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Executives

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

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

Matt Langdon - Chief Financial Officer

Analysts

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

Brent Thill - UBS Investment Bank, Research Division

Kash G. Rangan - BofA Merrill Lynch, Research Division

Brad A. Zelnick - Macquarie Research

Aaron Schwartz - Jefferies LLC, Research Division

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

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

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

Abhey Lamba - Mizuho Securities USA Inc., Research Division

Steven R. Koenig - Wedbush Securities Inc., Research Division

Keith Weiss - Morgan Stanley, Research Division

Gregory Dunham - Goldman Sachs Group Inc., Research Division

David Wang - Barclays Capital, Research Division

TIBCO Software (TIBX) Q4 2013 Earnings Call December 19, 2013 4:30 PM ET

Operator

Good afternoon, ladies and gentlemen. I'm Dustin. Welcome to TIBCO's Fourth 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, a replay will be available through InterCall for 1 month following today's call by dialing (800) 585-8367 or (404) 537-3406. The passcode for both the call and the replay is 19900317.

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 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 Form 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, as 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 today's call are Vivek Ranadivé, TIBCO's Chairman and CEO; Murray Rode, Chief Operating Officer; and Matt Langdon, Chief Financial Officer.

I'd now like to turn the call over to Vivek.

Vivek Y. Ranadivé

Thank you, Dustin, and thank you, all, for joining us today. I will begin with a few remarks on our Q4 and full year results. Murray and Matt will then discuss operating details, provide forward guidance before turning it over for Q&A.

In summary, this quarter, we delivered results that exceeded our guidance range on the top and the bottom line. Total revenue was a record at just over $315 million. Non-GAAP operating margin was 30%, and our non-GAAP EPS was $0.42.

In the fourth quarter, we continued to build momentum. We saw very strong growth in the Americas and Southeast Asia. We closed a record 31 deals over $1 million in license revenue, and we continued to demonstrate the strategic value and power of the TIBCO platform across a broad range of industries from retail to financial services to energy and more.

2013 was a story of 2 halves. In the first half of the year, we made some important leadership changes, successfully improved execution and strengthened the foundation of our company. In the second half of the year, we returned to growth and saw the green shoots of what I am confident will be our next extended and significant leg of growth.

As we head into next year, we see immense opportunity. I'm confident that 2014 will be the best year yet for TIBCO, and here's why: First, from my meetings with customers, one thing is crystal clear. There is a massive appetite for what we do. Which customer doesn't want to grow revenue, streamline costs or manage 21st century risk? Which customer isn't trying to engage its customers, harness their every interaction and turn them into fans? It is clear to me that the hunger for our offerings has never been greater.

Second, we have the goods. In 2013, we extended our lead through both product innovation and business model innovation. Whether it is integration or analytics, our customers can now consume our market-leading technology as they wish in the cloud or on-premise.

Third, we are the perfect size. We are the classic competitive mismatch. We're too agile for our large competitors, and we're simply too big and resourceful for the single-product companies. Our agility allows us to innovate and keep pace with the needs of our customers. Our size allows us to properly support everything from their simplest application to their most complex.

Fourth, our team has never been stronger. I believe we have the management team in place to take TIBCO to a $2 billion company and beyond. This year, we not only made some important additions to the executive team. We've strengthened our leadership ranks across the company.

I'm just back from our North America sales kickoff for 2014, and I've spent considerable time in recent weeks with leaders from Europe, Spotfire and other business units. One thing is clear: Our corporate culture has never been stronger. Across our company, from engineers to salespersons to solution consultants to recent college grads, our 4,000 employees have the fire in their eyes.

Lastly, we're seeing the macro begin to turn. While we have always been a no-excuses management team, there are real signs of encouragement that global economies continue to improve. We have seen the improvement in North America and in Southeast Asia, and we believe Europe is not far behind. For these reasons, I believe 2014 will be the best year yet for TIBCO.

Before I turn it over to Murray, I'd like to thank our employees for their unwavering commitment to our customer success and for all their hard work in 2013. I greatly appreciate everything you do. Murray?

Murray D. Rode

Thanks, Vivek. I'll recap key metrics from Q4 and then provide additional color on our operating performance. First, deal metrics were again very healthy this quarter. We had 193 deals of $100,000 or more in license revenue, and as Vivek mentioned, a record 31 deals of $1 million or more. Average deal size for license deals of $100,000 or greater was $669,000 versus $646,000 a year ago. Our top 10 customers comprised 20% of total revenue compared to 21% last year and 24% in Q3.

Looking at the geographic mix, total revenue across our 3 major regions was as follows: Americas at 56%; Europe, Middle East and Africa at 35%; and Asia Pacific, Japan at 9%. Year-over-year growth was strongest in the United States, in particular, and in Southeast Asia at about 15% and 26%, respectively.

While we saw some parts of Europe perform well, overall, it had a slight decline. Similarly, weaker performances in Japan and Australia offset in part the strong contribution from Southeast Asia. I'd also point out that the infrastructure business was the real driver of growth in the U.S.

Shifting to vertical markets. We had 7 verticals contribute 5% or more of total revenue as follows: financial services, 22%; communications, 11%; energy, 11%; transportation and logistics, 9%; retail, 8%; life sciences, 7%; and manufacturing, 7%. Of these verticals, the year-over-year growth rates were highest in retail and in transportation and logistics at 43% and 110%, respectively.

There was also solid growth in financial services at just over 12%. We believe that it's important to note that while we continue to see financial services, communications and energy as important verticals, we've also seen retail and transportation and logistics become core verticals.

Retail's 3-year CAGR is 45%, while transportation and logistics is 28%. This continues to support the notion that we see growing mainstream adoption for what we do.

The breakdown of license revenue among our major product families was: core infrastructure, 50%; business optimization, 43%; process automation, 7%.

Looking at the product category this quarter, the clear standout was core infrastructure, which grew at over 15%, mirroring the strength of the infrastructure Americas business. Business optimization was more mixed with the event processing category having a record quarter, but Spotfire performance, while up sequentially, was down year-over-year versus a very tough Q4 comp.

Spotfire has been on a strong consistent run of growth, stretching back to 2010 and is now a business of some scale for us. We believe it continues to have great growth potential, but it's still cutting its teeth a little as it catches up operationally with demand.

Process automation, which can be a little lumpy due to its size, as in 1 or 2 deals swing the category dramatically, came in lighter than expected. A big factor here was Europe, which is normally a very strong contributor to the process automation segment. This same effect of a weaker Europe was also seen, but to a lesser extent, with Spotfire.

We have said for several quarters that a stronger Americas would positively impact the core infrastructure category, and it did. The resurgence of event processing also reinforces our view of the importance of this technology as a very interesting growth opportunity in a variety of areas, including machine data analysis, behavioral modeling, high throughput transactional systems and as a general complement to analytics and big data solutions.

Lastly, we see the version 6 release of Spotfire in Q4 as an important growth catalyst, with its additions of new cloud services, mobile KPIs, integrated location analytics and more.

Specific to the cloud, we now have a broad range of services, many released just this quarter, such as the new Spotfire Cloud, Cloud MDM, Clarity, API Exchange, Cloud Bus and others. Our range of cloud offerings spans analytics, data cleansing and preparation, integration, master data management, API management and more. These offerings are a core element of our longer-term strategy to build out a higher-volume, lower-touch channel to complement our enterprise sales force.

In terms of sales capacity, we ended Q4 at 274 quota-carrying reps, which is down from Q3. As I mentioned in my remarks last quarter, we remain most focused on ensuring appropriate attainment levels within our sales force. And this quarter, productivity was quite strong at over $500,000 in license revenue per rep.

As we feel we're getting appropriate attainment levels, we will continue to hire and still see 300 quota heads as our near-term hiring target. I would also say, the count of what we'd label quota-carrying reps is not the whole story here. The overall headcount in our sales organization is up rather meaningfully over the past year. We've invested in presales resources, sales management and inside sales, all of which are important in our broader strategy for increasing sales productivity.

Looking at our results for the quarter and the year, some key takeaways are as follows: First, we feel the Americas infrastructure business is back on track and gaining momentum as we enter fiscal 2014. Second, we clearly have good demand and pricing leverage, given our levels of deal activity and consistently strong average deal size. Third, we still have some work to do to get consistent execution across the board.

We had good success with the product area or region at any given quarter this last year, but we need to continue to get more consistent across the board in each and every quarter. And fourth, our pace of product innovation is high, particularly as it relates to new cloud offerings. So we feel good about having fuel for long-term revenue growth.

Looking to 2014, we have 3 primary objectives: first, to grow our top line while achieving a level of reasonable profit; second, continue to establish ourselves as a full-fledged cloud provider; and third, focus on getting more revenue leverage from brand and awareness, digital presence and low-touch sales.

So overall, we look to fiscal 2014 with confidence in our business and the growth opportunity ahead of us.

With that, I'll turn it over to Matt.

Matt Langdon

Thank you, Murray. I will break my comments into 3 parts. First, I will provide additional details on our financial performance in Q4. Next, I will provide some full year details on our fiscal 2013. Then I will provide comments on our financial outlook.

I will review our financials on both a GAAP and a non-GAAP basis. Note that a full reconciliation between these measures was included in our press release, along with an explanation of our non-GAAP measures.

For the fourth quarter, total revenue was $315.5 million, up 6% year-over-year. License revenue was $139.7 million, up 3% year-over-year. Services revenue, which includes professional services, hosted services and maintenance revenue, was $175.7 million, up 10% from last year. Also this quarter, non-GAAP gross margin was 76.8%. Non-GAAP operating income was $95.3 million, resulting in an operating margin of 30.2%.

Q4 cash flow from operations totaled just under $60 million, $59.6 million. Non-GAAP EPS for the quarter was $0.42, and we spent $25 million repurchasing 1 million shares this quarter.

For our fiscal year 2013, total revenue came in at $1.07 billion. License revenue came in at $405 million. Non-GAAP operating profit for the year was $249 million, resulting in an operating margin of 23.3%. Cash flow from operations for the year was $206 million. Non-GAAP EPS was $1.06 and GAAP EPS was $0.50. Also for the year, we spent $131 million repurchasing approximately 6 million of our shares.

Turning to our balance sheet. We ended the quarter with approximately $746 million in cash and short-term investments. Deferred revenue, including both long- and short-term components, came in at $282 million. DSOs in the quarter came in at 66 days, down from 71 days in Q4 of a year ago.

Looking forward, for Q1 2014, our guidance is as follows: We expect total revenue to be in a range of $247 million to $253 million. We expect license revenue to range between $78 million to $84 million. The non-GAAP operating margin is expected to be 17% to 18%. We expect non-GAAP EPS for the quarter to come in between $0.17 and $0.18 with an assumed tax rate of 26%. GAAP EPS should range from $0.03 to $0.04 with an assumed tax rate of 28%.

To put our Q1 guidance in context, remember that our business performance is normally slanted toward second half of the year. For the year 2014, we expect this effect to be slightly amplified due to our recent and continuing investments in sales and marketing.

Currently, for the year, we are looking for EPS that grows at high single to low double-digit percentages off of 2013, with our focus on investing for revenue growth. On a longer-term basis, 15% to 20% annual earnings per share growth continues to be our target.

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

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of John DiFucci with JPMorgan.

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

First question is -- so as I think Vivek pointed out, you've exceeded total revenue and on the top line of your guidance. And also we're at the midpoint of license. But when I look at -- and you guys know we sort of try to look at sequential growth like seasonal patterns, it was less this year than even it was like the sequential growth into the fourth quarter, was less this year than even it was last year when you actually missed expectations. And I think this is like the third or fourth year in a row that your sequential growth into the fourth quarter has declined. I guess -- I don't know, has your business just become, what, less seasonal? Is that something we should expect going forward, which isn't necessarily a bad thing as long as we are expecting it? And if that's the case, why is that happening?

Vivek Y. Ranadivé

We are shifting -- my own focus is starting to be more and more on the top line number and then the profit number, because we just want to have our software be consumable in whatever fashion customers want to consume it. So whether it's in the cloud, whether it's through a subscription. And so as that starts happening more and more and we start pivoting more and more to the cloud, then the seasonality will start going down slowly. So I would think there's truth to that. Also the way that the quarter kind of came about the last -- this year with Thanksgiving and when it ended, that also made it a little different, right, Murray?

Murray D. Rode

Yes. I think that compressed our Q4 a little bit, so there was kind of fewer real selling days in Q4 than in some past years. But I do think that maybe, we have been doing better at kind of smoothing out Q3 to Q4 performance.

Vivek Y. Ranadivé

Yes. And as we go towards more of a cloud pivot, then more and more of that will happen.

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

Okay. And if I might, Murray, you talked about stronger Americas and infrastructure was back on track in the Americas. But I'm just curious, I think you also talked about financial services up over 12%, I think it was. I'm just wondering if that's really just stronger financial services. And we all work in that vertical, so we know there's still secular issues having to go along with that vertical. And maybe you're just sort of hit your first easy comp against that vertical. I guess, what gives a confidence that the infrastructure business is back on track, whether -- or rather this is just sort of an easy comp?

Vivek Y. Ranadivé

We had amazing growth like our BusinessEvents doubled; ActiveSpaces doubled. We had dramatic growth in many parts of the business. We also had dramatic growth in sectors like retail and transportation and logistics. So we just see strength across the board, John. We're not seeing a whole lot of pricing pressure. We have a great deal of pricing power, and we see strong demand. And we had to fix the Americas, which we focused on over the course of the last year, and we saw the results from that. So sitting where we do, we see -- we have a great deal of confidence that the core infrastructure business is in a very, very strong position. We basically built $1 billion company on integration. And everything that it touches and going to the cloud and other things, we think that, that opportunity is 10x that size now.

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

Okay. I just -- because I see -- where you guys -- I don't want to -- I'll let -- go to the next question. But I see where business started to weaken a little bit the end of last year is also when we sort of saw the financial services vertical. Some secular issues really come to roost, and they've been in place for a while now. And they're not really going away. The market's up, so maybe financial services are spending a little bit, but those secular pressures are still there. And I just -- as we know and you know financial service is important, not only to you, but to others, but maybe more important to you. I don't know, it's just something to take a look at, I guess.

Vivek Y. Ranadivé

The financial services have grown ironically. Some of those were deals that were in places like Europe. So the place we saw, a great opportunity. Everyone is looking at themselves as a retailer now, so that's where we saw the biggest opportunity. So when we say transportation and logistics, even they are somewhat of a retail business. So I think the big opportunity right now is retail.

Operator

Our next question comes from the line of Brent Thill with UBS.

Brent Thill - UBS Investment Bank, Research Division

Just a question as the transition of the cloud continues, do you feel like that changes the economic model in how you'll be reporting? Or perhaps, when you look at license revenue this year being down, are you seeing more customers step up to smaller deals or subscription-based deals? And I guess, it hasn't really shown up in the ASP, but anything you've seen that going forward that we should think about how we build the model that, that may be impacting this during that transition?

Matt Langdon

Brent, it's Matt here. I'll take a first cut at this. A couple things I'll say. One is the rapidly expanding menu of offerings that we're coming to market with and many of which we spoke about it at TUCON. Again, we're very excited about, and we're seeing a lot of healthy activity around. As yet, we haven't broken out our hosted revenue. If and as that grows to a considerable enough amount, I think there's an opportunity in that. But what I would tell you is that our hosted revenue in the quarter was up 45% over last year, and for the year, it grew north of 30%. So we're seeing some nice traction and some momentum around this expanding menu of hosted offerings.

Vivek Y. Ranadivé

Yes. We're -- we think we just want it to make it easy for people to consume our value. And a lot of people are choosing to consume it through the cloud and through subscription models. And even something like Tableau, which we haven't talked about, we now have 7 million users for Tableau. So we see a great opportunity with regard to the cloud and hosted offerings.

Brent Thill - UBS Investment Bank, Research Division

Okay. And when you look back in hindsight through the year, you entered '13 with a much larger sales force and, obviously, that changed. What do you think -- what was the change throughout the year that maybe didn't pay off in terms of the capacity coming out of last year, up 25% year-on-year and where you ended? What was the download that as you look back where maybe you would have made it a tweak to the strategy, if you will?

Murray D. Rode

I think the tweak to the strategy, if you could go back and do it again would be what we're doing now quite frankly, which is making sure that where we are hiring, that we've got the right attainment levels and the right kind of supporting resources and enablement around the people that we're hiring. I do think at the time that we decided to push ahead with the hiring, that made sense. But I think now, the thing we continue to learn is how best to make that direct sales force the most productive and that's what we're focused on...

Vivek Y. Ranadivé

Yes, I think we would have made -- see, look, quite honestly, a lot of it had to do with what happened in the Americas and the leadership we had there. And perhaps, we should have moved even faster on that because we are very, very happy with the results we're getting from the new leadership. And also, get that, over 2 years, we grew our -- I think we went from like 150 to almost 300 salespeople, so we doubled from 2010 to '12. And so that takes digestion as well. So I think it's a combination of we grew fast, we have digested. We have to kind of pull back a little bit and put in all the supporting cast and then a strong leadership, which the change we made, and that change is paying off.

Operator

Our next question comes from the line of Kash Rangan with Merrill Lynch.

Kash G. Rangan - BofA Merrill Lynch, Research Division

Can you -- Matt, maybe we don't need to be precise. But when we look at the license growth rate, 2.5%, if you were to look at a license bookings proxy, including the value of the business that you booked, granted that your cloud businesses all grew, some 30-plus percent. If we were to look at it on a billings basis, just to understand the normalization of the revenue stream, can you give us some rough ballpark? And I'm going to throw out a number just in case you decide to answer, saying that we're not going to comment on that. Would it be 5% to 10% range or 10% to 15% if you look at the license implied billings growth? And secondly, I think Vivek talked about top line being the priority for next year. Curious if you can tell us that -- with respect to the bottom line growth, it looks like you are looking to grow your sales headcount. I'm curious why the sales headcount that fell down sequentially if that were the case. And I would have expected to see maybe a bit of a buildup at this early point in the cycle, so you could be prepared for the revenue growth rate next year.

Matt Langdon

Sure, Kash. I think there's some -- a couple of different elements to that question. We're not -- I don't report against the bookings or billings number. I'm going to kind of stick to the numbers that we've shared. And you can kind of read and interpret it as you need to. But look, again, I think what Vivek described as green shoots of growth -- I mean, we met or exceeded our guidance targets across the board, number one. I think when you look at the behavior in deferred, a couple of things I'll point out there. First of all, that the deferred maintenance revenue, which is a vast bulk of our deferred revenue, is up nicely year-over-year. And it's up quarter-over-quarter as you'd want it, as you'd expect it to be. And some of the dynamic that you might be interpreting here harkens back a bit to some of the commentary we had a year ago when I think in Q3, we talked about a considerable build in deferred license revenue that was then expected to build over the next several quarters. That was a -- so the end of 2012, the deferred license balance was higher than the deferred license balance we have at this point in time. That's where we are today and that was as expected. But to be approximately flat with last year, quite frankly, we believe it's actually a statement of health given...

Vivek Y. Ranadivé

So I think that's Kash's point that some of the things we don't call license. And at some point in the future, we might start reporting them.

Kash G. Rangan - BofA Merrill Lynch, Research Division

Yes. But can you give a rough ballpark with your growth rate in license bookings be roughly 5% to 10%? Or well north of that or significantly greater than the reported license growth rate is? I'm trying to get something that would explain a better story than the reported numbers.

Matt Langdon

Yes, I think rather than just throw out a number, what we would say is you're on the right track that if you'd normalized for the actual level of business across hosted and things, even like term licenses, which we've talked about before, you'd see a higher growth rate reflected in that kind of product sales.

Kash G. Rangan - BofA Merrill Lynch, Research Division

Got it. Very useful. And also the margin comment and sales headcount.

Matt Langdon

Kash, I'm sorry. Can you phrase it...

Vivek Y. Ranadivé

So I think in terms of the sales headcount, I think we answered that earlier that, Kash, that between 2010 and 2012, we -- I think we doubled our sales headcount. And 2013 was the year that we changed leadership in the Americas and we went through with a fine-toothed comb and looked at every office, every individual, and the new leadership looked at that. And what we did is we pulled back slightly. We digested the hiring that we had done over the previous 2 years. And then we also invested more in the supporting cast around the quota-carrying salespeople. So again, this is something where you can't just look at the quota-carrying salesperson number because where we invested was in the supporting cast, and that actually grew quite substantially.

Murray D. Rode

Yes. And I think the other thing we'd stress too is we're much, much more focused right at the moment on the quality of our sales hires than just getting capacity up. So I mean -- so that is a factor for us, too. We'll take quality any day over just straight quantity.

Operator

Our next question comes from the line of Brad Zelnick with Macquarie.

Brad A. Zelnick - Macquarie Research

So as we look at the Spotfire business, we continue to hear great feedback from the field on how you compare and go up against the Tableau or Click. But by our math, it looks like the business for the full year overall was about flat. And I know you're up against a tough comp, but the market is growing pretty rapidly. So Murray, I think you'd said that -- you made a reference to cutting its teeth as it catches up operationally with demand. Can you just speak a little bit more about what you meant by that? And what do you see as you look out this year in terms of pipeline and as you build up to your guidance even in Q1? How should we think about the trajectory of the business from here?

Murray D. Rode

Yes. I think the important thing to remember about the Spotfire business is how it's almost tripled over the last 3, 4 years. So there's been a very rapid acceleration in growth in the organization. Just because, as you point out, this is a market with a lot of opportunity. It is a market that's growing. So I think they've done very well and they've been very consistent. They had particularly big comps to beat in the second half. And the business just continues to evolve, to operate at that scale. And I don't think they had as much success these last 2 quarters as we'd like to see, but we -- we're doing all the right things to continue to grow the business, grow its capacity, grow its ability to sell, both large and small deals at volume. And so that's the kind of thing that's going to keep it growing as we look forward into 2014 and beyond and keep it on a strong growth trajectory.

Vivek Y. Ranadivé

Brad, you're 100% right. With the product that we have, we should grow a lot faster. So we will not make any excuses. We didn't -- we could have done a lot better. It was a disappointment. And we feel that in 2014, we'll be back on a strong growth trajectory in that business.

Brad A. Zelnick - Macquarie Research

Vivek, I appreciate your candor in that regard. And just if I take a step back, I look at the screen, your stock's, right now, trading down 10%. And I'm getting pinged by clients. And if I listen to John DiFucci's comments and his question, he talked about your license revenue effectively being right at the midpoint of your guidance. If I'm being nitpicky, it seemed to be a little bit lighter than that. And I appreciate your commentary around this pivot to the cloud and what that means and how it impacts many of the business models across our industry. So I just wanted to dive into that a little bit more and understand. You talked about all this rich opportunity and how pleased you are with your performance especially in the second half. But if we look at this pivot to the cloud and how it impacts your business, can you maybe just remind us, aside from maintenance revenue and professional services, what else is being moved into the services and maintenance line? And how much of this is a matter of revenue recognition and timing versus price compression as you move to the cloud?

Vivek Y. Ranadivé

Yes. We're not really compressing the price. We're just getting a different consumption model. So the pricing power is actually strong. So what we're doing is making it possible, consume it with a different business model but not a cheaper business model, just a different business model.

Operator

Our next question comes from the line of Aaron Schwartz with Jefferies.

Aaron Schwartz - Jefferies LLC, Research Division

I guess, I have a follow-up question, similar to some of the ones that have been asked. But if we look at the midpoint in your license guidance, it's sort of below where you were at 2 years ago and marginally up off of last year for the February quarter, which was a weak quarter last year. Given the commentary you've made about the opportunity into '14 and the business recovering, I guess, we'd expect a little more growth heading into next year on the license line. So how much of this is the business model you just talked to in terms of revenue maybe shifting around to different line items or being deferred? And how much of this is just the sales productivity and capacity just isn't where you need it yet and it's just an operational fix?

Vivek Y. Ranadivé

Yes. So I think it's a combination of a shifting business model and just not getting ahead of ourselves in the first quarter and just under-promising and over-delivering. So it's a combination of those. We feel that the Americas and the infrastructure businesses is very, very strong. We've made the changes and the fixes that we need to. And we believe that Europe will start coming back to where it needs to be over the course of the year, and we believe the same is true for Spotfire. So I think -- I don't know Murray if you want to add to that, but I think it's a combination of the pivot that we're making to the cloud and just being cautious with the Q1.

Murray D. Rode

Yes, absolutely. I think it is all those factors go into that seeming to us to be the right way to guide.

Vivek Y. Ranadivé

Yes. And also increasing portion of our revenue will become time-based. And so we think by the time we exit the year, 2014, probably 3/4 of our revenue will be time-based or more.

Aaron Schwartz - Jefferies LLC, Research Division

Okay. And maybe a follow-up question because the commentary you made qualitatively seems to be a lot more positive than maybe the guidance suggests. So in that sort of switch to time-based or the subscription math there, I mean, is everything being captured in deferred? I mean, can we measure all those numbers? Or are you actually seeing contracts to where some of the things are not captured on the balance sheet to maybe where we're just not seeing some of the metrics that you are seeing?

Vivek Y. Ranadivé

Yes. I don't think everything is being captured in deferred because of the length of -- I'll let you guys answer that.

Matt Langdon

The short answer is no, Aaron.

Murray D. Rode

Multi-year -- if you end up with multi-year subscription deals or you have payment terms out beyond a year, not all of that is captured in the deferred number. So I think you're right, there are some metrics here, which will become more significant as that -- particularly as that hosted part of the business builds.

Aaron Schwartz - Jefferies LLC, Research Division

And if that shift continues to occur, I mean, are there things that you'd be maybe providing in addition to what you have, just so we can measure that shift?

Murray D. Rode

Yes. I mean, for sure, as it becomes large enough, we'd want to give as much transparency as makes sense on that.

Operator

Our next question comes from the line of Derrick Wood with Susquehanna.

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

So during the Analyst Day a couple of months ago, it seems like you guys were honing in your focus on a more concentrated set of products and kind of core growth markets and a bit more of a solution approach. Is that true? And I guess, as you enter Q1, are there any kind of notable organizational changes planned to realign around this?

Murray D. Rode

I think actually, nothing's changed from that, Derrick. That's still the approach. I think we continue to see things like core integration and event processing as key elements of that approach to enable more solutions on top of the platform. Organizationally, we actually feel like the structure and the model we have, we talked to you a little bit about that at that Analyst Meeting as well. It has been put in place to support that model. So there's no major kind of organizational shifts. We'll continue to evolve the business as we grow and develop, but the foundation is in place for it.

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

Okay. And if you look at the European weakness, I mean, would you characterize that more to macro or internal execution? And I guess, if the latter, do you see any need for changes in Europe?

Vivek Y. Ranadivé

Well, it's probably more weighted towards execution. And we are making changes. We have made some changes in different regions. And we still have some holes to fill there. But we think that we'll start getting back on track this quarter.

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

Okay. And then the process automation was down 25% for the year, I think 35% in the quarter. What are you thinking about that market, the state of your focus in BPM and such?

Murray D. Rode

It's still -- I mean, we still think it's an appealing market for us. I think as I'd pointed out a little bit, for us, it's been a more European-centric business, and we look at the real opportunity there as the Americas business comes back on track going into 2014. That, that actually is a pretty big opportunity for us in the Americas, selling BPM solutions or process automation solutions.

Operator

Our next question comes from the line of Matt Hedberg with RBC.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

Vivek, you seem optimistic about 2014. And I guess I'm wondering, from an overall deal perspective, is there a product refresh cycle of any sort that we should think about? Obviously, Spotfire 6 is recently out, but any other color on -- just on overall refresh cycle next year?

Vivek Y. Ranadivé

Yes. So we're sitting on a whole bunch of new products and updated products across the product line, with BusinessEvents, with our streaming real-time capability there, with what we call BE Extreme, with ActiveSpaces, with Cloud Bus, with our cloud API product. So we are sitting on -- just a [indiscernible] array of products right now, many of them in the cloud. So we just think that we're -- we've never had a product portfolio and believe that we have with these products. I think what the numbers mask is just the underlying strength of the business. We probably touched almost 75% of the population on Black Friday. So just about every single retailer, we touch every single grocer, we touch every single airline. So the strength that we have -- and we're impacting just about every transaction that's taking place in this country right now and beyond. So we think that the product refresh cycle and where it is, new products and where we are with that and the distance, we always strive to have 3-year distance between us and the competition. And we think that across our portfolio, we have a 2- to 3-year difference in terms of our competitive advantage.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

And then one follow-up. I wanted to ask about LogLogic. Is that going to be a focus for you guys? And I guess, if so, what are some of the key things you've done internally to expand that business?

Vivek Y. Ranadivé

Yes. So that's another area where we have a product refresh, where we've basically reengineered the product. We've done the same with our loyalty product. Turning customers into fans is what we call it. So LogLogic, we expect huge growth for that area. And we also tying it together with our BE and Spotfire products. And we're starting to see places now where they're pushing Splunk aside and putting our LogLogic product family out there. So we see -- that will be one of the fastest-growing areas for us, and so we see huge growth in that.

Operator

Our next question comes from the line of Jesse Hulsing with Pacific Crest.

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

You mentioned about processing or extreme processing and the strength there in the quarter. Can you provide more color on the secular driver there? How sustainable you think that growth could be in 2014? And I guess, what verticals outside of financial services are you starting to see interest from customers?

Murray D. Rode

Yes. It's -- we think it's very sustainable. I think for a while, we've been talking about the importance of this notion of event processing and streaming events. And it's not just applicable to financial services. Telco, the retail space, it's very applicable. Vivek mentioned a product called BE Extreme, which is based around events, combining kind of transactional semantics and events. And any kind of high throughput use cases is suitable for that. So as I say, financial services, telco, retail...

Vivek Y. Ranadivé

It's really every business. So when you say retail, that includes everybody. That includes my basketball team. I want to know -- my president wants a real-time panel of what's happening in the arena across the board, who's buying what, what's moving, what are the opportunities you have. So really, there isn't a business that isn't impacted by that.

Murray D. Rode

Across the board.

Vivek Y. Ranadivé

Across the board. And it kind of -- and it really is what kind of the app server was in the last decade; in the 20th century, what the app server was. So this is the events server basically. And so with the app server, you could do things around databases and database to web, but this is around real-time events. And so this is kind of the app server of the event world.

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

Right. And given where Spotfire is operationally, I guess, and the strength that you're seeing in out of event processing, would you expect that to be the driver of your optimization business in the first and second quarters?

Vivek Y. Ranadivé

I think Spotfire will grow rapidly, but BusinessEvents and BusinessEvents Extreme all by themselves have grown this last year substantially and will continue to grow.

Operator

Our next question comes from the line of Abhey Lamba with Mizuho Securities.

Abhey Lamba - Mizuho Securities USA Inc., Research Division

Matt, you talked about the work you've done in the sales organization, especially hiring a lot of the support staff. Your sales productivity used to be about $2 million per user -- per rep per year type of license revenue a couple of years ago, but we've kind of seen it go down quite a bit. How much of it can you recapture with all these investments that you've done this year? And organizationally, do you need to do more to kind of get back to those levels?

Matt Langdon

I think that we would expect over this year to see -- to probably see a bit of a tickup in terms of attainment levels on average. But I think as the business gets larger and we do have a higher -- kind of a higher throughput, low transaction element to the business, I don't think we're necessarily going to get back to those historical highs.

Vivek Y. Ranadivé

Yes, I'm not sure that we want to. So a lot of the deals are also -- they could be cloud deals, they could be term license deals. And so the...

Matt Langdon

All affects that.

Vivek Y. Ranadivé

Yes, so that's a different model. And so in some ways, it's not an apples-to-apples comparison. So if you took a deal that was a term license, then you'd have to multiply that by 3 to make it comparable to a straight-up license -- perpetual license sale. So we're actually looking to drive that number down in some ways because we also are building up our smaller deal business. And those are lower paid guys, higher volume, so it's a different mix.

Abhey Lamba - Mizuho Securities USA Inc., Research Division

Got it. I guess, that goes back to Kash's question earlier that in that case, it would help if you started getting some more visibility into some of those contracts that are going on to the balance sheet or even off balance sheet. So speaking of that, has that -- how far along are you in that transition of kind of business becoming more variable versus license?

Matt Langdon

It's hard for me to get too specific. But again, I'd throw out some of the growth numbers, and reiterate, that I mentioned earlier about our hosted revenue growing 45% in the quarter. We're -- it's good input, and we understand -- we're trying to balance, I think, transparency with kind of materiality and getting to a sufficient threshold. But we are -- we've suggested all along, if and as this gets to a size where we can break this out, we will. And as we're hearing today, we'll look to provide that increased transparency as we move into the new year.

Operator

Our next question comes from the line of Steve Koenig with Wedbush Securities.

Steven R. Koenig - Wedbush Securities Inc., Research Division

I guess, the services line was substantially stronger than we expected and hard to explain, with just -- to try to explain that with a ratable revenue streams. We had several checks that suggested that you guys were doing more offshoring of professional services and doing more of that work. Can you provide any color at all on the strength in services and what your strategy is with offshoring and also how that plays to your efforts to develop your partnering to a system?

Murray D. Rode

Yes. So we continue to see services as an important part of the business, a strategic part of the business. I think we've talked about that in the past. So not really a new thing for us. It just -- it continues to be a priority to grow that. That is balanced with continued growth in our SI ecosystem. We have our own offshore group as part of our professional services organization, and that continues to grow very rapidly as well. So it's a pretty balanced strategy.

Vivek Y. Ranadivé

But also, as you know, that part of the services, part of our time-based license is included in there. So that's also a factor in the number.

Murray D. Rode

Yes. So services, just to be clear, when we talk about services, that's professional services, maintenance, hosted, all those go into the service line [ph].

Vivek Y. Ranadivé

All the time-based revenue.

Operator

Our next question comes from the line of Keith Weiss with Morgan Stanley.

Keith Weiss - Morgan Stanley, Research Division

I just wanted to drill down into the sales headcount a little bit further. And just to be clear, the declines that we've seen in the back half of the year, is that you guys trimming sales guys or sort of sales guys who sort of aren't making the cut? Or is it involuntary attrition, just guys leaving, and you're not able to hire fast enough to offset that?

Vivek Y. Ranadivé

Well, a lot of it had to do with what -- we had new leadership, Keith, in the Americas. And the new leader who's done a great job after he took over the business, he went and literally with a fine-toothed comb looked at the entire organization. So we had staffed out; we'd almost -- we had doubled in 2 years. And so we trimmed back some of that. And a lot of it had to do with just the leadership looking at the quality of the personnel that we had.

Keith Weiss - Morgan Stanley, Research Division

Okay. So a lot of it is voluntary on your part of just getting rid of the guys that you think aren't going to sort of fit the mold with this new sales -- or your new sales leader is putting in place.

Vivek Y. Ranadivé

Yes, yes. Exactly.

Keith Weiss - Morgan Stanley, Research Division

Okay. And then in that light, the -- not hitting the 300 target for year end, is that more about just not being able to hire out fast enough to offset those -- the trimming, if you will?

Vivek Y. Ranadivé

Yes. We -- I think every 100 people we talk to, we end up with 1. So we have been very, very selective in terms of the people that we're hiring. And so we're not -- combine that with the fact that the supporting cast, the solution consultants and inside sales that we've actually made investments there that we feel good about. So yes, you could come to that conclusion.

Keith Weiss - Morgan Stanley, Research Division

And then just one last one on the sales front. So is the trimming over in that -- are you confident that, that number now is going to start again coming up towards that 300 target?

Vivek Y. Ranadivé

Yes.

Keith Weiss - Morgan Stanley, Research Division

Okay, excellent. And then one question just on deal sizes, you guys had a really nice quarter in terms of the deals over $1 million. I think it was close to 25% growth on a year-on-year basis. But then deals over $100k overall were flat on a year-on-year basis. How should we think about that disparity of sort of the very large deals versus just the large deals, if you will?

Vivek Y. Ranadivé

Yes. So historically, the smaller deals were more Spotfire deals. And so the deals over $1 million, they -- so we did well at kind of the higher end of the pyramid, which we do well at, and the smaller deals. And then some of the deals that would have fallen to that category, we don't really count as license because they fall into the services line because of the subscription nature of the deals.

Keith Weiss - Morgan Stanley, Research Division

Got it. And then just one last one for me. So when you're going through the sort of the recipe, if you will, of what gives you confidence about 2014, strong demand from the customers you talk to, you guys have the right products in place, you're a good size, you have a great talent that's selling out there. Are there any missing components of that recipe, perhaps sort of maybe on messaging or getting the message out to partners, having the right marketing in place to get a broad enough set of customers to understand the solutions you have in place? Or anything of that ilk that you think is still needs to work or still a missing ingredient from that recipe for a really strong 2014?

Vivek Y. Ranadivé

Well, I think the 3 areas that we're focused on is -- so if you look at the pyramid of relationships, the top end of the pyramid, you have CEOs and CMOs. At the middle of the pyramid, you have the IT people, and CIO has now become more of an IT project manager, doesn't really have authority; and then at the bottom of the pyramid, the low end. So we're -- we've been historically good at the middle. We're actually capable of being very good at the top end of the pyramid, so we see success there. But we need to -- and we are very pleased with the success that we are having, selling to CMOs. So the 3 areas that we're focused on is, one is, getting the marketing air cover to go to the top end and also go to the low end of the pyramid. So we are very, very focused on that. The second is partnerships, and there are certain kinds of partnerships that lend themselves to -- some of our products lend themselves to that. And so we need focus on that. And then the third is just in regions where we have weakness, where -- so things like Europe, we need to strengthen parts of Europe. So I think those are the 3 areas that we see weakness in, just improving partners, improving marketing to reach out to other parts of the pyramid and regional focus.

Operator

Our next question comes from the line of Greg Dunham with Goldman Sachs.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

A quick one for me, and it's on the pivot to the cloud and subscription. Obviously, that has an impact on revenues but it also has a pretty substantial impact on margins, one company's transition to more subscription-based businesses. Can you clarify what's the outlook on EPS of high single-digit, low double-digit growth? Does that assume that margins are expanding?

Vivek Y. Ranadivé

No. What we're saying and the reason -- historically, we've said that our EPS growth will be 15% to 20% year in, year out. And so as we start transitioning to more of the time-based revenue, we're slowing down our growth rate and EPS. And so we're not saying there'll be a decline in margins, but there will not be the kind of expansion that has been there historically as we've grown bigger.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

I guess, the question, why would margins even stay flat if more of the business goes to the cloud? What's the big offsetting factor?

Matt Langdon

So I think again, what's important to understand about the cloud for us is we're layering that business onto the model. I mean, we're not -- we don't see at least in the next couple of years that we're really converting as much as adding to it.

Vivek Y. Ranadivé

So yes, so look, I mean, like Adobe that basically took existing deals and then they converted all those deals into a cloud model. What we're doing is we're investing in cloud business, which is largely new business. So it's not going to lower the margins on the existing deals, but that business will be lower margin and there'll be significant investments in it. That's why we think that we can maintain those kinds of margins overall.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Oh, that makes sense, incremental profit from core business offsets the investments in cloud. Okay.

Vivek Y. Ranadivé

Much more articulate than what I said, but yes.

Operator

Our next question comes from the line of Raimo Lenschow with Barclays.

David Wang - Barclays Capital, Research Division

It's David Wang on for Raimo. We'd just want to ask what percentage of your new deals have a bundling of your infrastructure and business optimization products versus just infrastructure standalone or just business optimization management.

Murray D. Rode

David, I'm sorry, we're having a hard time hearing you. Would you mind repeating the question?

David Wang - Barclays Capital, Research Division

So what percentage of your new deals, your new license deals, bundled infrastructure and business optimization together, as opposed to just having infrastructure standalone?

Murray D. Rode

It was -- well, quite a bit of the deals had both infrastructure and events. I mean, often, if we're selling events, we're selling some part of the infrastructure with it.

Operator

And we have reached the allotted time for questions. I'll now hand the call back over to leadership for closing remarks.

Vivek Y. Ranadivé

Okay, well, thank you all for joining us, and wish you all happy holidays. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may all disconnect.

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