to 18 in the same period last year. And we're happy to report that we closed 3 deals greater than $1 million during the quarter, versus 1 in the prior-year period. We closed a greater than $1 million engagement in Q3 with a new customer who is a global leader in contact center outsourcing and BPO solutions. Following a detailed selection process, this customer will be standardizing on QlikView for its 3,500 customer service representatives across 4 continents to drive a 360-degree view of the customers they serve.

Additionally, during the quarter, another large system integrator standardized on QlikView to enhance and automate one of their key customer-facing services and established a clear analytics-based competitive advantage in their market. Following a 6-month evaluation against next-generation BI vendors, we closed a greater than $1 million transaction and negotiated significant expansion potential.

Our headcount ending the quarter was 1,661, a 21% increase from the same time last year and a sequential increase of 93 people.

Now let's focus on cost and margin performance and review our results on a GAAP basis, and where applicable, on a non-GAAP basis.

Non-GAAP numbers exclude stock-based compensation expense, employer payroll taxes on stock transactions, amortization of intangibles and utilize an estimated long-term effective tax rate of 30%.

Please note that a GAAP to non-GAAP reconciliation can be found in the tables of our press release, which is available on our website.

Gross profit for the third quarter of 2013 was $89.2 million, representing a gross margin of 85.6%, compared to an 88.1% gross margin in the third quarter of 2012 and 86.5% in the prior quarter of 2013.

Operating expenses totaled $92.6 million in the third quarter, compared to $77.6 million in the prior year. As a result, our non-GAAP operating income was $6.8 million for the third quarter, compared to non-GAAP operating income of $4.3 million in the prior-year period. Non-GAAP operating income for the third quarter 2013 excludes $8.6 million of stock-based compensation expense, $814,000 of employer payroll taxes on stock transactions and $793,000 related to the amortization of intangible assets.

During the quarter, we had a foreign exchange gain of approximately $18,000, which was included in other expense, compared to a loss of $1.7 million in the same period last year. As you know, foreign exchange gains and losses can fluctuate, and our guidance does not consider any additional potential impact to other income and expense associated with foreign exchange gains and losses, as we do not estimate movements in foreign currency rates.

On a non-GAAP basis, our net income was $4.8 million for the third quarter of 2013, or $0.05 per diluted common share, compared to a non-GAAP net income of $1.8 million, or $0.02 per diluted common share, for the third quarter of 2012.

Moving to the balance sheet. Cash and cash equivalents totaled $235.2 million as of September 30, 2013, compared to $195.8 million as of December 31, 2012 and $193.1 million as of September 30, 2012. For the 9 months ended September 30, 2013, we generated $24.6 million in cash flow from operations, compared to $25.4 million in the prior-year period.

Turning our thoughts -- turning to our thoughts on the fourth quarter and full year 2013 guidance. As Lars explained earlier, the dynamics in our pipeline are impacting growth in the top line, and we are taking actions to respond. Our guidance reflects lower revenue in Q4 than previously expected, as well as incremental strategic investments supporting sales coverage and capacity, product development and launch, building scalable infrastructure and strengthening our marketing efforts.

Starting with the fourth quarter, we expect total revenue to be in the range of $156 million to $161 million; non-GAAP operating income to be in the range of $36 million to $40 million; and non-GAAP net income per diluted common share of $0.28 to $0.31.

For the full year 2013, we expect total revenue to be in the range of $465 million to $470 million, an increase of approximately 20% to 21% over 2012. Non-GAAP operating income is now expected to be in the range of $31 million to $35 million, and non-GAAP net income per diluted common share is expected to be in the range of $0.23 to $0.26.

As Lars mentioned earlier, we acquired our Italian master reseller in October. However, this acquisition does not have a significant impact on our guidance for the fourth quarter.

With that, operator, I think we're ready to begin the Q&A session. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] First question is from Brent Thill of UBS.

Brent Thill - UBS Investment Bank, Research Division

Lars, I'm just curious if you could comment on Europe a little bit more, as well as, did you see any potential stalling ahead of the big product launch, as customers were evaluating on the product side? Or was that not the case?

Lars Björk

Brent, what we've seen in Europe over the several quarters now is that some regions have balanced other regions that had a weaker performance. This period, we had a more broad-based weakness, and we didn't see it until very late in the quarter. It had no relationship to the new product launch. It has more to do with tightening in budget, macroeconomic uncertainty and people being cautious.

Operator

Our next question comes from John DiFucci of JPMorgan.

Sandeep Madhur - JP Morgan Chase & Co, Research Division

This is Sandeep Madhur for, in for John. Lars, could you just maybe walk us through some of the specific changes you'll be making to the pipeline management over the next quarter or 2? And maybe also if you could provide some color as to how this would be different than some of the changes that you made about a year ago? And maybe also, some commentary on whether certain regions would be impacted more so, given their recent performance?

Lars Björk

Well, what we did a year ago was to put a focus on sales productivity and forecast accuracy. What we're going to put a focus on now is nurturing a pipeline for coming quarters, not the current quarter only that you're in. And that will give us a, we believe, a better predictability. When you look at what territories that will be more scrutinized, then certainly, it will be Europe and to some extent, Asia Pac. I think we were more influenced there by a few deals slipping over the line. I think we had very strong growth still here in the U.S., 35% or something, we wish that all the territories we're at.

Brett Pollack

Any follow-up question? Okay operator, next analyst, please.

Operator

Next question is from Steve Ashley of Robert W. Baird.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

I was just wondering, if we were to juxtapose the U.S. business and the way they manage their pipeline against what happened in Europe, are you suggesting that it was different and that the U.S. was doing a better job of nurturing earlier quarters, 1 or 2 ago, that got business done now? And that is something that had been neglected over in Europe and other places, and that's what needs to change. Is that my understanding?

Lars Björk

No, I think what I'm saying is that if you sail too close to the wind here, and you're having macro effects you're having in Europe as well, you're going to see that impact earlier. We're going to make this action across the line, just to create more predictability and plan even further ahead. Also recognizing that the enterprise business that we have now built to be the strongest leg is the longest sales cycle and a longer engagement cycle.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Can you comment on how the U.S. business performed relative to your plan and expectation?

Lars Björk

I would say they did very well versus expectation and plan.

Operator

Our next question is from Keith Weiss of Morgan Stanley.

Keith Weiss - Morgan Stanley, Research Division

Just to drill in on the pipeline issues. Just to be clear, are we talking about there not being enough deals in the pipeline? Or is it just a matter of getting those deals closed?

Lars Björk

We're not talking about quantity, and we're not talking about closing. We're talking about nurturing enough at the different stages of the pipeline, so that you have a consistent flow.

Timothy J. MacCarrick

Yes, I think -- this is Tim. Let me just jump in here. The pipeline is bigger, really, than ever, and we continue to be very comfortable with the names that we see in there and the underlying quality in the pipeline. What we're really talking about is how do we systematically mature each deal at the right pace and cadence, so that as we target within these longer sales cycles, for when we're going to close this business, we put the appropriate investments into that sales cycle, that's consistent with when we expect to close it. So the pipeline is large and robust and has good quality. It's all about how do we manage that quality from the early stage of the sales cycle to the closing stage.

Keith Weiss - Morgan Stanley, Research Division

Got it. I mean, if we take a step back and look at the quarter in terms of large deals, 111 deals over $100,000, that was up, I think over 25% year-on-year. You closed a lot of million dollar deals. If we look at direct versus indirect, it looks like indirect was a little bit weaker than direct. Direct kind of sustained the growth that we've seen. It would seem to indicate that it's more the run rate business than the larger deals that would need nurturing. Could you help me sort of square those 2?

Timothy J. MacCarrick

I think the biggest opportunity that we have around nurturing the deals is clearly in the enterprise business and in the larger deals. Remember that this situation relative to pipeline is directly related to the longer sales cycles that we're experiencing, as we continue to move further and deeper into the enterprise. So primarily, it's going to be, give us the best return by adjusting our processes in the enterprise. But certainly, pipeline management applies to shorter sales cycles as well. So within the, a mid-market space, ensuring that we are doing the right things will also be beneficial to us.

Keith Weiss - Morgan Stanley, Research Division

Maybe I could ask that a little bit differently, the business under $100,000, does that come in, in line with your expectations? Or was that weak as well?

Timothy J. MacCarrick

Yes. It was generally in line with our expectations, and a real nice growth year-over-year, as we indicated.

Keith Weiss - Morgan Stanley, Research Division

For the deals under -- for the business of deals smaller than $100,000?

Timothy J. MacCarrick

Right.

Keith Weiss - Morgan Stanley, Research Division

Got it. And the slowdown in direct, was that in line with your expectations? Or was that below your targets?

Lars Björk

I would say that, that fluctuates between quarters. So I don't think there's any slowdown in that sense. It varies between quarters. What we're saying is we expected a stronger direct quarter than you saw.

Operator

Your next question is from Matt Hedberg of RBC Capital Markets.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

I'm wondering if the deals that slipped this quarter, the large ones in particular, I know you've said you've sort of accurately adjusted for that in your fourth quarter. But I guess, I'm curious, are you assuming some close rate on those in fourth quarter? Or did some of those push out into next year?

Lars Björk

It's a mix of both. So we are, we can assure you we are tracking it in that, down to the individual deal. And I think about 15% of them has already closed as of today, of that. But we can also see that some of them are not mature enough to close in this quarter and will have to be pushed into coming quarters. Interesting thing with them is that I haven't heard of any of the deals that are lost.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

That's great. And then, I guess, one other thing. I thought over the last year, you've added some vertical sales specialists that were, I thought, helped to help support pipeline close rates and to kind of avoid what happened this quarter. I guess, I'm curious, are those specialists located more in the U.S.? Or are they globally? And what impact did some of those have on this deal nurturing?

Lars Björk

They are global, and they are a great benefit to these discussions. There was a great benefit into the specialty discussions we're having with larger partners and system integrators, as they build out their BI practice around QlikView.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

That's great. And then maybe one last question. I know it's still early to look into 2014 and with QlikView.next coming here, is it conceptually -- I mean, are you guys approaching next year with the expectation that the model can accelerate off this year, with some of the changes that you're making now, and a new product launch?

Timothy J. MacCarrick

Well, certainly, there's a lot of fundamentals that we're pleased about, that we'll take into 2014. And we're really not in a position to comment with any specificity about the numbers at this point. But we'll do so early in the new year.

Operator

Your next question is from Raimo Lenschow of Barclays.

David Wang - Barclays Capital, Research Division

This is David Wang, on for Raimo. We just want to ask, when you go to market at the enterprise level, do you clearly market QlikView as an outright replacement for traditional BI solutions? Or do you go in with the more complementary market message such as, [indiscernible] now, as a visualization layer?

Lars Björk

I would say that we don't go in with any of those messages. We go in with the intent of solving someone's problem or a need that they have. And we speak around what's the use case, the business value that we can deliver. If that is, in some cases, an augmentation of an existing solution that's underperforming, or in other cases, it is a replacement story, that's the consequence of a decision. It's not the decision.

David Wang - Barclays Capital, Research Division

Right. And are you able to give some color about the split between being a complementary solution initially versus an outright replacement?

Lars Björk

Well, I would say in most situations, you're solving a problem that the other solution failed to do. And if that's successful and people are pleased, the question of could you actually solve this thing as well, and then we could retire something old, that's probably the nature of how it would evolve.

Operator

The next question is from Tom Roderick of Stifel.

Matthew Van Vliet - Stifel, Nicolaus & Co., Inc., Research Division

Yes, Matt Van Vliet, on for Tom. I was curious where you guys see yourself shaking out in terms of the -- some of the competitors in the market. And as you see these deals delayed, do you think that it's becoming more of an issue of competition closing in on you, from the likes of Tableau?

Lars Björk

So I don't think so, because the most competitive market to my knowledge is the United States. And that's the market that we performed very well. So I think this has more to do with us not doing our homework enough early in these cycles, and therefore, they weren't as mature for closing as we first anticipated.

Matthew Van Vliet - Stifel, Nicolaus & Co., Inc., Research Division

And then in terms of the general availability of QlikView.next, what gives you the most confidence that the deals that you're seeing slip aren't due to people delaying for the new product launch?

Lars Björk

Well, I think the obvious thing is you have a tight dialogue, and I've been out there myself, I've been to several of these events that we're hosting, the Business Discovery World Tour, and I haven't heard anyone raising that question.

Matthew Van Vliet - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then just finally, in terms of your expectations for spending on the sales force in the marketing side, where do you see that shaking out in the next couple of quarters, as you're expecting revenue to be a little lower than previous expectations?

Timothy J. MacCarrick

Well, we've begun some of those actions already, and the focus here will continue through the fourth quarter. It's going to take some time for these actions to read through to our results. And as we mentioned, that's part of the reason for the lowered guidance in the fourth quarter.

Operator

Our next question is from Greg Dunham of Goldman Sachs.

Jamison Manwaring - Goldman Sachs Group Inc., Research Division

This is Jamison, in for Greg. Could you talk a little bit more about the QlikView 12 release? And what customers, what type of customers do you see this, the new release addressing that aren't being addressed as well with QlikView 11?

Lars Björk

Yes, so first of all, we're releasing QlikView.next, and not QlikView 12, and the whole intention of what we provide in the marketplace is a broad-based mass market product that is easy to use and placed for the natural skills of the human being, which we've spoken about before. So there's no specific customer that I think it will be more appropriate usage of it. The people that we have in the validation team now are some of our largest customers that are putting this into a limited production use and giving us valuable feedback. And so far, we are very well on track to the plan that we've laid out.

Operator

Our next question is from Jesse Hulsing of Pacific Crest.

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

So I mean, you obviously lowered guidance for Q4. But it's still 52% quarter-over-quarter growth at the midpoint by my calculations, which is below recent seasonal norms, but it isn't significantly below recent seasonal norms. I guess, can you walk us through why you're comfortable with the guidance that you said, and maybe your close rate assumptions by geography?

Timothy J. MacCarrick

Jesse, it's Tim. We obviously go through a very detailed forecasting process with our sales organization. It's territory by territory, region by region, deal by deal. So our guidance is based on that iterative process, where we get as close to the deals as possible and build up from there. And that's always been our approach and will continue to be. This is a company-wide set of guidance that you have here.

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

Okay. So I mean, have you kept your close rate assumptions or your view of the Americas similar to what it was entering last quarter? And have you taken your view of Europe meaningfully down, is that how we should think about it?

Timothy J. MacCarrick

Well, I mean, we've adjusted our process based on what we've seen in the marketplace, but generally speaking, close rates are going to remain fairly constant to what we saw in Q3.

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

Okay. When you look at headcount for the year, I mean, you're up 21% quarter-over-quarter in this quarter. How is sales and quota carrying, headcount tracking relative to that? Is it pretty similar? Or is it meaningfully up, meaningfully down relative to headcount as a whole?

Lars Björk

I think looking at it as aligned with the same trend overall is a good way to look at it.

Operator

Our next question is from Kirk Materne of Evercore Partners.

Stewart Materne - Evercore Partners Inc., Research Division

Just I guess 2 quick ones. Can you just talk a little bit about how much was, I guess, how much of the issue in Europe was due to sort of the pipeline nurturing issue versus people pulling back on spending at the very end of the quarter?

Timothy J. MacCarrick

I think it's important to keep in mind that our performance in Europe over the past few quarters has been quite good relative to the economic environment. And a big part of that was leveraging existing relationships that we have had. So the European performance in Q3 was certainly a mix of both pipeline management and economic headwinds, but the majority of it, I would say, was just deals being pushed out, decisions being delayed and some budgetary constraints on the part of our customer base.

Stewart Materne - Evercore Partners Inc., Research Division

Okay, and then just around sort of sales turnover -- one of those was an issue back at the beginning of '12, I guess, do you guys comfortable with the, I guess, levels of sales turnover and attrition rates? I guess, did that have anything to do with some of, I guess, the deal nurturing in Europe? Or was it mainly just key people just not sort of blocking and tackling?

Timothy J. MacCarrick

Yes. I think Europe was, as I mentioned, probably more macro-based this quarter. And the good thing about our growth trajectory is we're always hiring salespeople and always providing opportunities to improve productivity over time. We continue to see productivity improvements. And as you can see, our deal sizes continue to grow. So that's sort of a race without a finish line, right? We always want to be better. We always want to be more productive, and we're continuing to focus on that and investing in it. And we'll continue to do so for the future.

Operator

Our next question is from Walter Pritchard of Citi.

Robert Chen - Citigroup Inc, Research Division

This is Robert for Walter. Lars, the question on the complexity with some of these larger deals, I think the larger ASP hint at some of the complexity, but I'm curious if you can give us a sense of other things driving deal complexity, maybe increased number of displacement opportunities or increased adoption of the server [ph] product?

Lars Björk

Yes. I think it has more to do on approval processes and the budget hoops that people have to go through that has tightened. And we weren't on top of that in time, combined with people still being quite cautious in certain European countries.

Robert Chen - Citigroup Inc, Research Division

And then another question on the pipeline. It seems like if the trouble with the pipeline was kind of with early deals or deals earlier in the pipeline that weren't fully nurtured, it seems to me that you might have had better visibility into the shape of the pipeline coming out of last quarter? Can you provide some commentary there?

Timothy J. MacCarrick

Yes. This is Tim. I mean, obviously, there is a mix of deals in that pipeline, and we're constantly updating the status of where we are in each one of them. But really, the focus is on how we better align the stage of a particular deal in the pipeline with the expected close date. And in some cases, our focus on the forecast and delivering current quarter results, we got a bit misaligned with what was reasonable relative to the maturity of that pipeline for that particular deal. So think about it more in terms of how do we align how long that sales cycle is, recognizing that they continue to get longer, with when we expect to close.

Robert Chen - Citigroup Inc, Research Division

And just one more question on R&D expense. It seems like that's where some of the EPS upside came from. Just wondering whether your view is on the level of R&D expense going forward, and also relative to some of your smaller competitors who are spending just as much in R&D?

Timothy J. MacCarrick

Well, we continue to be comfortable with the level of R&D investment that we're making. Obviously, over the past several quarters, it's ramped as we're bringing new product to market. We do expect that to begin to ramp down in the new year. And I think probably this year, we'll be in or around the 12% range.

Operator

Your next question is from Derrick Wood from Susquehanna International (sic) [Financial] Group.

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

I'm curious if the weakness in Europe is coming more from new customer generation or the land and expand model in the installed base?

Timothy J. MacCarrick

I think our performance in recent quarters, which, as I mentioned, has been a bit better than the macroeconomic environment would imply, has been largely operating within our land and expand customer base. So in some ways, the development of new customers that would now be in a position to be closed is more of a reflection of the macro environment from the past. So our performance more recently has been with existing customers, and we're now seeing budgetary pressures on some of those accounts and the need to focus on new accounts within that tough macro environment.

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

Okay. And there was a question about competition. Tableau, not being in the market much in Europe, but there are some traditional BI vendors out there who have new products and trying to get into the market. Not as good products, but do offer a lower PCO. So I'm curious if you're, perhaps, seeing some change in kind of competitive evaluations relative to traditional BI?

Lars Björk

Not really here. We track this, and there's no measurable difference between this quarter and previous quarters.

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

Okay. And then lastly, I mean, now that you've had a little time to reflect on how the pipeline developed in front of what got softer, I mean, how do you feel about the U.S., you're still trying to move upmarket, that does incorporate longer sales cycles, do you feel like you've got a better handle on sales cycle management in the U.S.? Or if there is perhaps some risk there as well?

Lars Björk

Yes, I think we got a better handle on sales cycle management, generally, because we're moving up the market in all our major markets. I just think that the investment we've made in the U.S. has paid off more. And we have, as we've spoken about before, in some cases, we haven't put new money to work in parts of Europe, and that might be one of the reasons that's harming us now.

Operator

Our next question is from Ross MacMillan of Jefferies.

Aashiv Shah - Jefferies LLC, Research Division

This is Aashiv on for Ross. So in terms of guidance for 4Q, are you guys assuming any improvement in Europe? Or pretty much same as what it was in 3Q?

Timothy J. MacCarrick

The same as what we've experienced in the third quarter.

Aashiv Shah - Jefferies LLC, Research Division

Okay. And then in terms of Tableau, I know in the past, you guys have said that you're seeing them maybe in 10%, 20% of deals. Is that still sort of the percent of deals you see them in? Or has that gone up?

Lars Björk

It's still that range. We certainly see them more in the U.S. As I mentioned before on a question, that's the area where we performed the strongest.

Aashiv Shah - Jefferies LLC, Research Division

Okay. And then just lastly, one housekeeping one. I might have missed this. Did you guys give the customer count at the end of the quarter?

Timothy J. MacCarrick

30,000.

Operator

Our next question is from James Gilman of Drexel Hamilton.

James N. Gilman - Drexel Hamilton, LLC, Research Division

As you know, I'm out of the office, and I'm in a public space, so forgive me for any background noise you may hear. Question on -- when I look at renewal rates for the quarter, they're a little bit lower than I expected. However, if I look at it on a trailing 12-month basis, there's not been much deviation on the renewal rates. What kind of -- can you provide us some color on renewals in the period?

Timothy J. MacCarrick

Yes. I mean, we're comfortable with the renewal rate. It's in, right around the 90% range, generally. And we've put more focus on part of the business, as you know, in past quarters, and seen nice pickup in the revenue stream. And I think that's going to continue.

James N. Gilman - Drexel Hamilton, LLC, Research Division

And I have a follow-up question, and that is around expenses. R&D was a little bit less than I expected. I know you -- I don't think you provided any color on any particular line item, but do you expect R&D -- you kind of commented on investment in the development of products, but do you see that ramping back up to where it like was in 2Q? Can you provide some color there, please?

Timothy J. MacCarrick

Yes. Over time, we would expect it to be around 12% of revenue.

Operator

Our next question is from Yun Kim from Janney Capital Markets.

Yun S. Kim - Janney Montgomery Scott LLC, Research Division

So in terms of making investment in your go-to-market strategy and improving sales execution overall in Europe, especially, at nurturing and closing larger deals, does that involve taking some indirect accounts away from your resellers and maybe taking direct ownership of some of these accounts that could generate larger deals? Could there be some channel conflict as a result of your sales investment efforts in Europe?

Lars Björk

I don't -- sorry, I don't see that. We already do joint selling with partners if needed. And in many cases, these large deals are driven by ourselves, so it's a joint effort. So I don't see conflict being the big risk here.

Yun S. Kim - Janney Montgomery Scott LLC, Research Division

Okay. And then, obviously, the result of the investments that you're making today, and maybe next quarter as well, could take some time to bear fruit. Is there an expectation on when we can start to see your return on investment? And how long this investment period can last?

Timothy J. MacCarrick

Well, obviously, we've provided you Q4 and full year guidance, which really addresses the question for this year. And guidance for next year will be available in the early part of 2014.

Yun S. Kim - Janney Montgomery Scott LLC, Research Division

All right. Fair enough. And last question, just wondering what your plan is for your professional services group going forward. It wasn't mentioned, specifically, as an area of investment.

Timothy J. MacCarrick

Yes. It remains an area of investment. We continue to build scale there, and we've seen terrific results where we are in early in opportunities with our professional services teams. The deal sizes are bigger, and we get better expands and quicker expands. We think that's a good investment. We're going to continue to put money there and build scale.

Operator

[Operator Instructions] Next question is from Greg McDowell of JMP Securities.

Greg McDowell - JMP Securities LLC, Research Division

Tim and Lars, just 2 quick questions. First on pricing. Have you seen any increased pushback on licensing and pricing costs? And whether or not you envision maybe a different type of pricing arrangement for QlikView.next?

Lars Björk

We haven't seen any shift here in pricing in this quarter versus prior quarters. Going forward, we are considering different pricing models. And as we've spoken about before, we will come back to that when product will be more generally available.

Greg McDowell - JMP Securities LLC, Research Division

Okay, great. And then I was just wondering, we haven't talked about verticals yet. And I was wondering if you could highlight any verticals that you felt were particularly strong in the quarter or maybe particularly weak in the quarter.

Timothy J. MacCarrick

Yes. I think we continue to see good results from the verticalization that we've done inside the go-to-market model, and we're going to continue to invest there. We're -- I don't think we've commented specifically on one vertical versus another, but I would say there weren't any particularly weak verticals within the Q3 results.

Lars Björk

It is the same that we've talked about before. Health care is one. Technology as a sector.

Timothy J. MacCarrick

Financial services.

Lars Björk

Financial services. Public sector.

Operator

Thank you. There are no further questions in the queue. I would like to turn the call over to Lars Björk for any closing remarks.

Lars Björk

So before we end the call, I'd like to thank you all for joining us today. I'd also like to thank our employees and partners for their efforts this quarter.

Additionally, we look forward to seeing some of you at many upcoming conferences like the Stifel's Midwest One-on-One Conference next week in Chicago, and RBC's Technology Conference and Goldman Sachs' U.S. Emerging/SMID Cap Growth Conference in New York in mid-November.

Please also check our Events page on our website for future events, which include our first imageneration [ph] webinar with our SI partner, Deloitte, discussing how QlikView can help enhance capital planning decisions. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.

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