Jive Software Inc. (NASDAQ:JIVE)
Q1 2014 Earnings Conference Call
May 6, 2014 5:00 p.m. ET
Anthony Zingale - Chairman and CEO
Bryan Leblanc – Chief Financial Officer
Kyle Chen – Crédit Suisse
Jason Maynard – Wells Fargo Securities
Jennifer Lowe – Morgan Stanley
John Byun – UBS
Jobin Mathew – Deutsche Bank
Heather Bellini – Goldman Sachs
Chaitanya Yaramada – Robert W. Baird
Michael Huang – Needham & Company
Yun Kim – B. Riley & Co.
Good day and welcome to the Jive Software First Quarter 2014 Earnings Conference Call. Today’s conference is being recorded.
At this time I’d like to turn the conference over to Bryan Leblanc, Chief Financial Officer of Jive Software. Please go ahead, sir.
Thank you. Good afternoon, and welcome to Jive Software's first quarter 2014 earnings call. We will be discussing the results announced in our press release issued after the close of market today. As the operator mentioned, I'm Bryan Leblanc, Chief Financial Officer of Jive, and with me on the call today is Tony Zingale, Jive's Chief Executive Officer.
During the call, we will make statements related to our business that are considered forward-looking under Federal securities laws. These statements reflect our views only as of today and should not be reflected upon as representing our views of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our periodic filings on Form 10-Q and Form 10-K, which are on file with the SEC. Also, during the course of today's call, we will refer to certain non-GAAP financial measures. There's a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued after the close of market today, which is located on our website at www.jivesoftware.com.
With that, let me turn it over to Tony, and then I'll come back at the end to provide details regarding our first quarter results, as well as our guidance for the second quarter and for the full year 2014. Tony?
Thanks, Bryan, and thanks to everyone for joining us today to review our first quarter performance, which reflected the continued progress and success that we’re having in the market following our more targeted go-to-market focus on portal, social internet and external community. We believe our first quarter results validate our strategy and Jive is becoming firmly established as the premier provider of communication and collaboration solutions used to solve significant business and IT challenges for customers. We’re continuing to iterate on our strategy as we gain more experience with our tightly focused go-to-market approach, but I can tell you that we have made tremendous progress since we started this process in the second half of last year.
This strategy has been embraced by our highly experienced sales organizations and leverages our industry leading technology platform which we believe will help position Jive for accelerating topline growth in the second half of 2014. We believe our focus on these three use cases is resonating with the market, as companies are recognizing the way people are engaging with technology in all aspects of their lives have radically changed. Today’s employees are using technology to provide instant access to the people and information that make their personal lives richer and more fulfilling and they’re demanding technology do the same for them at work. Jive’s premier enterprise collaboration platform adapts to this changing work environment to bring together the people, insights, ideas and information of an organization so they can work better together.
Taking a look at our financial results for the first quarter, revenue of $41 million was at the high end of our guidance range and increased 21% on a year-over-year basis. Short-term billings, which we define as revenue plus the change in short-term deferred revenue, were $42.1 million, up 16% year over year which was modestly ahead of our expectations. And non-GAAP loss from operations of $6.1 million was well ahead of our guidance range. While the first quarter is always a seasonally slower quarter in the enterprise software industry, we saw a good deal of activity with both new customers and within our installed base. We’re pleased to sign new and expanded business relationships with blue chip customers like, ARaymond Network, Broadcom, David Yurman, Esri, FireEye, Globe Telecom, Kimberly Clark, Leidos, Mitsubishi’s Financial Group Union Bank, Plex Systems, Société Générale, the San Francisco Giants, Sky Deutschland, DCE and Verizon. As this list of customers demonstrates, we’re seeing positive customer activity across a broad range of industries.
Verizon was an exciting up sale win in the quarter that underscores our ability to successfully compete and win against our biggest competitors and even the largest and most complex organizations. Verizon evaluated all of the major vendors in the state, one of which is a major IT vendor at Verizon and was their incumbent collaboration solution provider. After a rigorous security review and evaluation of their existing infrastructure, Jive was chosen as the social internet solution to be used across all 200,000 employees inside Verizon to drive increased collaborations that result in meaningful resolutions to strategic business objectives.
A great example of a new customer win where Jive was selected as the social internet solution was Mitsubishi’s Financial Group which is the integration between Union Bank based in San Francisco and Bank of Tokyo, Mitsubishi’s headquarters for the Americas based in New York City. Mitsubishi Financial Group is increasing its presence throughout the Americas and said it intends to become a top 10 banking group in the United States. Jive’s social internet solution will go live on July first of this year which is day one of the new combined entity and was selected as the cornerstone to facilitate strategic communication, foster collaboration and support for the more than 14,000 geographically dispersed employees. The key decision points in selecting Jive were our proven platform and expertise in social intranets that provide quick time to value, our ability to match their desired user experience and our expertise in optimizing adoption and engagement of the platform.
We’re also seeing tremendous traction in the external community market with the recent introduction of JiveX, our industry leading cloud-based external community platform. This has taken our capabilities in a market that we pioneered to a new level which is driving increased capital momentum and adoption. A great example of this success was with Globe Telecom; the second largest telecommunications provider in the Philippines. They’re satisfied with our current offering. We were able to engage with Globe Telecom and migrate more than 18,000 members and 30,000 pieces of content and get their JiveX implementation fully operational to support their clients facing support communities all within three weeks.
Another strong JiveX win during the quarter was Esri; an international supplier of global information system software and geo-database management applications. Esri selected Jive over salesforce.com as part of an executive driven strategy to transform the company’s approach to engaging with customers, prospective customers and their partners. With the JiveX platform, Esri will be able to create a 24 by 7 partner and customer hub using our unmatched capabilities for rich interaction and collaboration to enable customers to connect directly to share ideas and best practices. Esri also plans on leveraging Jive’s advanced API driven intervention framework to embed their award winning GIF solution into the JiveX platform in order to drive additional sales and increase customer satisfaction.
I’d like to take a moment to review how we are successfully executing against the more focused go-to-market strategy that we began to roll out in the middle of 2013. The Jive platform is a highly flexible solution that many of our early adopter customers have successfully used to solve dozens of complex business problems. Our go-to market strategy is focused on the three most common use cases where we see great market tractions and also typically a dedicated budget, a business sponsor and can generate business value most quickly. We’ve taken a number of steps over the past few quarters as a company to properly align ourselves with this go-to market strategy including; first, we have continued to invest in trainings and enabling our sales organization. This is the most tenured sales team we have ever had at Jive and there are experts working with customers to create successful strategies to solve their problems centered around targeting our three focus use cases.
This is a big benefit for enterprises who are receiving a crisper, more specific understanding of how deploying Jive can replace outdated legacy systems that are failing to improve the way their employees collaborate with customers, partners and with one another. This more targeted approach also benefits our sales reps as they now have a specific sales methodology and understanding of which business and IT leaders are most likely responsible for these three use cases inside perspective and existing customers. The feedback from the field has been overwhelmingly positive and they’re seeing the impact in their daily conversations with customers.
Second, we have been focusing on customer success as a core business discipline. The Customer Success Organization led by Bob Block, is playing an active role in helping our customers maximize the value received out of our platforms faster, ultimately delivering increased adoption and engagement. For Jive deployments to be successful, they require defined use case and the active participation of a customer’s audiences, including executive level sponsors. We have developed the best-in-class set up controlling services that provide strategies to drive higher levels of customer engagement from day one of a Jive deployment. We are seeing very positive results from this initiative and are confident it will pay even greater dividends over time to even better retention rates and upsell activity.
Third, under the leadership of our new Executive Vice President of Strategy and Chief Marketing Officer, Elisa Steele, we have also developed a strong unified business plan to support the strategic position, market messaging and core programs that highly align with our focus on portal, social internet and external communities. We have begun to roll this plan out, which is built around the concept of Jive enabling people to work better together. This people first approach leads with our unique ability for organizations to leverage our technology to unleash the power of human connection at work for employees, partners and customers. This story is true to what our current customers love most about Jive and delivers concrete business value propositions to prospects. We are very excited a more strategic marketing plan and you should expect to see more on this front as we move through the year.
Lastly, we are thrilled with the announcement last week of a strategic relationship recently signed with Cisco. This partnership combines Jive’s industry leading enterprise collaboration platform with Cisco’s real time communication technologies like WebEx and Jabber. This exciting combination represents the first complete communication and collaboration offering that provides for a fully integrated seamless experience for employees, customers and partners from two best of breed providers. As part of this agreement, Cisco and its reseller network will resell our solutions fully integrated as part of Cisco’s collaboration products and provides for joint go-to-market and product engineering initiatives to drive additional adoption and technology innovations. As we’ve said in the past a key strategic focus for the company has been to expand our partner relationship that would include a significant global presence and complimentary technology and services that would enhance Jive’s impact to customers. Our Cisco partnership is a major step forward in this effort and while it will take time to train reps and begin building pipeline, we are excited by the opportunities this relationship will provide to Jive.
We are excited about the positive impact our continued focus on executions has had and will have on our business. We continue to make investments in people, marketing and processes to drive even bigger improvements going forward. We are confident we are positioned to achieve our 20% short term billings growth target for fiscal year 2014. In order to deliver against this goal, we would clearly be looking for second half growth to be higher than that in the first half which we believe is attainable based on the current momentum in our business. While we continue to build on the progress we are seeing with our go-to-market messaging, something that has not changed is our commitment to continuous innovations and bringing new capabilities to market that years ahead of what our competition offers.
We are seeing unprecedented levels of customer upgrade activity on to the Jive 7 platform, with more than two thirds of our customers running on most recent versions Jive 7 or Jive 6 or in the process of doing so. This speaks to the tremendous amount of innovation available on the Jive 7 release as well as the improvements our services organization has made in making it easier to quickly get on to the latest version. We are committed to bringing new innovation to market every quarter as part of our Jive cloud releases and in the first quarter we brought to market the latest versions of Producteev and Jive X in the cloud.
To summarize, Jive delivered a solid performance to start 2014 and we are focused on continuing to build momentum around our more targeted go-to-market messaging. We are delivering on the strategy we communicated to investors last year and are increasingly confident it is the right one to position the company for even better performance in the second half of 2014 and beyond.
With that, let me turn the call over to Bryan.
Thanks, Tony. As mentioned earlier, we are pleased to have delivered a solid first quarter set of results. I will begin by providing a detailed review of the quarter, followed by our updated outlook for the second quarter and the full year 2014.
Total revenue was $41 million in the first quarter, up 21% year-over-year. Breaking this down further, product revenue was $37.4 million, an increase of 22% year-over-year while professional services revenue was $3.7 million and increased by 15% year-over-year. Our revenue mix has continued to be more heavily weighted towards product revenue due to the increasing percentage of customers choosing public cloud deployment and the improved out of the box functionality of our product offering. However, as we focus our professional services organization on strategic consulting and migrating existing customers to the cloud, we continue to expect professional services revenue as a percentage of total revenue will fluctuate from quarter to quarter.
Our short term billings which take into consideration the change in short term deferred revenue, were $42.1 million for the first quarter, representing 16% year over year growth. Our first quarter short-term billings were modestly ahead of our expectations for the quarter and reflect solid new customer activity and selling back into our install base as well as strong renewals and professional services related billings. We continue to believe short-term billings are the most appropriate billings rated metric to determine the underlying growth of our business. Total billings, which include changes in both short-term and long-term deferred revenue, were $39.8 million, representing 4% year-over-year growth. As we’ve said in the past, long-term billings growth can fluctuate from quarter to quarter and be difficult to forecast due to the number and timing of multi-year prepaid deals.
Let me turn to the supplemental metrics that we share on a quarterly basis. We ended the first quarter with 890 customers compared to 876 at the end of 2013 and 830 in the year-ago period. The continued addition of high quality names to our customer list is important as it validates the success of our go-to-market strategy and the value our solutions can deliver. However, our primary focus is to drive billings growth which could be more heavily weighted towards new customer adds or by selling into our installed base in any given quarter. Our dollar renewal rate for customers that spend over $50,000 annually was 90% in the first quarter when excluding upsell. When including upsells, our dollar renewal rate was again over 110%. This is the best in class level for a SaaS company and speaks to the significant business value customers are realizing by deploying our solution.
In terms of the mix of our business, internally focused communities represented 73% of our product revenue for the quarter and externally focused communities represented the remaining 27%. This compares to a 71%-29% mix respectively in the first quarter of last year. With respect to how customers are deploying our enterprise collaboration platform, 66% of our product revenue for the quarter related to public cloud deployment and the remaining 34% related to private cloud deployment compared to a 62%, 38% mix in the first quarter of last year. We continue to see increased customer interest in our public cloud offerings due in part to the fact that we're bringing significant highly differentiated product innovations to market every 90 days. As we move forward, we anticipate that our mix of business will remain more heavily weighted towards public cloud deployment.
From a geographic perspective, the U.S. generated $31.2 million of revenue for the first quarter, representing 76% of our total revenue and an increase of 20% on a year-over-year basis. International generated $9.8 million of revenues, representing the remaining 24% of our total revenue and an increase of 24% on a year over year basis.
Moving down to P&L, our non-GAAP gross profit was $27.7 million, representing year-over-year growth of 26% and a non-GAAP gross margin of 68%, consistent with last quarter and representing 300 basis points of margin expansion compared to the year ago period. Non-GAAP operating loss was $6.1 million for the quarter and above the high end of our guidance range of a loss of $8 million to $9 million. The earnings outperformance was driven by the timing of our investments as we continue to balance between investing for growth and making progress towards profitability. This quarter’s non-GAAP operating loss compares to a non-GAAP operating loss of $9.6 million in the year ago period and represents the smallest quarterly loss since the third quarter of 2012. Non-GAAP net loss per share was $0.09 for the quarter based on 69.3 million shares outstanding. This was above the high end of our guidance range of a loss of $0.11 to $0.13 per share. On a GAAP basis for the first quarter of 2014, gross profit was $25.6 million, operating loss was $17.1 million and net loss per share was $0.25.
We ended the quarter with 682 employees, which is up from 592 in the year ago period and 673 last quarter.
Moving over to the balance sheet, we ended the quarter with cash, and cash equivalents and marketable securities of $139.3 million, compared to $141.7 million at the end of 2013. From a cash flow perspective, we generated $1.9 million in cash from operations and invested $3.6 million in capital expenditures, which led to a free cash flow of negative $1.7 million for the first quarter. Free cash flow was $3 million for the first quarter of 2014.
Total deferred revenue was $146.2 million at the end of Q1, up $24.7 million from Q1 of 2013 and down $1.2 million sequentially. Short-term deferred revenue was $113.5 million, an increase of 26% compared to $90.2 million at the end of the first quarter of 2013 and up slightly compared to the end of last quarter. Long term deferred revenue was $32.7 million at quarter end as compared to $34.9 million at the end of last quarter.
I’d like to finish with our financial outlook for 2014, starting with the full year. We are raising our total revenue guidance to $171 million to $176 million from $170 million to $175 million. This now represents year-over year-growth of 17% to 21%. We are reiterating our short term billings guidance for 20% in 2014. We continue to expect short term billings growth in the first half of the year to be below this level, with growth in this metric to accelerate in the second half of the year based on our momentum and realizing returns on our go-to market investments that we’ve been making in the business. As we mentioned on our last call, we view short term billing as the most appropriate method for evaluating the underlying growth of our business.
From a profitability perspective, we now expect to generate a non-GAAP loss from operations of between $26 million and $30 million compared to our prior guidance of a loss of $27 million to $32 million. This equates to a non-GAAP net loss per share to be between $0.38 and $0.45 for the full year 2014 based on 70.7 million shares outstanding and compares to our prior guidance of a non-GAAP loss per share of $0.39 to $0.46 cents.
We are maintaining our full year free cash flow guidance of negative $15 million to negative $20 million.
In terms of guidance for the second quarter, we are targeting total revenue of $41.5 million to $42.2 million.
We expect a non-GAAP loss from operations of between $7.1 million to $8.1 million for the second quarter of 2014 leading to a non-GAAP net loss per share of $0.10 to $0.12 based on $70.3 million shares outstanding.
In summary, the first quarter was a solid start to the year and our results reflect the positive impact our refined go-to market strategy is having in the market. We are focused on building upon this momentum and we are well positioned to achieve our full financial objective as we capitalize on this multi-billion dollar market opportunity.
With that, we’ll be happy to take any of your questions. Operator?
(Operator Instructions) Our first question will come from Michael Nemeroff with Crédit Suisse
Kyle Chen – Crédit Suisse
Hi this is Kyle Chen in for Michael Nemeroff. Thanks for taking the question. I was just going to ask relative to the physical partnership, would you help us conventionalize what the potential revenue opportunity is from this partnership and how we should think about timing, particularly with Cisco discontinuing WebEx Social and migrating the applet to Jive?
This is Tony. So obviously we’re very excited at the prospects that the partnership is going to deliver. But we’re at the very beginning. We just announced that last week Wednesday. We’ve got sales people to train largely in their organization, the overlays in their existing collaboration business which is one of the five big operating units at Cisco. We’ve got pipeline to build. We’ve got customer migrations to do. So we’re at the very beginning and the guidance we’ve given is reflective of that.
Kyle Chen – Crédit Suisse
Great, thanks. And I was just going to ask, relative to professional services, it was up solidly in Q1 which is typically season soft. Was there anything unusual in the quarter possibly about professional services work ahead of larger deployment in Q2, Q3 that we should be thinking about?
No. Remember Professional Services does fluctuate quarter to quarter. Part of that is because the work that they do in the quarter is obviously on projects that may or may not bill right away or revenue right away. In general the vector there is an increase in the amount of professional services that I think you’ll see as we roll through the year based on the fact that we’re making some very strategic investments in that group, particularly to drive adaption, and as Tony mentioned upgrade of our customers, and even more importantly connecting what our software is doing to what matters the most for our customers. We’ve got some great new folks in that group and the additions that we’re making there are obviously all about driving more adoption of Jive and connecting more to our revenue opportunity in the future. So it’s all an investment for the back half of the year and into next year.
Next we’ll take a question from Jason Maynard with Wells Fargo
Jason Maynard – Wells Fargo Securities
Hey, good afternoon guys. Hey Tony, I want to talk a little bit more about the Cisco relationship and just to clarify you guys aren’t baking in any I would assume revenue contribution in calendar ’14 from the partnership?
Yeah. This is Brian. No, we’re not. Although we’re excited about that partnership, I think it will take some time obviously to get all of the folks at Cisco trained up and get that go-to market engine working. So we think that there’s obviously a lot of great things we can do together, but we’re not and we have not as we rolled into this year baked any expectation of that immediately into the next couple of quarters. I think it’s all there obviously to be played out and what we are going to do is hit it hard on the go-to-market side. I don’t know Tony if you want to add anything there.
Jason Maynard - Wells Fargo Securities
Hey, Tony, where do you see the, when you think about the work with Cisco, is there any geographic focus that you expect them to make first? How are you thinking about sort of common accounts where you both have a presence? Where do you think they can give you coverage? Where you don’t? What are some of maybe the initial places that you think they are going to be targeting?
Right. Obviously they have an existing collaboration business. We are all very familiar with the dominance of WebEx and Jabber and Presence and that the Enterprise Connect Conference that was just held a few months ago, they introduced a whole new slate of more cost effective, more economically viable presence offerings connected to the Chrome browser and obviously now connected to Jive with WebEx and Jabber. So they’re a pretty significant global presence kind of company pun intended, but we believe we can take advantage of the mutual accounts that we have. But obviously they have a lot broader reach in the market. They have a lot deeper reach. And more importantly Jason, they have significant relationships from a political and account control perspective, much like some of our larger competitions that we deal against day in and day out where that’s a significant weapon that our competitors use against us because we are the smaller player with the better, more capable product.
We hope not only will the integration and the value between their real time communications offerings that are already present in a lot of accounts as well as the opportunity to sell that into new accounts, tightly integrated right now with Jive’s collaboration platform and that will get better and better and better over time, will afford us an opportunity to level the playing field if you will in some of these larger massive enterprise accounts. Those take longer to develop. We’ve got to train people accordingly. We’ve got to build pipeline. But the prospect of being able to go to market with someone as significant and as best of breed in those areas of real time communications is super exciting to us. We are already seeing the opportunities emerge as we start down this path, but it’s very early. So I wouldn’t say there’s a particular focus on a geography or one group of accounts or not. I think we are going to learn more over the coming quarters and I’ll be able to answer that question more effectively, but for right now it’s a pretty significant global presence with respect to the market opportunity they bring us, given the reach and depth they have in most IT organizations where our sales go down as well.
Next we’ll take a question from Jennifer Lowe with Morgan Stanley
Jennifer Lowe – Morgan Stanley
Tony, you played out sort of four different areas where you were making investments to sales training customer success that’s so obviously getting from your time here. But the one I actually wanted to focus on was, you mentioned the strategic marketing plan that your new CMO and your VP of Strategy are focused on. I think what I wanted to understand a little better is how that correlates to some of the branding efforts you made last year in terms of narrowing the message, really focusing on these three use cases that you outlined. Is this sort of a new change or is this sort of furthering some of the projects you already had in place? How should we look at that versus a lot of the work you did last year in terms of realigning the sales force?
Yeah. I think it’s completely supportive and make it bigger with respect to inject even more energy into it. We are very clear on the three use cases and lets not be confused. We are very clear on portal replacement, social internet as was exemplified by the examples we shared with you on the call and the external communities also shown in the prepared remark. Those are the three focus areas. Those are the areas that we are pouring marketing efforts in to with respect to collateral, competitive positioning, demonstration, enabling the sales channels and what have you. The positioning for Jive at a broader level though works better together. The work style approach that you are going to see come through on our website, which is probably the larger lead gen opportunity that we have when building on top of the robust pipeline that we already have going into the year. More broader positioning given all of the learnings that we had in our customer base, competitive positioning and what have you. So it’s no change with respect to our go-to-market focus around the plays. We know that works. We are nine months into it now. We’ve seen good results and traction from that, but we want to make our story larger and build even more awareness around it given the substantial differentiated position that we have in the market.
Jennifer Lowe – Morgan Stanley
And the other question I had was just regarding Jay’s departure and your effort to potentially fill his role as worldwide field operations. Is that something that’s still underway and any update on where you are in the process of potentially hiring somebody else for the leadership team in that position?
Absolutely. So, we commenced a search as I communicated to all of you on our February call. We’ve seen a tremendous amount of extremely well qualified candidates in the process from enterprise software companies and the like. We’re making really good progress and we’ll keep you updated as the search moves to the process here and we hope to complete it in the near future.
And now we’ll go to Brent Thill with UBS.
John Byun – UBS
This is John Byun for Brent. So I just had a couple of questions. One again Cisco, I mean there’s existing integration with WebEx and Jabber and wondering if you have any specific deeper product type integration plan? And then secondly, just wanted to see if you had seen any changes in sale cycle especially with the three year use case focus? Thank you.
Yeah. So the integration exists well today and I’d be really happy to go sell a Jive platform everywhere there’s a WebEx installation. I’d be thrilled with that as well as a Jabber installation as well as all of the work they’re doing on Presence in all of the workplaces, which fits very nicely with the previous question around Jive and real time communication together creates this work style that companies are looking for when driving more collaboration and communication inside their companies. We’re going to be going more deeply native in those integrations around WebEx and Jabber and Presence and what have you going forward. And I think that they help all of our use cases. When we made the announcement last week, we highlighted one of our mutual customers; Thomson Reuters has over 65,000 seats of Jive deployed at their social internet.
They’ve already used the existing integration work to leverage Jive usage together with WebEx and Jabber inside their organization. You can see a demo of it right by virtue of clicking on the link in the press release or go to our website and see it. But it’s a tremendous set of capabilities and there’ll be even more we’ll be doing down the road as our joint product engineering efforts will yield even more innovation throughout the course of the year. But just to reiterate, I’d be thrilled to sell a Jive platform everywhere there’s a WebEx installation.
There was a second part of that question around sales cycle. I’ll take that. This is Bryan. I think sales cycles have been consistent in this quarter, relative to the last couple of quarters and that’s what we expected to see going into this year as well.
Our next question will come from Karl Keirstead with Deutsche Bank.
Jobin Mathew – Deutsche Bank
It’s actually Jobin Mathew on behalf of Karl. Thanks for taking my question. Looking at the results that we’ve seen so far, it generally seems there’s been large team activity particularly in the U.S has been kind of slow and then against this backdrop you guys have done very solid business. As you look up out at this part of your work and has it gotten to be [Inaudible] what is your expectation largely and how do you explain them going forward? Thanks.
This is Bryan. I think large deals in any given quarter for us are, they tend to come on a lumpy basis. There’s no rhyme or reason to them in the sense that they’re completely dependent on the deployment that we have with this customers. And obviously with large customers, they’re on a timeline that is unique to their company. So I don’t think there’s a way to generalize across that entire install base. I will say that we continue to be a very important part of a lot of companies’ infrastructure, whether it’s a social internet or other very important portal activity that we’re doing and those deals that are large tend to come from those customers deploying more of Jive or piloting it and then obviously taking a bigger bite. Q1 is a quarter in which you see usually historically less of that and usually the back half of the year, Q3’s and Q4’s are where you typically see more of it. I don’t know that we’re seeing anything different than the normal sort of geography of quarters happening in the year. We’re in the first part of the year. I don’t think we see anything that’s related to the market or IT spending in general.
Jobin Mathew – Deutsche Bank
Got it. And if I look at your drivers again, obviously you reminded us it’s a little bit back end loaded. So are there any particular incentives that maybe we should be aware of as you guys try to increase your billings profile in the back half of this year?
Our incentive program and certainly the way that we interact with our sales force has been consistent year in and year out and I think that’ll continue. We have a very good system for doing that. I think what’s driving our optimism for the second half of the year is all of what Tony talked about, which is the go-to market messaging, the traction with that message in the install base, the tenure of our sales force, the fact that Jive 7 which just got released is getting tremendous acceptance in the marketplace. These are all the things that give us confidence that the second half of the year is a place where we’ll see obviously an inflection in terms of growth.
Next we’ll take a question from Heather Bellini with Goldman Sachs
Heather Bellini – Goldman Sachs
Great. Thanks so much for taking my question. I just had a couple. I was wondering if you can share with us you hiring plans on the sales side this year. Do you expect to increase it? I know you don’t want to give a number, but can give us an idea for what percentage growth we might see? And then also I’m just wondering given the go-to market change, what do you see as key in the eyes of customers is helping differentiate you from the competition as a result?
This is Bryan. It’ll take the first part then I’ll let Tony talk about the differentiation in the market place. We continue to look for sales reps, particularly in geographies that we’re growing at. We talked about the fact that we’re continuing to grow in Asia and there are places in the US where we’re actively looking for increasing our field presence. We’re not going to give a number or a percentage. I think that’s been consistent with our history here. But I think where there’s demand and where we’re obviously interested in growing our feet on the streets from a present standpoint we’ll continue to invest and look for heads there. And we think that will be consistent like it was last year as we go quarter to quarter this year as well.
This is Tony, Heather. So as enterprises continue to re-platform around the cloud and mobility and collaboration and you name it, what’s driving our significant differentiation is all the stories you heard on this call over and over and over again, now up to almost 900 of them. We are the best of breed supplier in the space. The Jive 7 platform gets better every 90 days with cloud releases that focus on the three application areas that matter most that people spend money on. Quite frankly at the end of the day the results of those platforms – the platform and those applications and use cases deliver are very measurable in terms of from a financial perspective, the renewal and upsell rate is tremendous substance behind is the platform being utilized.
Look at those brands. Those are substantial brands. So it comes from our focus and the best of breed nature of the platform in terms of the differentiation. And then lastly, not everybody can put together a partnership from a best of breed supplier point of view with a company such as Cisco. As they transition to a higher end offering of real time communications together with what we do, I think they’re also recognizing that the best of breed aspect that large IT organizations are consuming on a very regular basis. So that’s what wins for us time and time again in the face of stiff competition from some very large companies. But our strengths come through in a very big way over and over and over again.
Our next question comes from Steve Ashley with Robert W. Baird.
Chaitanya Yaramada – Robert W. Baird
Hi this is Chaitanya Yaramada for Steve Ashley. I wanted to just mention the -- talk about the JiveX offering that you launched recently. Just wanted to get a little bit color more on what you’re seeing in the marketplace and the traction that you’re seeing with that product.
So just so we’re clear, JiveX is just the new rebranded name. Jive has always done external communities for about 13 years now. As we move the external community offering from Jive to the cloud, we branded it JiveX. So, that’s first and foremost. And as Bryan always highlights on the call, the percentage of external community business fluctuates from quarter to quarter, but it’s anywhere from 30% to 35% in any given quarter of our business. So what we’re seeing is external communities and companies wanting to connect with their customers and partners remains a very focused business objective, not only of the customer service organizations that we deal with on a very regular basis, but also the marketing organizations that are connecting with partner groups as well as want to connect with those very same customers that are being serviced by the customer service organization. So it remains one of the three focus areas of the company. And we see a huge amount of interest in the totality of the Jive platform, because any company that’s considering either an external community or an internal community to replace a portal or build a social internet, should be really evaluating their social collaboration platforms strategy as a whole. Jive remains the only vendor that serves all of those constituencies with a very consistent product strategy and service strategy. So, external communities is a big part of what we do and we see continued momentum in that space. Again it’s highlighted by the two stories, Esri and Globe Telecom on the call today.
Chaitanya Yaramada – Robert W. Baird
Great. That’s helpful. And then I just wanted to ask about R&D. That was actually down sequentially as well as year-over-year. just wondering how we should think about that going forward?
So one of the – yeah, there’s a dynamic in that line. As we increase our investment from the cloud, one of the requirements is we build more of that cloud architecture. Obviously you have to capitalize some of that work. So although the aggregate amount of R&D actually is up from a headcount and a resource standpoint, the spending in the P&L is down and it relates to that and of course we have (inaudible) on that in the Q as well. So you can get all the details there.
Next we’ll take a question from Michael Huang with Needham & Company
Michael Huang – Needham & Company
Most everything has been asked at this point. Just a couple of quick ones. Is there anything different with respect with the selling environment you are seeing out there today versus what we saw this time last year?
No. This is tony. So the environment remains largely the same around the world. As we said in our prepared remarks, it is the first quarter of the year in our enterprise software industry. So it’s not as robust as say the fourth quarter, which you just came off of. We spent time as we talked about on the call training the sales organization earlier on in the year and quarterly business review and what have you. So but as far as the selling environment and the feel of it, it is largely unchanged.
Michael Huang – Needham & Company
Okay, great. Thanks. Can you talk a little bit about your volumes as well and what you saw this quarter versus where you’ve been?
We obviously don’t comment on the volumes of deals. We talk about obviously billings and revenue, which we did talk about and we feel good about how the quarter came out that way. And certainly it’s a Q1, so it’s the beginning of the year. It’s the start, but like we said in the prepared remarks we think it was a very solid start to the year.
And now our last question will come from Yun Kim with B. Riley & Co.
Yun Kim – B. Riley & Co.
Actually congrats Tony and Bryan for a solid looking quarter. First one, Tony, to get to that 20% component growth for the year, do you have to expand and gain traction on new areas beyond the three use cases you mentioned in your new go-to-market strategy? Or do you feel comfortable that those three areas can drive much of the second half billing to get to that point?
So first of all thanks for the kind remarks. We appreciate it. No. We feel really good about those three use cases being the bulk of where we’ll focus our attention on from a go-to-market perspective. We think there’s a tremendous market opportunity in each of those as we’ve talked about. We feel comfortable with our ability to meet the guidance that we’ve provided here on the call today through our channel with those use cases with the product road map that we have in hand accordingly. So we think we can get it done with that focus.
Yun Kim – B. Riley & Co.
Is that go-to-market strategy around those three cases? Is that more focused on existing customers or are you having more success with previous customers or is there any differentiation between you and the existing?
So, we’re focused on both. Obviously we are focused on new customers as well as the land and expand strategy that we’ve always had here at Jive, and particularly with the use cases and external communities and two varieties of focused use case around internal communities. We always want to land with one of those and then upsell the other two or three accordingly. So as Bryan said in his remarks on the call, we are very focused on billings and the short term variety in particular and revenue and renewal and of course the upsells. But we are interested in new customers and existing customers for all the reasons that relate to driving billings growth and revenue growth accordingly. And by having the focus use cases, we find a variety of ways for our selling organization to find the business sponsor and the IT person and land one of them to start and from there, expand to other use cases or more seats or more pages if you start it externally as the means by which we fulfill the plan we’ve put forward here today.
Yun Kim – B. Riley & Co.
Bryan, from the deferred revenue dynamics, it looks like the contract length is getting shorter. Is that a correct assumption and can you talk about renewals on some of the order contracts that had multi-year lengths start getting renewed on the same length or is that going to be renewed on a shorter length? Thanks.
I don’t think it has to do with contract length. It has to do with the amount of multi-year deals that get paid up front, which I would note in a Q1 like this are typically lower and we did see them be lower this quarter. But contract length itself has been consistent and I hope you got the dynamic in the deferred revenue this year.
And that concludes our question-and-answer session today. And at this time, I’d like to turn the call back to over to our presenters for any additional or closing remarks.
This is Bryan. Thank you everyone for the time today. We appreciate your interest in Jive and we look forward to talking with you over the quarter and we’ll talk with you on the next conference call when we announce our Q2 results. Take care.
And that concludes our conference for today. Thank you again for your participation.
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