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TIBCO Software Inc. (NASDAQ:TIBX)

F2Q10 (Qtr End 05/30/2010) Earnings Call

June 24, 2010 4:30 PM ET

Executives

Vivek Ranadive – Chairman and CEO

Murray Rode – Chief Operating Officer

Sydney Carey – Chief Financial Officer.

Analysts

Nabil Elsheshai – Pacific Crest Securities

Brad Zelnick – Macquarie Securities

John DiFucci – J.P. Morgan

Mark Murphy – Piper Jaffray

Geo John – Goldman Sachs

Yun Kim – Gleacher & Company

Tim Klassell – Thomas Weisel Partners

Brent Williams – Benchmark

Operator

Good afternoon, ladies and gentlemen. I am [Lusatia]. Welcome to TIBCO’s Second Quarter 2010 Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. 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 on TIBCO Software website at www.tibco.com. In addition, replay will be available through Intercall for one month following today’s call by dialing 800-642-1687 from the U.S. or 706-645-9291 internationally. The confirmation code is 78422894.

The following conference call includes forward-looking statements, which represent TIBCO Software outlook and guidance only as of today, and which are subject to risks and uncertainties. These forward-looking statements include, but are not limited to, forecasts of revenues, operating margins, operating expenses, outstanding shares, and earnings per share for future periods.

Our actual results could differ materially from those projected in such forward-looking statements. Additional information regarding the factors that could cause actual results to differ materially are discussed in the risk factor section of TIBCO’s most recent reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission. TIBCO assumes no obligation to update the forward-looking statements included in this call, whether as a result of new developments or otherwise.

The conference call also includes certain financial information that has not been prepared in accordance with Generally Accepted Accounting Principles as we believe that such information is useful for understanding our financial condition and results of operations for a presentation of the most directly comparable financial measures calculated in accordance with GAAP and reconciliation of the differences between the non-GAAP and GAAP financial information. Please see our website at www.tibco.com.

The presenters on the call are Vivek Ranadive, TIBCO’s Chairman and CEO; Murray Rode, Chief Operating Officer; and Sydney Carey, Chief Financial Officer.

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

Vivek Ranadive

Thank you, Lusatia, and hello everyone for joining us today. I’ll begin with summary remarks on our second quarter performance, comment upon the state of our business half way through our year and then I’ll turn it over to Murray and Sydney to discuss the details.

We had another good quarter in Q2 extending our strength of outperformance to eight consecutive quarters and delivering accelerated growth in total revenue, licensed revenue and operating profit. Highlights include, total revenue grew by 21% over the second quarter of 2009 for a Q2 record of $173.3 million. License revenue grew by 23% to $62.1 million.

Non-GAAP operating margins came in at 22.4%, an expansion of 340 basis points over last year and non-GAAP EPS at $0.15 grew by $0.04 over the second quarter of last year.

We also saw the greatest product refresh in our history this quarter, demonstrating more returns from our steady R&D investment and showing once again, why TIBCO is the innovation leader in infrastructure software.

Finally, we continued to judiciously compliment this innovation by acquiring Kabira Technologies, a provider of in-memory transaction processing software and earlier this week, we announced our intention to acquire Proginet, a leader in the Managed File Transfer market. Murray will comment further on these various product initiatives shortly.

But what I really found interesting about this quarter and what a growing body of evidence suggests is that we have hit the tipping point in our business. In fact, the tipping point may have been hit as much as a year ago.

Consider the diversity of customers across industries and across companies big and small that are seeking our solutions, buying into our vision of the event driven enterprise and using our products to solve 21st century problems.

Our competitive position has never been stronger. Our differentiation is recognized, our brand has never carried more weight and we continue to show pricing power. The market is coming to us.

There is an intense level of interest in our newer solutions such as TIBCO Silver. Our silver data program had over 400 requests to participant whereas TIBCO Beta’s in the past have seen maybe a dozen or so inquiries.

Our partner support has strengthened and become universal as evidence by the range of partners supporting our message, including Accenture, HCL, HP, Intel to name just a few and as some of you experienced firsthand, there is a great energy being generated at our marketing events such as this year’s TUCON, our Annual User Conference where over 1300 attendees and 70 partners were present. This was the largest gathering ever of the TIBCO community.

And let’s not forget that invitation is the greatest form of flattery. The number of other software companies trying to jump on the event driven bandwagon continues to grow. In fact, IBM, which in truth has been on the bandwagon for sometime, is doing successful over its Smarter Planet ad campaign, for it is building awareness for the importance of technologies in which we are best in class.

What TIBCO offers and what our customers want is the Two-Second Advantage. The Two-Second Advantage is a term I coined as a reference to the substantially higher value to having just a little bit of the right information in the right place at the right time and in the right context just a little bit beforehand, as opposed to having all of the information in the world six months after the fact.

The Two-Second Advantage is what results when enterprise becoming event-driven and leveraging in-memory technologies, workers relying exclusively on transactional systems that forcibly and constantly require round tripping, back and forth to a database. After all, what is the point of knowing a customer has left, a power grid is down, a plane is delayed, a fraud has been committed, only until after the fact.

Once the customer leaves, it’s already too late. This is why the market is shifting from the, I wish I knew database centric architectures of the past to the I know event-driven, in-memory architecture of the 21st century. Many of our customers have started discovering their Two-Second Advantage, others are now racing to do so.

With that, I’ll turn it over to Murray. Murray?

Murray Rode

Thanks, Vivek. I’ll focus my remarks on some operational metrics for Q2. I’ll comment more specifically on key product relationships in the quarter before turning it over to Sydney. In terms of deal activity, we saw a healthy deal flow with 85 deals over $100,000 in license versus 88 a year ago and 12 deals over $1 million in license versus 11 a year ago. Our average deal size for transactions over $100,000 in license rose to $641,000. We continue to like our mix of deal sizes and believe these numbers suggest a continued positive selling environment for TIBCO.

In terms of geographic mix, total revenue was as follows, Americas 52%, Europe, Middle East, Africa 37% and Asia-Pacific and Japan 11%. There was nice growth from a regional perspective, with Americas up 19%, Europe up 14% and Asia-Pacific up 17%.

From a vertical market perspective, total revenue broke down as follows. Financial services 30%, telecommunications 14%, government 9%, energy 8%, life sciences 6% and transportation and logistics was just shy of 5%.

Overall, we continue to show diversified and balanced performance across a range of vertical markets. This quarter it was particularly nice to see strong growth in our larger verticals of finance and telecommunications, as well as, upticks in transportation and logistics, retail, manufacturing, insurance and life sciences.

From a product perspective, the breakdown of licensed revenue among our major product families was SOA 62%, business optimization 27% and BPM 11%. SOA had yet another very strong quarter, growing 34% over the same period a year ago with major drivers being active matrix and messaging.

As Vivek mentioned, we had a large number of new product announcements this quarter, on which I’ll provide more detail. I’ll address six major announcements. First, ActiveMatrix BPM went GA on May 28th. Still, we closed a substantial seven figure deal over IBM, Lombardi, Oracle and Pega in the quarter and our pipeline for BPM looks very robust. We have nearly completed a world-wide sales enablement campaign and enthusiasm for this product in our field is running very high.

ActiveMatrix BPM is a new BPM technology built from the ground up on top of our ActiveMatrix SOA foundation. This product enables business users to define processes and rules separately from the underlying IT infrastructure while enabling IT to scale processes faster, deploy more broadly and handle integration in the background.

In addition it offers an intelligent workforce management feature that means both roles and expertise can be managed as a single resource pool breaking through functional silos to improve performance and utilization.

ActiveMatrix BPM enables us to lead throughout the competition as it is the first product to fully integrate SOA and BPM and offer full intelligent workforce management.

Second, we released BusinessEvents 4.0, which continues to move the complex of end space forward. For developers it provides easier than ever eclipsed based development tools. For business users it offers a new visual environment to manage rules based on complex events. For operations, BE 4 provides realtime dashboarding and analysis tooling. BE is the platform for developing event-based applications.

Third, we introduced ActiveCatalog and ActiveFulfillment built upon a decade of experience, working with our leading Telco service provider customers. These products based primarily on our BPM, MDM and business events offerings help manage product offers and automate fulfillment for the concept to cash business process.

Fourth, we also had our initial release of DataSynapse Analytics combining Spotfire with the DataSynapse grid offering to provide performance analytics to optimize grid computing environments. This new product is an example of how we are continuing to integrate and thereby leverage our acquired and developed technologies throughout our product stack.

Fifth, we recently announced an in-memory suite of products, consisting of ActiveSpaces Data Grid which is available now and within the next 12 months, ActiveSpaces Transactions and ActiveSpaces Patterns.

ActiveSpaces Data Grid provides a robust in-memory data store and messaging engine to remove disk-based performance bottlenecks. ActiveSpaces Transactions provides ultra high-speed in-memory management for traditional transactions. And ActiveSpaces Patterns provides realtime intelligent pattern matching for data streams.

I would also mention the last two components came about through two technology acquisitions we recently completed, Kabira for in-memory transactions and Netrics for pattern matching.

Lastly, we also introduced in Q2 our plans around the newest member of our messaging family called TIBCO FTL. It is designed for high throughput data distribution scenarios with particularly aggressive performance requirements, as might be seen in parts of financial services, government and utilities.

There’s still more like our new social networking product for the enterprise, tibbr, but I’ll stop there, hopefully having conveyed the breadth and depth of our ongoing focus on innovation and product development. Along with these product releases is a parallel effort to continuously train and enable our field organizations to help insure we can sell our broad array of products and solutions.

With that, I’ll turn it over to Sydney.

Sydney Carey

Thank you, Murray. I will provide additional details on our financial performance in Q2 and then I will provide comments on our financial outlook for Q3. I’ll review our financials on both a GAAP and a non-GAAP. A full reconciliation was included with our press release along with an explanation of our non-GAAP measures.

I have said our focus this year is on growth with leverage and that is exactly what we delivered again this quarter. Some key performance data on our second quarter results are as follows.

Total revenue was $173.3 million, up 21% year-over-year and approximately the same on a constant currency basis. License revenue was $62.1 million, up 23% year-over-year or closer to 26% on a constant currency basis.

Services revenue was $111.2 million, up 21% from last year or 19% on a constant currency basis. Both professional services and maintenance components had an all-time record quarter in Q2. Non-GAAP gross margin for Q2 was 75.3%, slightly better than Q2 of last year.

Non-GAAP operating income was $38.8 million, up $11.6 million or 43% from the same period a year ago. This resulted in an operating margin of 22.4% versus 19% a year ago. Q2 cash flow from operations totaled $41 million. Non-GAAP EPS was $0.15 versus $0.11 a year ago.

Now turning to our balance sheet, we ended the quarter with approximately $277 million in cash and short-term investments. Deferred revenue, including both long and short-term components totaled $194 million, up $40 million from Q2 of last year, of which $17 million of this increase was due to acquisitions.

Cash collections for the quarter was strong, but DSOs at 60 days compared to 62 days in Q2 of last year. Also during the quarter, we repurchased approximately 3.4 million shares at an average price of $11.

As we look forward, there are a few comments on the broader environment I would like to make. Our second half pipeline continues to strengthen as we see strong demand for our products. The demand for our professional services has also never been better. However, given that Q3 is the summer quarter our guidance assumes close rates to be slightly more conservative as compared to what we experienced in Q2.

For Q3 2010, specifically our outlook is as follows. We expect total revenue be in the range of $172 to $177 million. We expect license revenue to range between $63 and $66 million.

The non-GAAP operating margin is expected to be between 21.5% and 22.5%. Non-GAAP EPS for the quarter we estimate at $0.15 with an assumed tax rate of 31%. We expect license revenue to have a currency headwind of approximately 2% and total revenue to have a currency headwind of approximately 1%.

However, we expect the impact to earnings to be currency neutral in the period. GAAP EPS should range from $0.06 to $0.07 with an assumed tax rate of 33%. We expect cash flow from operations to range from $10 to $20 million.

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

Question-and-Answer Session

Operator

(Operator Instructions) The first question will come from Nabil Elsheshai with Pacific Crest Securities.

Nabil Elsheshai – Pacific Crest Securities

Hey, guys. Thank you for taking my question. Real quick, you’ve provided in the past I think new license customers. I don’t know if you gave that or if I missed that but I was wondering if you have that for the quarter?

Murray Rode

We do. It was 33.

Nabil Elsheshai – Pacific Crest Securities

Okay. Great. So I guess, if you step back everything looks great except for BPM and I just was wondering if you can talk about the dynamics there. Obviously, you have a new product out, I think it is an entirely new. It is not just a straight upgrade. I was wondering if you were seeing pauses ahead of the new release or if there’s some other dynamic going on with BPM as you look forward?

Vivek Ranadive

Yeah. At our customer conference we saw very, very strong demand for BPM and clearly we were in this product cycle where we had completely taken a quantum leap and reengineered the product. And this actually is interesting because companies like Pega, which are single product companies have a very, very hard time competing in that type of a situation where they basically have to still keep sending the same 20-year-old product. And we were able to take the time to reengineer it and now we have really a very, very strong offer and that leapfrogs everything. And we feel very bullish about it. Murray, do you want to add anything to that?

Murray Rode

No, I think, just to your question, Nabil, I think that, that the fact that ActiveMatrix BPM was coming out late in Q2 probably did mean we didn’t see quite the growth in Q2 that we might have otherwise had. But as I said, the pipeline for ActiveMatrix BPM, the level of interest late in quarter, even the deal that we did close late in the quarter which was a very sizable deal are all really positive leading indicators on that.

Nabil Elsheshai – Pacific Crest Securities

When you look at it as the product cycle potential for revenue, I mean is it a new thing even for existing customers? Is there incremental opportunities with those guys or is it mainly an opportunity around getting new customers?

Vivek Ranadive

No. It is a refresh. Everyone is going to go into the new generation of BPM. Everyone needs to do things like goal-oriented BPM. And this is really going to be a refresh cycle.

Nabil Elsheshai – Pacific Crest Securities

Okay. Great. And then just in terms of sales investments, the head count now and what you are looking at for the rest of the year?

Sydney Carey

So we ended the quarter with 180 quota carrying reps. We are looking to continue to selectively hire in the sales organization and we are focused on sales enablement as well for the second half with the sales organization.

Nabil Elsheshai – Pacific Crest Securities

Okay. So similar rate of investment you have been making or any changes one way or the other?

Sydney Carey

I would characterize it similar level of investment.

Nabil Elsheshai – Pacific Crest Securities

Okay. Great. Thank you guys for taking my questions.

Vivek Ranadive

Thanks Nabil.

Operator

The next question will come from Brad Zelnick with Macquarie Securities.

Brad Zelnick – Macquarie Securities

Thanks guys, nice job. I guess, my first question, I know we talked a little bit at TUCON about a focus on channel and trying to get partners to generate demand. Are there any metrics you can share about partner led versus internally led deals? That’s something that may be overtime. I know it’s only recently we have been talking about this but is there anything you can share that talks about the progress or metrics going forward that we can look to try to measure that?

Murray Rode

I think what we would say at this point is that we’ve seen, if you look at year to date performance this year over last year, we’ve seen pretty big increase. And I think close to a doubling if I remember the metrics on sourced revenue through partners. And then the number if you take into account influence is even larger.

So, now we are running in terms of sourced revenue, close to 20% from partners. So that is moving up nicely and we continue to focus on that. And as it relates to the question on sales capacity we really do see both direct sales and partners as part of our capacity. So we are focusing on investing in both.

Vivek Ranadive

And also, Brad what we are seeing is that we are emerging as the go-to (inaudible) for all event-driven computing, for all of these partners. And so it is for the Indian offshore guys, HCL is going to have a TIBCO day, a TIBCO month actually. We are seeing support from all of those guys, Infosys, TCS, Accenture. We are seeing support at TUCON from people like HP and Intel, even Microsoft.

So, we are kind of that neutral party that everyone feels comfortable gravitating toward. We recently had a deal that we won over Oracle where actually IBM Global Services brought us in. So I think that we are becoming the go-to company for this integration event-driven software for all of these partners.

Brad Zelnick – Macquarie Securities

That’s helpful. Thanks. If I could just ask a follow up. As you look at all of the deals that you are involved in this quarter, just to give us an appreciation of the two second advantage and what customers are really looking to do on the leading edge. What was the most exciting use case that you can talk about that drove a deal for you this quarter?

Vivek Ranadive

It is across the board. We see -- we see the smart grid where people want to avoid power failure, power outages and at the same time, build out the smart grid. We see customers in terms of upsell and cross sell. It is completely turning CRM on its head. And so CRM is becoming increasingly what I call enterprise to all. And enterprise field, you go from outbound marketing to inbound, you walk into a store and get offers in realtime as you’re walking through the store.

So, I think the most exciting developments will be on the retail side. I had a supermarket chain recently and a year ago, I would have chewed the sales guy out because I would have said what are you doing selling to a company like that. They don’t spend that much money on this kind of stuff. And the whole retail industry is going through a complete change in terms of looking at their customers as a social network and how to mine that in realtime to get rid of coupons and make them realtime coupons that appear on your iPhone.

So I think the retail sector is one that’s exciting. But government is exciting, airlines are exciting, smart grid is exciting. So I think we are seeing the two second advantage applied all over the place.

Brad Zelnick – Macquarie Securities

Thanks again, Vivek. And just one last question for Sydney perhaps. Were there any mega deals in excess of $5 million or $10 million in the quarter? Thanks, again nice job.

Sydney Carey

We would characterize a mega deal to be a deal greater than $8 million and we did not have a deal greater than $8 million in the quarter. But we did have a deal greater than $5 million.

Brad Zelnick – Macquarie Securities

Great. Thanks again, nice job.

Operator

The next question is from John DiFucci with J.P. Morgan.

John DiFucci – J.P. Morgan

Thank you. Nice job, guys. My question, Vivek, goes back to your point about hitting the tipping point here. And I think you were referring to hitting the tipping point in regards to dynamic and memory event oriented architectures. But it really seems like most of your momentum here and you’ve seen a lot of it over the last several quarters. It really looks like its coming from your core products, messaging and integration, the SOA area. And this is all good but I’m just curious. It does sound like there’s a lot of interest for your newer solutions. When do you think we’re going to see that traction turn into material revenue?

Vivek Ranadive

John, I think that’s a little deceptive because things like business optimization and complex event processing, business events and so on, those are all killer apps for that next generation infrastructure. So the numbers kind of are a little misleading in that sense, because people are buying the whole stack. And what is motivating a move through this new SOA infrastructure is a move to event-driven architectures.

And if you see what happened in the last 12 months, if you look at just the diversity of the businesses, when we do a beta, we have six, seven, eight people interested. When we did the Silver cap beta we had over 400 people breaking our doors down wanting to be a part of it, just a substantial increase.

If you look at what all of the other competitors are doing, they all want to be in that business now. And so we believe that the tipping point for a move from a transactional to an event-driven architecture happened in the last 12 months. And that one of the things you have to do when you do that is move to this SOA infrastructure.

Brad Zelnick – Macquarie Securities

Okay. It is something we’ve heard from you for years now but we are actually starting to hear about it more from others, which is interesting. It sounds like it is …

Vivek Ranadive

If you talk to the partners, they are all jumping on this. If you look at what other people are doing, they are all moving in this direction. And so we have done a lot of the pioneering work over the years, we’ve grown our business. I spend time talking to companies and I talked about retailers that are just viewing this as the only way for the future. So people who stay with the transactional architecture will basically be stuck in the past.

John DiFucci – J.P. Morgan

Okay. Great. Thanks a lot. Nice job.

Vivek Ranadive

Thanks, John.

Operator

The next question will come from Mark Murphy with Piper Jaffray.

Mark Murphy – Piper Jaffray

Thank you. Do you feel that the big ticket transformational middleware and SOA deals which I think arguably were somewhat on hold in 2008 and 2009. Do you think those are coming back into the picture here in a sustainable way when you look at the pipeline that you have for the next few quarters?

Vivek Ranadive

I don’t know how you classify big ticket but we are seeing a very, very strong pipeline. And we are seeing the very big companies willing to spend as well as the smaller companies. And as I said, we are seeing industries we never saw before like retail and healthcare that are willing to commit quickly to big ticket items. So we are seeing that in our pipeline.

Mark Murphy – Piper Jaffray

Okay. And then just secondly, on the financial services revenue mix, I think you said was at 30% and I don’t recall having seen a number that high, at least recently. And I am curious, do you think that has peaked for this cycle or is there a chance that could still move higher just based on some of the project requirements out there for the big banks?

Vivek Ranadive

Yeah. The banks are often the first to move to new infrastructures and we’re starting to see just a huge migration. We’re seeing areas like the consumer side of the bank where what we did for Citibank in Asia in terms of customer upsell, cross sell in realtime, flash sales, flash promotions. That’s something every bank is trying to do. It is not just in the conventional capital markets area. It is in the retail area. And we think there’s a huge investment cycle coming in those areas right now.

Mark Murphy – Piper Jaffray

Okay. Great. Just one last quick one. I think clearly your execution has just been phenomenal, particularly recently. I am wondering as customers view TIBCO more strategically, can you comment on the prevalence of some of the ELA transactions and are those becoming more frequent and maybe how do you feel about that in terms of what it means for the business model?

Vivek Ranadive

We are very, very disciplined about our pricing, how we do our pricing. And so we have great pricing discipline right now and we have the most pricing power that we have ever had. I will let Murray comment on that. But I think before, when we were competing with much smaller guys, we were just trying to cut off everyone’s oxygen and get market share. And now we have established the beachhead. We have 4,000 customers and they see the value. So we are able to maintain our pricing discipline but Murray should comment on ELA.

Murray Rode

Yeah. I don’t think that there has been an increase in the proportion of ELA-type deals. I think as Vivek says, we have been -- we have also been more focused on how deals are structured and priced. So I wouldn’t say there’s a change in the trend there. If anything there’s probably more quantity-specific deals than in the past.

Mark Murphy – Piper Jaffray

Okay. Thank you.

Operator

The next question will come from Derek Bingham with Goldman Sachs.

Geo John – Goldman Sachs

Hi guys, this is Geo John on behalf of Derek Bingham. Great quarter, first of all.

Vivek Ranadive

Thank you.

Geo John – Goldman Sachs

A couple of questions. The strength in the services line, could this be attributed to something that you saw in the quarter or was this a general spending trend, IT spending trend?

Vivek Ranadive

A couple of things, one is we haven’t historically emphasized services. We are starting to do that. We have very, very strong leadership in services. We have one customer facing organization. We have got new leadership in place in all of the territories. And there is absolutely huge explosive demand for services. And we are hiring as fast as we can in that area. But I think it is a combination of demand, people wanting to shift to this event-driven architecture and our own execution. Murray, do you want to add anything?

Murray Rode

Not really. I think, as Vivek said, the focus on services is making a difference. But I do think we believe that the strength in professional services has been building for several quarters. And we see it as a good leading indicator just the general level of demand for customers for the kinds of solutions we offer.

Geo John – Goldman Sachs

My last question is you saw quite a good jump in the sequential license revenue build this quarter. So you were up 15% sequentially, just kind of the highest you have ever been the second quarter. Can this be attributed to the new products or is this a factor because of the recent acquisitions? Is it pent-up demand or is it just a combination?

Vivek Ranadive

Our acquisitions were mostly technology plays so at this point they’re more cost than revenue. So it is really this tipping point that I talked about that we are seeing just a massive shift across the board. I recently gave a talk at the Research Board where there were about 40 or 50 CIOs. And there wasn’t a CIO there who did not want to shift to an event-driven platform. It is everyone, it’s energy companies, it’s airlines, it’s retailers, banks. So we see it as evidence of a ship to an event-driven platform.

Geo John – Goldman Sachs

Okay. If I can ask one more question. Are there any macro concerns that you see in 3Q? Your guidance was conservative because of closure rates, I believe but that is mainly seasonal?

Vivek Ranadive

You are correct. We are not seeing anything right now but as you point out, Q3 seasonally it is always one that we have to be careful because of the holidays. And so we’re conservative. And we feel that the pipeline is very strong and we feel comfortable.

Geo John – Goldman Sachs

Thank you.

Vivek Ranadive

Thank you.

Operator

The next question will come from Yun Kim with Gleacher & Company.

Yun Kim – Gleacher & Company

Thank you. So congrats on another solid execution. Just taking Brad’s question on partner-led deals a while back ago, how much of your typical implementation work today have major system integrators currently involved and how has that trend changed over the past year or so?

Murray Rode

Well, probably most of our engagements have a systems integrator involved. It depends a little bit on where the deal is, a lot of the majors that Vivek mentioned are in many of the deals. There’s also a whole variety of regional systems integrators that are often involved. So it is pretty widespread.

Vivek Ranadive

I would say it’s over 90%, right?

Murray Rode

Yeah. It must be.

Yun Kim – Gleacher & Company

Would you say that the largest system integrators are more involved today than before or do you think the mix between the larger ones and regional ones are about the same as before?

Vivek Ranadive

What’s interesting is that the larger ones are probably more involved today but also the interest level is heightened. And so they’re making big commitments to train large numbers of people on the platform. They are coming to us. Recently HCL, even when they hosted their own conference, they actually talked about Enterprise 3.0. They spoke at our conference, as has Infosys and TCS in the past. But they also used tibbr to host their conference. So we are seeing a real spike in their level of interest and commitment.

Yun Kim – Gleacher & Company

Okay. Great. And then if you can just comment on what you are seeing in terms of your second half pipeline in terms of a vertical breakout. Do you expect financial services to remain strong? And also, there are some worries out there about -- regarding some slow down in government spending in Europe?

Murray Rode

Well, again, I think that Sydney mentioned broadly that we -- and Vivek as well, the second half pipeline is good, strong. From a vertical perspective, it is pretty diverse. I think we continue to see a good pipeline across our core verticals. I wouldn’t say there’s any particular concentration.

And one thing that is nice now, given how much diversity we have across verticals is we can see in any given quarter a little bit of relative strength or weakness in a particular vertical and it doesn’t affect us overly.

Vivek Ranadive

And also, for example, maybe, like if you look at it by geography that adds yet another element to it. So the financial institutions and say, Latin America, some of them are expanding quite a bit right now and they’re investing very heavily right now. So there’s that diversification as well.

Yun Kim – Gleacher & Company

Okay. Great. And then, with so many new products that you’re introducing or have already introduced so far in the year. Do you expect the deal size to maybe pick up starting in the second half of the year, just curious on that front?

Vivek Ranadive

Yeah. I think we’re happy with the way the deal size is right now and so we’ve also, for the first time, gotten really effective training programs in place. We’re currently doing a global roadshow to get the knowledge out. So we think that it will be just the deal sizes will be similar but it’ll just be more frequency of deals and so we’re happy with the sizes the way they’re right now.

Yun Kim – Gleacher & Company

Okay. Got it. And Sydney, the usual housekeeping question, how much did the top 10 deals present in the quarter, in terms of total revenue?

Sydney Carey

They represented 23% this quarter. It’s a little bit up.

Yun Kim – Gleacher & Company

Good. Okay. Great. Thank you so much.

Vivek Ranadive

Thank you.

Operator

The next question will come from Tim Klasell with Thomas Weisel Partners.

Tim Klassell – Thomas Weisel Partners

Yeah. Good afternoon, guys, and congratulations on the quarter. Sort of a bigger picture question here. In the past, when we saw application sales pick up from the application vendors and have you, you guys were often brought along to help with those implementations.

And we’re beginning to see more of that happening in the recovery. Are you seeing that help pull along projects for you or are you guys getting deeper into – continue to get deeper into the, what I’ll call the more customized and specialized projects?

Vivek Ranadive

We are seeing both, Tim. So we have instances where a bank picks SAP Core Banking for something, but then they pick our ActiveMatrix, BPM stack for all of the workflows and business processes. So we see that happening.

But increasingly, we see customers trying to do things like the cross sale, up sale, project action, things that they simply can’t do with what I refer to as the Enterprise 2 applications. So we see -- we’re continuing to see both and I don’t know in what proportion but right now there’s some very heavy interest in these event-driven 21st century applications.

Tim Klassell – Thomas Weisel Partners

Okay. Great. And then just sort of a housekeeping question. Your services line, you mentioned Pro Serv was picking up but how about the maintenance line because you did beat my number nicely there? How have maintenance renewals trended throughout the quarter?

Sydney Carey

Yeah. I did make a comment that we had a record quarter for both professional services and maintenance in Q2. So we’ve seen our renewals remain in that 90% to 95% range and so they’ve been very strong.

Tim Klassell – Thomas Weisel Partners

Okay. Good. Thank you.

Operator

The next question will come from Brent Williams with Benchmark.

Brent Williams – Benchmark

I wanted to sort of dig into the Proginet acquisition a little bit. Given that you guys are, on the one hand talking about sub nano micro femto second response times for some of the high-end networking, having Managed File Transfer is kind of like going back and like doing solid state tape as well as solid state disks on the storage front. You know, it just sort of seems like kind of an odd direction.

Can you give me a little bit of a sense of how that works and given that you already have the bus in place, do you need a separate utility to do file transfer? I mean, can’t you just bust up the files and route them yourself or I mean, I’m just, I’ve been sort of staring at this for a few days trying to figure it out?

Vivek Ranadive

I think it is a good question. And it’s true that on the one hand we have to support, FTL stands for Faster Than Light and micro second response time. And for you banks, you’re not happy with the speed of light. You want to be faster and that’s why, we have to keep pushing the envelope. But it turns out and the Proginet thing is in process so it hasn’t been completed.

But it turns out that our customers do want us to do Managed File Transfer as part of our stack and so we have been doing some of this kind of as a response to customers. And they actually are spending huge amounts of money with some of the big players just in maintenance in doing that. And so they started coming to us saying look, this is something that you should be able to do easily and it fits in with the rest of the stack and so why don’t you do it.

So we view this as something that was quite opportunistic. They have -- they are kind of the gold standard in that space and a small company, and it’s a kind of thing that our 180 salespeople could sell. But Murray I should let you comment on it further.

Murray Rode

No. I think that’s -- I mean, that’s really it. The upshot is that it’s an easy adjunct to the broader platform. And remember part of our value proposition is the breadth of infrastructure solutions that we provide to customers.

Brent Williams – Benchmark

Okay. And then you mentioned some of the large players there. I’ve seen a couple of other small companies that are doing this, but who are the large players? Is this IBM or who?

Murray Rode

Well, it is IBM now after the Sterling acquisition…

Brent Williams – Benchmark

Okay.

Murray Rode

… probably the largest player.

Vivek Ranadive

Yeah. A lot of big companies they do a lot of managed file account. That continues to be a huge chunk of what they need to do right now.

Brent Williams – Benchmark

Okay. Great. Thanks.

Vivek Ranadive

Thanks.

Operator

There are no further questions. Mr. Ranadive, would you like to have any closing remarks, sir?

Vivek Ranadive

No. We’d like to thank everyone for coming and have a good day. Thank you.

Operator

Thank you for joining us. We will now conclude TIBCO’s quarter two 2010 earnings conference call. You may now disconnect.

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Source: TIBCO Software Inc. F2Q10 (Qtr End 05/30/2010) Earnings Call Transcript
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