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Qlik Technologies, Inc. (NASDAQ:QLIK)

Q1 2014 Results Earnings Conference Call

April 24, 2014, 05:00 PM ET

Executives

Brett Pollack - Director, Investor Relations

Lars Björk - Chief Executive Officer

Tim MacCarrick - Chief Financial Officer

Analysts

John DiFucci - JPMorgan

Steve Ashley - Robert W. Baird

Nicole Hayashi - UBS

Jesse Hulsing - Pacific Crest

Brad Zelnick - Macquarie

Stan Zlotsky - Morgan Stanley

David Wang - Barclays

Walter Pritchard - Citigroup

Tom Roderick - Stifel

Derrick Wood - Susquehanna Intel Group

Greg Dunham - Goldman Sachs

Greg McDowell - JMP Securities

Clarence Chan - CLSA

Alex Tout - Arete

James Gilman - Drexel Hamilton

Abhey Lamba - Mizuho Securities

Operator

Good day, ladies and gentlemen. And welcome to the QlikTech Q1 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the call over to Brett Pollack, Director of Investor Relations. Sir, floor is yours.

Brett Pollack

Thank you, Operator. Good afternoon. And thank you for joining us today to review Qlik Technologies first quarter 2014 financial results. With me on the call today are Lars Björk, Chief Executive Officer; and Tim MacCarrick, Chief Financial Officer. After prepared remarks, we will open up the call to a question-and-answer session.

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

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

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

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

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

Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliations to the most directly comparable GAAP financial measures can be found in our press release, which is available at our website www.qlik.com, under the Investor Relations tab. Also, please note that our webcast of today’s call will be available on our website in the Investor Relations section.

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

Lars Björk

Thanks, Brett, and thank you all for joining us today. Revenue for Q1 was in line with our expectations and we achieved key milestones in the launch of our new product platform QlikView.Next.

Although, we delivered revenue in line with guidance, we remained intensely focused on improving topline performance as we continue to manage a transition to more broadly serving the enterprise.

Our top two priorities are improving our pipeline execution and successfully introducing QlikView.Next. We know that the market continues to move in the direction of self-service BI and Business Discovery, and our industry leadership and product investments position us well to capitalize on the growth opportunity in front of us.

This was an important quarter for Qlik, during which we made meaningful progress in laying out our two product strategy and outlining the future of our product roadmap to customers, partners, employees and investors.

To start the quarter, Gartner affirmed that QlikView.Next is the bolder strategy yet to address the enterprise’s unmet need for a governed discovery. At our Analyst Day in March, many of you had the opportunity to demo QlikView.Next. Since then, we made a beta QlikView.Next available to all of our customers and partners.

Additionally, we had connections at our Annual Global Partner Summit we detailed our strategy to expand our addressable market by offering two BI products, QlikView 11 and QlikView.Next. Our partners are as excited and energized about the opportunity as we are.

For the first quarter, we reported total revenue of $111.1 million, representing an increase of 15% over the prior year period. Our non-GAAP operating loss for the quarter was $14.5 million and non-GAAP net loss was $0.12 per diluted common share.

Revenue in the Americas grew 10% year-over-year, while Europe increased 17% year-over-year and rest of the world grew by 21%. Q1 can often be a more challenging quarter due to enterprise sales seasonality and this was the case this year, particularly in the Americas.

We are making progress on the pipeline management challenges that we’ve been talking to you about since October and Tim will go into more detail on the core results in a few minutes.

Like every quarter, our entire executive team spent time in the field all around the world and customers and partners told us about the problems they solve and the business results they achieved with QlikView.

Hearing their success story reinforces our confidence in the range of needs squarely addressed by our products and services and the science of the potential market. Nowhere was this more apparent than at the connections where we set a record with over 1,200 attendees, an increase of 20% year-over-year.

More than 100 partners attended for the first time and we see almost double the number of system integrator representative and technology partners in attendance, reflecting our increasing mind share in their businesses.

The Qlik Partner network is unmatched in our segment insights, global scale and influence. Our partners consistently help make our solutions even better and this mutual reliance is very important to our future success.

But it’s not just a conversation between us and them. Partners in our ecosystem work with each other, even going to market jointly. This partner-to-partner networking expands the Qlik customer value proposition and is a meaningful long-term competitive differentiator.

At connections, in addition to providing our partners with a more in-depth exposure to QlikView.Next, we took them through many of the same concept we shared with you in March. Our two product strategy, our token licensing model and the customer experience migrating from QlikView 11 to QlikView.Next.

They were very pleased to have us confirm that we will continue to sell, support and invest in QlikView 11 for years to come. QlikView 11 is a highly appreciated solution in the marketplace and will continue to be an important part of our business and our partners’ businesses.

Our customers and partners can be confident that the investments they have made will be secured for the foreseeable future. Several partners highlighted extremely compelling QlikView 11 use cases, application and tangible go-to-market strategies. ParStream, a company that offers a real-time database platform showed QlikView Direct Discovery can be used to analyze 50 million rows of data.

Australian retailer Emprise runs QlikView on top of ParStream’s database to analyze 6 billion rows of data in as little as 450 milliseconds, because Emprise can now analyze 12 times the amount of data. It can go beyond just sales reporting and provide deeper analysis on when, where, and even who specific products were sold.

Our partner Blue Yonder, a next-generation leading predictive analytics SaaS provider won out of the European organization for nuclear research for CERN displayed how its predictive analytics suite is to generate fact face, real-time and actionable predictions.

This integration with Qlik realized customers to enrich their business discovery experience by transforming historical and forecast data into single enterprise platform enabling better decision-making that positively impacts top and bottom-line results.

And a global professional services business told the audience that it doubled its win rate when it included QlikView in its mix. These examples clearly demonstrate not only the scale and the speed available to QlikView users, but more importantly how QlikView provides the platform for profitable for our partners. Mutual commitment and shared success make our global ecosystem a real differentiator between us and our competitors.

Turning to QlikView.Next, as part of our phase launch scheduled, we announced that we will be offering a free desktop version via Personal Edition download, early in the third quarter of 2014. Personal Edition users will be able to build a customized app in minutes by just sliding and dropping and will be able to connect multiple data sources.

Users can experience many of their natural analytics user interface capabilities before they complete server and enterprise functionality of the Qlikview.Next platform made generally available in second half of 2014.

This Personal Edition differs from our current free downloads in an important way by allowing sharing with other users. We will also provide a free cloud service of small workgroups to share their analysis on a limited basis.

We think taking this next step in our launch plan will help their market understand more clearly where we are going with Qlikview.Next, open up incremental opportunities and provide a head start in new customer buying cycles growing into that GA release.

Now let’s spend some time on a few key concepts around our product strategy. To begin with, it’s worth repeating, we are committed to selling, supporting and enhancing QlikView 11 as long as the market demonstrates demand for it.

We’ve been going to market with two products will position Qlik to meet the needs of our customers and prospects across an expanded range of user profile and use cases.

As you know, Qlikview.Next will ship under a new flexible licensing model based on tokens. We believe this licensing model will encourage more consumption leading to faster adoption in what we think is a much larger addressable market.

Tokens are good for our customers because they permit easier license portfolio management and they get better aligned and spend to the demand for their QlikView in their business. Tokens are good for us because buying decisions will be made independent of infrastructure requirements. Let me explain how.

Today, customers buy a mix of user CALs and server CALs. When they buy QlikView.Next they will only buy token. The price of the QlikView.Next token will represent the clustery user CAL and a portion of the server CAL. A building in portion of server license cost in each token, we expect to eliminate the hurdles we sometimes see when customers are making buying decisions.

As consumption grows in an organization, office customers will be able to more use and expand capacity which positions our licensing model to scale with our customers. There are few key points in this discussion I want to make perfectly clear.

First, across all the deals we do in the quarter, we would expect a token licensing model to be revenue neutral. Second, the token licensing model only applies to QlikView.Next sales. Third, we will continue to sell QlikView 11 under our current CAL licensing model so the move from CAL to token licensing model will occur over the next several years.

As we go closer to GA, we will provide even more details. The curiosity in QlikView.Next is building both among existing and new customers, the interest in QlikView 11 remains strong.

Customers buying QlikView 11 today can be confident in the knowledge that if they are current on maintenance on QlikView 11, they will have access to the then current version of next, when and if they decide to migrate.

Additionally, QlikView 11 customers continue to see better business outcomes, which gives us confidence that our two product approach is the right strategy. This is highlighted at LUSH Fresh Handmade Cosmetics, a U.K. based cosmetic company with over 900 stores in 51 countries.

LUSH deployed QlikView to drive in-store profitability and delivered a reduction of over £1 million in stock inventory loss. As a result, QlikView is now used 70% of the LUSH staff everyday to review sales, inventory and performance.

Another great example is Pacific Life Insurance Company, a leading insurance company who has deployed over 200 QlikView applications across multiple functions. They’ve seen 20% reduction in time spent to aggregate reports and believe that QlikView has helped every user of all corners of the organization to do their job better.

As you’ve heard this quarter provide a great opportunity for us to share our vision for Business Discovery with our partners and during remainder of the year, we had many more exciting events that we will be hosting.

We still have several more Qlik to discover local road shows slated for Q2, as well as hosting another virtual event focused on Asia-Pacific region on May 20th and we’re in preparation for Annual Customer Conference in U.S. taking place on November 17th through 20th in Orlando, Florida. The conference will bring customers together to share experiences and best practices. The event will also allow Qlik to engage with train and educate attendees.

Our goal is to be the governed Business Discovery platform. 2014 remains an exciting year for Qlik and we plan to continually update you as our QlikView.Next journey takes off.

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

Tim MacCarrick

Thank you, Lars. I’ll start by providing further details on our financial performance during the first quarter and then I’ll discuss our guidance for the second quarter and full year 2014.

Consistent with our guidance for the first quarter, total revenue of $111.1 million was up 15% in reported currency and 14% in constant currency over the same period last year. License revenue was $53.9 million, an increase of 2% over the same period last year.

Maintenance revenue was $45.8 million for the first quarter, increasing 28% over the same period last year, driven by strong renewal performance. We anticipate our renewal rates will remain strong throughout this year, particularly as we get closer to Qlikview.Next GA release.

As customers renew their maintenance, both to continue to receive support on their critical applications and to ensure they get access to our new products.

Professional service revenue was $11.4 million, increasing 39% over the first quarter of 2013. This strong performance reflects investments made in 2013 to further scale our services business. And we also benefited from a services agreement related to a large license deal we closed last year.

One of our greater than $1 million transactions in Q3 2013, was with the professional services division of a large systems integrator to automate key customer facing services. Now as part of a continuing and growing relationship, our consulting team is helping them develop customized applications for their customers.

Revenue in the Americas increased 10% in reported currency and 12% in constant currency. This performance reflects the timing of some larger deals, which we accounted for in our Q1 guidance. We continue to see a large opportunity in the Americas and we expect this region to remain a growth driver.

European revenue grew 17% in reported currency and 12% in constant currency from the prior-year period. And rest of the world revenue increased 21% in reported currency and 29% in constant currency year-over-year during the first quarter. During the quarter, 57% of license and first year maintenance was generated from our indirect partner channel and 43% from our direct channel, which is compared to 63% indirect and 37% direct in Q1 2013.

Last year, our indirect business was positively impacted by a greater than $1 million direct deal that was done on partner paper. As a result, if we normalize for this deal, our indirect to direct mix is relatively in line compared to last year.

Turning to our large deal metrics, we completed 101 deals over $100,000, compared to 88 in the same period last year. This includes 73 deals between $100,000 and $250,000, an increase of over 30% in both deal number and dollar revenue volume. This strength was based broadly across the SMB, Midmarket and Enterprise segments.

We closed 28 deals over $250,000, which is down from 32 in the prior year and was the primary driver behind our 2% license growth. This is where we see the typical lumpiness that characterizing large Enterprise deals.

We have made further progress segmenting our pipeline by source and maturity stage and are using that knowledge to improve how we move opportunities through the pipeline. We’ve made several important organizational and process changes to better align responsibilities and manage the handoffs within the company as an opportunity matures.

We continue to add resource capacity and train new and existing business development reps on the process changes. As we previously discussed, this is a multi-quarter effort and we believe we’re on track.

We expect the flow-through impact of these changes to begin to materialize in our results in late Q2 and be increasingly impactful over the next several quarters. Pipeline continues to grow year-over-year and we remain pleased with the quality remains in the pipeline and related deal size opportunities.

Our headcount ending the quarter was 1,809, a 22% increase from the same time last year and a sequential increase of 88 people. This headcount is in line with our expectations and our strategy to invest for growth.

Now let’s focus on cost and margin performance and review our results on a GAAP basis and where applicable on a non-GAAP basis. Non-GAAP numbers excludes stock-based compensation expense, employer payroll taxes on stock transactions, amortization of intangibles and utilizing estimated long-term effective tax rate of 30%.

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

Gross profit for the first quarter of 2014 was $93.1 million, representing a gross margin of 83.8%, compared to an 85.1% gross margin in the first quarter of 2013. Operating expenses totaled $116.6 million in the first quarter, compared to $99 million in the prior year, reflecting the investments we made throughout 2013 and into 2014 in sales coverage and capacity, product development and launch, scalable infrastructure and broader marketing efforts.

As a result, our non-GAAP operating loss was $14.5 million for the first quarter, compared to a non-GAAP operating loss of $10.2 million in the prior-year period. Non-GAAP operating loss for the first quarter of 2014 excludes $7.8 million of stock-based compensation expense, $363,000 of employer payroll taxes on stock transactions, and $809,000 related to the amortization of intangible assets.

During the quarter, we had a foreign exchange loss of $363,000, which was included in other expense, compared to a loss of $1.5 million in the same period last year.

As you know, foreign exchange gains and losses can fluctuate and our guidance does not consider any additional potential impact to other income and expense associated with foreign exchange gains or losses, as we do not estimate movements in foreign currency rates.

On a GAAP basis -- on non-GAAP basis, our net loss was $10.4 million for the first quarter of 2014, or a loss of $0.12 per diluted common share, compared to a non-GAAP net loss of $8.2 million or a loss of $0.09 per diluted common share for the first quarter of 2013.

Moving to the balance sheet, cash and cash equivalents totaled $253.3 million as of March 31, 2014, compared to $214.8 million as of March 31, 2013. We generated $19.4 million in cash flow from operations during first quarter of 2014, compared to $14.7 million in the prior year period.

Now turning to our thoughts on second quarter and full year 2014 guidance. For the second quarter, we expect total revenue to be in the range of $124 million to $128 million, non-GAAP operating loss to be $5 million to $2 million and a non-GAAP net loss per diluted common share of $0.04 to $0. 02.

Reiterating our guidance for the full year 2014, we expect total revenue to be in the range of $545 million to $555 million, an increase of approximately 16% to 18% over 2013. Non-GAAP operating income expected to be in range of $30 million to $35 million, and non-GAAP net income per diluted common share is expected to be in the range of $0.23 to $0.27.

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

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of John DiFucci with JPMorgan. Your line is now open. Please proceed.

John DiFucci - JPMorgan

Thank you. Thanks Tim and Lars. I’ve got two questions. First one is, so we saw in this quarter deferred revenue and cash flow were very strong in this quarter. So it’s probably an indication of potential leverage in your model. But license revenue grew very modestly and you sort of addressed that in your prepared remarks and is below what most thought including.

I guess how confident are you it is as simple as deeper seasonality with that license revenue shortfall? And could there be anything else happening, I guess, especially in the U.S. or the Americas, which you noted as the area where deeper seasonality was most prominent?

Lars Björk

Hey John. We continue to be very comfortable with the market opportunity that we have and our position in the market. Clearly, as we guided in the first quarter, we expected license revenue to be off trend and in fact, it came in pretty much where we expected.

We think the fundamentals are clearly there for acceleration of growth as we go through the balance of the year, clearly. And more specifically, to the Americas, they have done very, very well over the past several quarters of growing 29% in 2013 and 26% in 2012. And there is no question we believe that’s going to be continued growth engine for us as we move forward.

And pipeline management plays a role in the Americas. As we know that that’s across the organization and that was a factor as well in our guidance for the quarter. So, we’re -- we remain pretty confident that we’re in the right place in the market.

John DiFucci - JPMorgan

So you’re saying that license came in pretty much where you expected? Did I hear that right?

Lars Björk

Yeah. Overall guidance and performance from a license and total revenue perspective was within our guidance range and pretty much as we expected.

John DiFucci - JPMorgan

Okay. I guess one thing to, Tim, and I know you know this. Your guidance even before this quarter, especially with the launch of Next coming out and the potential, I guess, for volatility around the business that that could bring, I mean, there has been, at least within the investment community, I guess some concerns around the guidance.

Not so much on the business itself, but around your ability to just to make sure you hit the numbers and no one likes a lot of volatility around the stock. I guess is there anything more you can say that would give the investment community comfort in your forecast, anything about that?

And you’ve given us some information through the pipeline. The quality is good, but I guess, maybe even this quarter, anything more about -- or any metric at all about if you have to the coverage of the pipeline that you would have to do?

Are you assuming something similar to what you would normally do? Are we assuming something less than that, just given the potential for volatility around the launch of Next?

Tim MacCarrick

John, I think as we discussed before, we build our guidance based on a deal-by-deal review, region by region, country-by-country and that, to me is the best metric to use because you are as close to the business as you can be and you are focused on how you build up that forecast and then arrive at the resulting guidance.

So we didn’t do anything different in Q1 at this point in terms of how we set guidance and we did deliver within guidance range. So we feel good about that and we’re going to always try to get better at those deal by deal reviews and as the pipeline management changes, begin to cut over in the future quarters, I think we will get a little bit better than that, but I’m pretty comfortable with the way we are doing it today.

John DiFucci - JPMorgan

Okay, great. Thanks a lot Tim. Thanks Lars.

Tim MacCarrick

Thank you.

Operator

Thank you. Our next question comes from the line of Steve Ashley with Robert W. Baird. Your line is now open. Please proceed.

Steve Ashley - Robert W. Baird

Great. I guess, I’m going just going to pile on exactly the line of questioning that John had just been asking. And it has to do with the large deals that you said are always fickle. First quarter is always a quarter that is hard to predict, especially for large stumpy deals.

Do you believe that QlikView.Next had any impact on those large deals? Whether those people were looking or considering buying that rather than doing something with the large deal? Just wondering if you thought it had an impact?

Lars Björk

Steve, Lars here. No -- to our knowledge, no impact at all and most of the discussions, all those deals that did not materialize are still ongoing and very likely going to materialize into a QlikView 11 deal. So none at all.

Steve Ashley - Robert W. Baird

Okay.

Lars Björk

I think what people are seeing QlikView.Next is an inspiring next platform that they find to be the future, but it does not prevent them from making a business here today.

Steve Ashley - Robert W. Baird

So -- and John also alluded to this, the deferred revenue growth of $11 million sequentially. Really nicely stronger than what you have done in past first quarters. Was their anything driving that? Was the timing of maintenance renewal shifting or just any color on what might have helped drive that deferred revenue growth?

Tim MacCarrick

Yes, I mean -- Steve, this is Tim. We continue to benefit from strong and even slightly improving renewal rates, and it is an area of focus that we spent a lot of time on. We’ve got a team internally that’s focused on all aspects of that and staying close to our customers. That’s been an ongoing process. And as we mentioned, the renewal rates continue to be strong. So, we’re pretty comfortable with where we are on that.

Steve Ashley - Robert W. Baird

Thank you very much.

Operator

Thank you. Our next question comes from the line of Brent Thill with UBS. Your line is now open.

Nicole Hayashi - UBS

Hi, thanks. This is the Nicole Hayashi in for Brent. Just wanted to get additional feedback from your partner event. We’re just wondering if there was -- what the reaction was from your partners about the token based pricing model and what were they most excited about for Next?

Lars Björk

Yeah. So, I would actually start by saying it was a phenomenal event from an ecosystem that is highly vibrant. The connectivity between partners, partners partnering together to go to market, partners building extensions of our current platform is just taking off in a way that I don’t think even we anticipated in a positive way.

The reaction to QlikView.Next was very positive. It was one of the most frequently visited presentations. It was one of the most frequently touched touch screens. We had several of those displayed for partners. And I think reason behind the tokens and licensing model and why we’re doing it. And we see in it as a benefit as well once it’s being introduced.

Nicole Hayashi - UBS

Okay. Great. And were they aware of maybe the potential ASPs for the product yet, or is that still ongoing?

Lars Björk

No, that’s still ongoing. So, that will be later introduction to them as well.

Nicole Hayashi - UBS

Okay. Great. Thanks.

Operator

Thank you. Our next question comes from the line of Jesse Hulsing with Pacific Crest. Your line is now open. Please proceed.

Jesse Hulsing - Pacific Crest

Hey guys. Thanks for taking my question. Within those larger deals, I would like to dive in a little bit more there. Have you seen any change there competitively and maybe within those larger deals, was there a situation where a break-off went longer than you expected or are these mostly sole source situations?

Lars Björk

I think more the latter, it’s more the clients getting ready. From a competitive standpoint, we see the same players. We see the same win rates against them. If anything, which is interestingly a fact that I think you guys see as well, the business discovery piece of the total pie is growing.

Therefore, there was a shift to certainly those players being more in deals, but nothing holding it up. Most of these were passed that point of qualifying the deal from a competitive standpoint. It was more down to timing and resources and budget than those types of questions.

Jesse Hulsing - Pacific Crest

And the trend for about $250,000 plus deals and the $1 million plus deals has been up and nicely up for the last couple of years. When you look at your pipeline, obviously it was down in Q1, but when you look at your pipeline, how was it trending year-over-year? Can you give us some color on that?

Tim MacCarrick

Yeah, Jesse, this is Tim. We continue to be comfortable that we will see improvements in those larger -- large deal metrics and we would expect to see good deal sizes coming through in the next several quarters. I will just reiterate that between $100,000 and $250,000 was a clear area of strength for us within the quarter where we were up 30% in both number and volume.

So, I think when you deliver 2% licensed revenue growth, it will obviously flow through and impact your large deal metrics. So those two things are aligned. But, again, as we accelerate growth through the balance of the year, as we expect to, we will see those deal size numbers also follow soon.

Jesse Hulsing - Pacific Crest

Great. Guys. Thanks.

Operator

Thank you. Our next question in the queue comes from the line of Brad Zelnick with Macquarie. Your line is now open.

Brad Zelnick - Macquarie

Great. Thanks so much for taking my question. Lars, a bigger picture question for you. I was hoping you can talk about your digital marketing strategy and how things have shifted over the years from hand-to-hand combat in the field to filling the funnel with leads that are generated through digital channels?

Lars Björk

Well, I think anyone in the market today is heavily relying on trading as much inbound interest through the digital channels and so are we. And it’s the focus area that we think we can do more in and we have done a lot in this area already, so absolutely. And then you blend in with that the events that we do where you get to touch the potential clients and they get to touch the product, which is also important. So it is a core part of our lead gen process.

Brad Zelnick - Macquarie

Thanks. And just one for Tim, following on the questions as DiFucci and others pointed out, deferreds look strong, cash flow looks really strong ahead of new release plenty software company oftentimes you would expect to see maintenance catch-up where customers come out of the woodwork. Has that contributed to this quarter’s maintenance bookings? And is there an opportunity that you see ahead of Next that significantly that much -- materialize in the financials where we see a lot of customers show up and get current on maintenance?

Lars Björk

Well, I think, so the first quarter performance has been pretty consistent. We’ve had strong renewal rates and that was certainly the case this quarter.

As I mentioned in our prepared remarks, we do expect them to continue to be strong through the balance of the year really because customers appreciate the product and want to make sure that their current on maintenance can receive the support that they need.

And also because they want to be current as we provide opportunities to get access to the new product as well. So, they are strong now. I consider them also to remain strong through the balance of the year.

Brad Zelnick - Macquarie

Just my last quick one for you, Tim. License seasonality, I think you’ve had the question in many different forms. But as we put our models together and think about what is typical versus this year, which I think we all agree, may be a bit atypical. How should we think about license seasonality from here throughout the remainder of the year?

Tim MacCarrick

Well, I think you’ve got obviously one data point here for the first quarter and we’ve now provided guidance to you for the second quarter. And our historical trends for prior years taking into consideration the first two data points that you already have is probably a good parameter for you.

Brad Zelnick - Macquarie

Thank you so much for taking my questions.

Tim MacCarrick

Welcome.

Operator

Our next question comes from the line of Keith Weiss with Morgan Stanley. Your line is now open.

Stan Zlotsky - Morgan Stanley

Hey, guys. Good afternoon. This is Stan Zlotsky. I’m just sitting in for Keith here. Thank you for taking my questions. So, I wanted to dig in a little bit on QlikView.Next and as you think about the remainder of this year and going into 2015, how do you think about the product contributing to your growth?

Lars Björk

So for this year, we planned the year with QlikView.Next revenue not contributing anything material at all. Going into next year, we will revisit that when we announce guidance beginning of next year.

Stan Zlotsky - Morgan Stanley

So perhaps, let me ask the question a little bit differently. When you think QlikView.Next will start to add materially to license revenue growth?

Lars Björk

I think you will see an uptick of it already starting late this year and going into next year and continuing into the following year.

Tim MacCarrick

Yeah. So we -- obviously, we’ve announced we expect to go GA sometime in the second half of 2014. I think as we’ve indicated before as well, our full-year guidance has a minimal impact of QlikView.Next revenue and the vast majority of our revenue for 2014, we expect to come from our existing QlikView 11 platform.

Once we go GA with the new product, we will see a building and growing portion of revenue over the successive quarter and years over time.

Stan Zlotsky - Morgan Stanley

Thank you. And typically with -- in the world of Soccer where you have this problem -- this version one problem with users, maybe a little bit hesitant about jumping on to something as such and you have a brand-new product. Is that something from your beta testing and conversation with customers, is that something that you’ve considered?

Lars Björk

Well, the whole idea behind the space and staged launch plan is to get early feedback from a smaller community and that has provided us invaluable feedback to the -- we have funneled into the development of the product.

So when it does hit GA, it is a very robust and stable product. So to-date, no, not really. We haven’t seen much of that. It has been mainly positive feedback from clients.

Stan Zlotsky - Morgan Stanley

Okay. Thank you. And just on the sales -- on sales capacity and sales reshuffling, I know you referred to just now in the body of the call, anything specifically you are doing in order to position yourself organization to sell QlikView.Next into the user base?

Lars Björk

Yeah, so just to clarify, the comments I made earlier about organizing responsibilities was related to sort of in the depths of our pipeline management process. So it’s not broad sales and it’s not the sales infrastructure.

From an overall sales perspective, we are continuing to build capacity and gain greater scale as we move further and further up into the enterprise and our hiring in the first quarter was certainly focused on that among other areas.

Our sales force is focused on selling the QlikView 11 platform which is consistent with how we expect revenue to come through this year. And as we move closer to the GA date, obviously, we will be enabling our organization internally in a consistent manner with how we see the product rolling out over time.

Stan Zlotsky - Morgan Stanley

Okay. Thank you very much.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Raimo Lenschow with Barclays. Your line is now open.

David Wang - Barclays

Hey guys, it’s David Wang on for Raimo. I was wondering if you could give us a competitive update in particular how do you see Tableau responding there, can you talk about moving multiples at lower range in the market?

Lars Björk

So, first of all, I don’t think we -- as I’ve said that we move more towards the lower end of market. But we do see them in that part of market and we see them consistently around 10% of our opportunity value as we said on previous quarters. But also that piece of the market in totality is continuing to grow and that’s an interesting trend. Other competitors remain the same and we haven’t seen much shift there.

David Wang - Barclays

Sure. And could you give a better color on the macro that you’re seeing in the different regions both in Q1 and going forward?

Lars Björk

I don’t know if we’re really the experts in macro. I think we saw a slightly more stable situation in Europe than we have seen, whether that’s macro state or just us reflecting what we saw.

Asia-Pac continues to be a strong and compelling region from a macro perspective. And U.S., I think we have commented on. I don’t think this quarter can be reflected in macro in anyway, it has to do with other factors.

David Wang - Barclays

Sure. Thanks a lot.

Lars Björk

Thank you.

Operator

Our next question in the queue comes from the line of Walter Pritchard with Citigroup. Your line is now open.

Walter Pritchard - Citigroup

Thanks. Just one question, Tim, you made the comment on acceleration in revenue through the year. I am wondering in license revenue specifically through the year. I am wondering if we should expect that in Q2 or is that more of a comment on Q3 and beyond as you move towards the next release?

Tim MacCarrick

Well, I think it’s more of a comment that we expect to grow more than 2%, which is most of the license growth was in the first quarter. So certainly, embedded in our guidance for quarter two, we are expecting higher than 2% license revenue growth and you have our full year guidance as well. So implied in both of those sets of information is certainly higher levels of revenue growth versus what we did in Q1.

Walter Pritchard - Citigroup

Okay. And I missed the number of $1 million deals. Did you give that on the call? I didn’t see it on the release.

Tim MacCarrick

So this year in the first quarter, we did one deal greater than a $1 million and last year we did three deals in the first quarter of 2013, greater than $1 million.

Walter Pritchard - Citigroup

Okay, great. Thanks a lot.

Operator

Thank you. Our next question comes from the line of Tom Roderick with Stifel. Your line is now open.

Tom Roderick - Stifel

Hi, gentlemen, good afternoon. So Lars, thanks for touching on the topic of the token pricing model. And one question I had just as a follow-up to how that gets kind of put in place for all customers that go to Next, that model gets put in place.

How does that impact sort of new, your net new customers versus existing customers that are purchasing add-on? How do you transition their old license model over? Is there any disruption from that? Is that a pretty clean break-over? Just sort of curious about the new versus existing structure on tokens?

Lars Björk

So in most cases, it would be pretty straightforward. We will have a conversion that we do for our customers and it will be tied to the value of the deal that they have done and the product that they have bought. And the whole idea behind it, which I hope has come across, so we’re moving to a consumption-based model.

We think it serves the clients and it serves us better, and we think it sets us up for where we think the market is moving to be more and more of a service offering and, i.e., you cannot charge for infrastructure at that point.

Tom Roderick - Stifel

Sure enough. One follow-up question just on seasonality. Looking at the license line, it was a little sub-seasonal for Q1. Were there any sort of one-time one-offs or any drivers of that?

I know it’s not a huge delta relative to last year, but curious if there were any one-time impacts of things that you would necessarily think would repeat in future periods from a seasonality standpoint?

Tim MacCarrick

Yeah, this is Tim. Not anything we haven’t discussed already. Obviously, at the higher end of the large deals, the million-dollar deals going from 3-to-1 year-over-year has an impact, but there is nothing else that has been impacting that on a one-off basis other than the items that we have already discussed.

Tom Roderick - Stifel

Got it. Okay. Thanks guys.

Operator

Thank you. Our next question comes from the line of Derrick Wood with Susquehanna Intel Group. Your line is now open. Please proceed.

Derrick Wood - Susquehanna Intel Group

Thanks. Nice to see European growth return back to double-digits. I think Europe is where you started making more changes to your pipeline management back in Q3 last year. So, do you think that’s benefiting some of the dividend paying off there? Or is it an improvement in the macro? What’s leading to some better European growth?

Tim MacCarrick

So, the system, we grew 17% in the first quarter here for Europe and last year on a full year basis, we were at 15%. So, a little bit of an improvement there. As we indicated, the pipeline management work that we’re doing is really across all of the regions.

And we’re still in the process change and capacity building phases of that. So the impact of pipeline management really will show up in future quarters and had really limited impact, if any at all, in the first order.

As Lars indicated, we saw a little bit sort of better performance in Europe versus what we’ve seen from general buying trend perspective, and that’s probably flowing through the numbers here as well.

Derrick Wood - Susquehanna Intel Group

And then, Tim, looking at Q2 guidance, it does -- the sequential growth implied looks bigger than it was a year ago. I guess what gives you the confidence in your thinking about Q2? Some of the slip deals in U.S. close or you just having much bigger pipeline, what’s giving you the confidence there?

Tim MacCarrick

Well, again, the confidence comes from a deal-by-deal review across all of the regions within the company. So, we do it at a very detailed level. We build it up each quarter. Independently, we get as close to the customer as we can and work with sales organization.

As I indicated, we do expect some minimal impact of our pipeline management efforts to begin to help us later in Q2, and that’s certainly built into that deal by deal buildup of our guidance.

Derrick Wood - Susquehanna Intel Group

Okay. Thank you.

Operator

Thank you. Our next question comes from the line of Greg Dunham with Goldman Sachs. Your line is now open.

Greg Dunham - Goldman Sachs

Great. Thanks guys. Most of my questions have been answered. So just one for you. On the license revenue acceleration throughout the year and your comments that you are really not assuming much from QlikView.Next, are you assuming that QlikView 11 actually accelerate throughout the year from a license growth perspective?

Lars Björk

Absolutely. There is a strong demand for QlikView 11 out there. There is no customer that’s bringing up in any discussion of size the potential for delaying a decision because of QlikView.Next. They are compelled by the fact that there will be more for them to tap into, into the future, but they want to solve their business critical problem here and now. so absolutely.

Greg Dunham - Goldman Sachs

Okay. And then one follow-up I guess is, where are we in terms of educating the sales force on kind of the new product, token pricing, all the changes that are coming with the next release and how should we think about that dynamic from a distraction perspective? Has that been embedded in the guidance as well?

Tim MacCarrick

Greg, it’s Tim. Clearly, we have integrated our launch schedule and roadmap, which includes enabling the internal organization at the right time to support the general availability of the new product. So we’ve got that laid out.

We’ve got it planned and we’ll be linking, obviously, the GA release date to when we spent time with our internal folks, including the sales organization. And we certainly have contemplated that in our plans for the balance of the year.

Greg Dunham - Goldman Sachs

Okay. Thanks guys.

Operator

Thank you. Our next question comes from the line of Greg McDowell with JMP Securities. Your line is now open.

Greg McDowell - JMP Securities

Great. Thank you very much. Just one quick question. How should we think about the percentage mix between token-based licensing and CAL-based licensing over the next couple of years, especially since QlikView 11 is still going to be on a CAL-based licensing model? I’m just wondering if this is a situation where it is going to take two, three, or four years before token licensing becomes the majority of net new licenses. Thanks.

Tim MacCarrick

So this is Tim. Clearly, as we have indicated before and on this call, we expect and have designed our two product strategy to put the flexibility for migration in the hands of our customers and it really is a customer-by-customer situation.

What critical asset builds we fully expect sales of ‘11 to continue into the future years as it is highly appreciated product. We are obviously not providing guidance for next year or beyond, but it will I would say grow over time as the adoption of the new products comes in and also as we address a bigger part of the market, we will see that also have an impact on that mix of the two license types going forward.

Greg McDowell - JMP Securities

Thank you.

Operator

Thank you. Our next question in the queue comes from the line of Ed Maguire with CLSA. Your line is now open.

Clarence Chan - CLSA

Hi good afternoon. This is Clarence Chan sitting in for Ed. Thanks for taking my questions. I was wondering if you could highlight any verticals that you thought were particularly strong or maybe particularly weak in the quarter.

Tim MacCarrick

I think we had pretty good balanced performance in the quarter across the verticals. We continue to see strength in healthcare and financial services. We also look at the functional aspects of the market as well and continue to do well in a number of those areas.

So, nothing particularly unusual within the quarter as it relates to our vertical presence. We’ve built out and continue to build out strong presence in many of the key verticals and we continue to see good results from them.

Clarence Chan - CLSA

Got it. Thanks. And another quick follow-up, in terms of R&D as a percentage of revenue, I think we saw jump in first quarter of 2013 from 2012, and I think this quarter we see a little bit decrease from last year.

Can we attribute this mainly to the fact that next is close to completion, so the focus is going to put back on sales and marketing? And do we expect the trend of this one item to gradually fall back to pre-2013 level? Thanks.

Tim MacCarrick

Sure. And I think you should expect us to continue to be investing in R&D through the balance of the year as we head towards general availability of the new product. So, we’re going to be continuing to invest. And we’ve -- I would expect those numbers to continue to grow through the balance of the year.

Clarence Chan - CLSA

Great. Thank you very much.

Operator

Thank you. Our next question comes from the line of Alex Tout with Arete. Your line is now open.

Alex Tout - Arete

Hello, guys. Thanks for taking the call. The (indiscernible) was impacted by -- could you just clarify, do you mean positively impacted or kind of a bit of an…

Lars Björk

Alex, you keep breaking up. So we can’t hear your question.

Alex Tout - Arete

Can you are me now?

Lars Björk

No, you keep breaking up again.

Alex Tout - Arete

Just on the -- you said it was flat by some large -- do you mean to say it was flattered…

Operator

Due to communication issues we’ll be moving on to the next question. Our next question comes from the line of James Gilman with Drexel Hamilton. Your line is now open.

James Gilman - Drexel Hamilton

Thank you. Good afternoon Lars and Tim. Just wanted to go back to the maintenance and the renewals and take a different tact or take a different look at it than others and that would be you had obviously great renewals, maintenance up, indicates that your customers aren’t really interested in the QlikView.Next product.

So that would be a very bullish sign for QlikView.Next. Is there anyway that you can maybe surprise us to the upside and release QlikView.Next sooner than the second half of 2014?

Lars Björk

Well, we’re certainly going to stick to our product launch schedule as indicated. I agree with you that our maintenance revenue line continues to be strong and that’s a strong reflection of how people feel about QlikView 11. But no, we will be sticking to our current launch schedule.

James Gilman - Drexel Hamilton

And I guess the follow-up question is, what is the limiting factor that causes QlikView.Next release to be pushed out a little bit here?

Lars Björk

So I am not sure exactly what you are asking, but there is no limiting factors. Obviously, we are on a product roadmap here and have a staged implementation process that we have been going through and we feel like we are on track. And we’re looking forward to the next several steps, including making it generally available in the second half of this year.

Tim MacCarrick

And I think we introduced a new step called a Free Personal Download early in the third quarter and announced that on this call. So we are sticking to a plan we’ve put together before and it holds and it is gaining strong momentum.

James Gilman - Drexel Hamilton

Great. Thanks for taking my questions.

Operator

Thank you. And our next question comes from the line of Abhey Lamba with Mizuho Securities. Your line is now open.

Abhey Lamba - Mizuho Securities

Yeah. Thanks. Lars, as you are expanding your footprint within your customers, are you seeing selling -- yourself selling more to the IT departments versus the end users, and how are you conversations different in that case? I mean, as part of that, if you can highlight how different IT departments move your product versus those from Tableau and Spotfire other large application providers?

Lars Björk

Yes, I think we’ve said it before that we don’t sell to IT. They were involved in the sales process, primarily in the larger enterprises. We solve business problems. We go to market very clearly in a vertical way and in a functional way and attacking a problem when they need it and that continues to be the focus.

And if anything we’re moving stronger in that direction, but it doesn’t roll out IT being involved in the sales process. For a simple way of selling it, we don’t saying -- we don’t sell technology, we sell business value and we deliver technology to accomplish that.

Abhey Lamba - Mizuho Securities

Thank you.

Operator

Thank you. And I’m not showing any further questions in the queue. I would like to turn the call back over to the speakers for any closing remarks.

Lars Björk

So before we end the call, I would like to thank you all for joining us today. I’d also like to thank our employees and our partners for their support in this past quarter.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Have a great day everyone.

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