TIBCO Software's (TIBX) CEO Vivek Ranadive on Q2 2014 Results - Earnings Call Transcript

Jun.19.14 | About: TIBCO Software, (TIBX)

TIBCO Software Inc. (NASDAQ:TIBX)

Q2 2014 Earnings Conference Call

June 19, 2014 04:30 PM ET

Executives

Vivek Ranadive - CEO

Jim Johnson - SVP and CFO

Murray Rode - EVP and COO

Analyst

Kash Rangan - Merrill Lynch

Matt Hedberg - RBC Capital Markets

Brent Thill - UBS

Greg Dunham - Goldman Sachs

Melissa Gorham – Morgan Stanley

Derrick Wood - Susquehanna International Group

Abhay Lamba - Mizuho Securities

Greg McDowell - JMP Securities

Steve Koenig - Wedbush Securities

Presentation

Operator

Good afternoon, ladies and gentlemen. My name is Jay. Welcome to TIBCO's Second Quarter 2014 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions) You can also listen to this call via the Internet at www.tibco.com. Today's call is being recorded and will be available for playback from TIBCO Software's website at www.tibco.com. In addition, a replay will be available through InterCall for one month following today's call by dialing toll free 1800-585-8367 or 404-537-3406404-537-3406. The passcode for both the call and the replay is 54923755.

The following conference call includes forward-looking statements, which represent TIBCO Software's outlook and guidance only as of today and which are subject to risks and uncertainties. These forward-looking statements include, but are not limited to, forecast of revenues, operating margins, operating expenses, outstanding shares, and earnings per share for future periods. Our actual results could differ materially from those projected in such forward-looking statements.

Additional information regarding the factors that could cause actual results to differ materially are discussed in the Risk Factors section of TIBCO's most recent reports on Form 10-K and 10-Q filed with the Securities and Exchange Commission. TIBCO assumes no obligation to update the forward-looking statements included in this call whether as a result of new developments or otherwise.

This conference call also includes certain financial information that has not been prepared in accordance with Generally Accepted Accounting Principles, as we believe that such information is useful for understanding our financial condition and results of operations.

For a presentation of the most directly comparable financial measures calculated in accordance with GAAP and a reconciliation of the differences between the non-GAAP and GAAP financial information, please see our website at www.tibco.com.

The participants on today's call are Vivek Ranadive, TIBCO's Chairman and Chief Executive Officer; Murray Rode, Chief Operating Officer; and Jim Johnson, Chief Financial Officer.

I'd now like to turn the call over to Mr. Ranadive.

Vivek Ranadive

Thanks Jay and thank you for joining us on TIBCO’s second quarter earnings call. I want to give you a brief rundown of today’s agenda before we get into the substance of the call. First Jim Johnson, TIBCO’s newly appointed CFO will provide us with a summary of the quarter’s financial results and third quarter guidance. Jim will also discuss our new strategy to expand our recurring revenue model. Next Murray will discuss our operating performance in more detail. He’ll also discuss changes that are underway to improve Spotfire performance. I will then discuss our overall strategic direction and some important changes in our board and management. Before I hand the call over to Jim, I want to reiterate how pleased I am to have Jim on the team. His experience and knowledge will be valuable as TIBCO continues to innovate and evolve its business to include more recurring revenue.

With that, here’s Jim.

Jim Johnson

Thank you Vivek. It’s great to be a member of the TIBCO team. Today I’ll be discussing three main topics. First I’ll provide additional detail about our second quarter financial results and then I’ll give you an overview of our financial outlook for the next quarter. In addition I will be discussing TIBCO’s continued transition to recurring revenue business model and what we intend to accomplish in that area over the next few quarters. As a reminder last quarter we updated our license revenue reporting and consolidated our three categories into two. The first category is core infrastructure and the second is event processing and analytics. This quarter we are further refining our revenue disclosure to better reflect our changing mix of software. As we have mentioned in prior calls, we wanted to separately break out recurring software revenue once it became significant.

Following the acquisition of Jaspersoft in April, subscription revenue was $7.5 million this quarter, approximately 9% of our total software revenue. Going forward we will break out subscription revenue separately from license revenue and refer to both combined as software revenue in the financial statements. This provides you with additional visibility into this fast growing revenue stream as our business model is evolving.

Subscription revenue includes our hosted and cloud offerings including our collaboration software Tether and our customer loyalty solutions, Loyalty Lab which we previously reported as service revenue, as well as our Jaspersoft analytics business.

One final clarification. Beginning this quarter we will be reporting non-GAAP revenue which will include the recognition of Jaspersoft deferred subscription revenue, which is lost under GAAP accounting following the merger. We have chosen to report this way to reflect the full revenue value of these assumed and active subscription contracts as a better measure of the ongoing performance of our business. Specifically, this quarter’s revenue includes $1.7 million of Jaspersoft subscription revenue, which is not included in our GAAP reporting.

With that defined I will now discuss our non-GAAP results for the second quarter. Total revenue was $254 million, up 3% year over year. Software revenue, which includes both license and subscription was $84 million, down 2% year over year. Breaking down our software revenue further, licensed revenue was $76.5 million, down 7% year-over-year and within license revenue, core infrastructure represented 68% and grew 5% year-over-year. Analytics and event processing represented 32% and declined 24% year-over-year.

Subscription revenue was $7.5 million, more than double the second quarter of last year. Although our total software revenue in the quarter declined slightly year-over-year. Our software revenue for the first half of this fiscal year remains up 2% and core infrastructure and infrastructure license revenue is up 11% versus the first half of last year. Murray will provide more qualitative detail on our operating performance during the quarter as far part of his remarks.

Moving to services, our total services and maintenance revenue in the quarter was $170 million, up 6% year-over-year. Breaking down Services further, our recurring maintenance revenue was $108 million, an increase of 7% year-over-year while professional services and training revenue was $62 million, up 4% year-over-year. Non-GAAP gross margin was 71.8%, slightly below last year’s 72.4%. Q2 non-GAAP operating expenses were $142.9 million, up 8%. Our Q2 operating expenses include slightly more than one month of expenses related to our addition of the Jaspersoft team.

Non-GAAP operating income was $38.7 million, down 15% year-over-year, resulting in an operating margin of 15.2%. Non-GAAP EPS for the quarter was $0.14 and GAAP EPS was $0.01. Our non-GAAP tax rate was 32%. The increase in our non-GAAP tax rate is primarily due to the mix of products and geographies. Specifically we had a higher percentage of taxable income in the United States versus internationally as compared to last quarter and Q2 of last year.

Turning to our balance sheet, we ended the quarter with $581 million in cash and short-term investments. Cash flow from operations was $18 million in the quarter. Over the last 12 months, we have generated $189 million of cash from operations.

As a reminder, we acquired Jaspersoft for $185 million in cash at the end of April. During the quarter, we used $20 million to repurchase 1 million shares and ended the quarter with 167 million shares outstanding on a fully diluted basis. Deferred revenue including both long and short-term components came in at $307 million, up 12% from Q2 of last year

Looking forward, on a non-GAAP basis for the third quarter, we expect total revenue to be in the range of $267 million to $279 million. We expect software revenue to be between $93 million and $105 million.

We anticipate non-GAAP EPS in the quarter of $0.15 to $0.19 with an assumed non-GAAP tax rate of 31%. GAAP EPS should range from $0.03 to $0.06 with an assumed tax rate of 43%. Regarding our share buyback program, we have repurchased 2.6 million shares year-to-date this fiscal year and 6 million shares last fiscal year. We have $185 million remaining under our current buyback authorization. We intend to continue and potentially accelerate our share repurchase in the second half of the year.

Finally, I want to discuss what Jaspersoft means for our revenue model. As many of you know, Jaspersoft, the business intelligence company that TIBCO acquired in April exclusively uses a subscription licensing model. Subscription based licensing is becoming increasingly standard as software vendors seek to make their technology available to the broadest possible basic customers.

Currently recurring software revenue comprises about 9% of TIBCO total software revenue. Our goal is to significantly increase our mix of recurring software revenue going forward. We intend to that by adding products wherever possible that use a subscription licensing model and through a careful transition of some existing software revenue from perpetual to subscription licensing.

For example starting in the third quarter, we will fully emphasize subscription licensing as the primarily license model for our Spotfire products. The Spotfire team is already experienced with term licensing and the market for analytics is well suited to subscription.

After that we will look for continuous opportunity to introduce new subscription offerings for infrastructure and event processing products. The primary objective of this change is not simply to have more predictable software revenue although that this clearly a desirable outcome. The first objective is to reach a much broader range of customers for a lower friction licensing model.

On that note, I’ll hand the call over to Murray, but first I want to reiterate how excited I am to be a member of the TIBCO executive team. I look forward to getting to know everyone better in the coming months.

Murray Rode

Thank you, Jim. I’ll jump right into the question that I know is on most of your minds. The reasons for the miss this quarter and the changes we’re putting in place to address it. I’ll finish by covering our typical key operating metrics for the quarter. As we’ve previously indicated, our mess was really due to lower than expected Spotfire sales, which was fundamentally sales execution related particularly in Europe. We believe we have a strong product. The product is not the issue, but we simply aren’t converting our pipeline to revenue as quickly as we should and we aren’t putting enough into the pipeline in the first place.

In addition we have become too reliant in any given quarter on a small set of larger transactions instead of on a larger volume of smaller ones. This last quarter many of those larger analytics related transactions were delayed or downsized leaving a big gap without the right level of volume based business to compensate. That said, on the flipside we still need to leverage our core infrastructure sales force more for our existing customer base and the larger high touch sales they do best.

This point about larger versus smaller deals relates to an important trend we are seeing in the market, where a lot of the analytics opportunity is centered on smaller deals and more piecemeal buying before these smaller purchases turn into a larger enterprise transaction. This trend puts even more urgency on the need for simplifying the product positioning and sales pitch for a broader, more generalized market and focusing more heavily on low touch selling at volume.

In response to what we’re seeing, we are stepping up a number of actions that were already underway as well as adding others, all focused on improving our go-to-market capabilities and driving sales. We have five areas of focus for change.

First we’ve appointed a new head of a combined analytics business bringing both Spotfire and the recently acquired Jaspersoft, under the leadership of Brian Gentile, the former Jaspersoft CEO. Brian has over 27 years of experience in business intelligence and also brings deep expertise in subscription licensing. Prior to serving as the CEO of Jaspersoft, Brian served in executive roles at Informatica, Brio Software and Sun Microsystems. We believe a single leader will be important to implement greater focus and faster decision-making both strategically and operationally across the total suite of analytics offerings and Brian is an ideal candidate for this.

Second, we continue to expand our marketing efforts around core Spotfire for the general analytics market. This includes digital campaigns, inside sales efforts, events, webcasts and other demand generation activities. Much of this is now targeted at the entry-level segment of the market and on acquiring new logos. All of this is about creating more pipeline.

Third, we are in the process of rolling out new sales enablement tools focused on simpler messaging and faster sales cycles. While Spotfire is a highly capable product, it’s critical we expand from a focus on more conventional enterprise deployments to embrace smaller, simpler deals to a broader range of buyers.

Fourth, for the larger enterprise opportunities, we are also concentrating on using our core infrastructure sales force more extensively for those high touch sales and to leverage our existing customer base more fully.

And finally, we continue to emphasize usability as the top priority within the Spotfire development roadmap for both the on-premise and cloud offerings. Worse than 6.5 released at the end of the quarter, offered major strides in this area including a desktop edition for individual users and we will continue to work on further ways to make Spotfire products as easy to use and as easy to buy as possible. This will in turn help support the ability to make a higher volume of low touch sales. We also believe this shift that Jim talked to a subscription pricing model, will help make Spotfire easier to buy for a broader range of customers.

Remember that Spotfire has been selling a form of term licenses since it became part of TIBCO, but now will standardizing around a simpler form of that term license model. All of this begs the question of when one would expect these changes to have a meaningful and sustained impact on the business. Realistically the changes I’ve described are pretty fundamental and will require some time to implement. So our assessment is that this effort likely needs three to four quarters to be fully realized, although we’d expect to see incremental benefits along the way.

Let me ramp up with a few of our usual operating metrics, for the quarter that have not yet been covered on the call. First on deal metrics, we had 127 deals of $100,000 or more in license revenue versus 147 last year, and we had 13 deals of $1 million or more versus 12 last year. Average deal size for licensed deals of $100,000 or greater was $535,000 versus $488,000 a year ago. Our Top 10 customers comprised 15% of total revenue, compared to 15% last year and 16% in Q1.

Looking at the geographic mix, total revenue across our three major regions was as follows. America is at 57%, Europe, Middle East, Africa at 33% and Asia Pacific Japan at 10%. Looking at the vertical markets, we have eight verticals contribute 5% or more of total revenue as follows; financial services 24%, communications 11%, energy 10%, retail 8%, transportation and logistics 6%, manufacturing 6%, insurance 6% and government 5%. In addition to the five significant areas of change I described for analytics business, we’re also making a set of other broader management changes which Vivek will speak to as part of his comments. The point to all this is to continue to build out our ability to scale and execute consistently across our lines of business.

I’ll now hand the call over to Vivek.

Vivek Ranadive

Thanks, Murray. I first want to recap my long term vision for TIBCO and then discuss the comprehensive set of actions we’re taking to build the Company for long term success. I will start by reiterating something I’ve said before, which is that the world is shifting TIBCO’s way. What I mean by this is that in the world of Big Data and mobile real-time business, the previous generation of database and data warehousing technologies -- in fact, the whole notion of large pools of static data is no longer enough.

Today companies want to do more at the point of contact with their customers. Their goal is to provide a very dynamic and personalized digital experience. Increasingly, every business thinks of itself as a social network on the one hand and having perishable inventory on the other. The only way you can marry the social network to the perishable inventory is with fast data. This concept is about optimizing every customer encounter and not letting any opportunity go to waste.

You can’t sell an airline seat once the plane takes off, you can sell a ticket once the game is over and you can sell a hotel room for yesterday. Any business with the consumer angle has a version of this same challenge and I hear about it frequently in my interactions with our customers.

TIBCO provides the technologies, the integration of systems and data, the orchestration of processes, the analysis of patterns, the correlation of streaming information that’s necessary to capitalize on big static data in combination with big growth on data to achieve fast data.

TIBCO is the only company that can offer a complete fast data platform. For TIBCO providing fast data solutions for a better digital experience represents a massive market. But it also represents a market where we need to do some things differently. Namely we have to get better at selling what we do to a broader audience. While we are world class at selling transformational solutions to large companies, we now need to be equally world class at selling a larger volume of small transactions in a consistent systematic fashion. In other words, we need to be able to sell through both high touch and low touch channels.

We’re doing that through a combination of complementary change through our revenue model as well as our go to market approach. We’ve discussed some key initiatives today, but the total set of actions we are taking to growing to evolve our business is as follows. First, we have added a new Director to our Board in Phil Fernandez, the CEO of Marketo. Phil is a great success story in the world of SaaS and cutting edge marketing automation. His experience in cloud and subscription licensing will be a good complement to the recent addition of David West, as well as the broad range of experience already represented on our Board. I also expect to be announcing a further addition soon, all part of our ongoing expansion and evolution of the Board.

Second I am very pleased to announce that we have appointed Todd Bradley as President. Todd was most recently at HP where he successfully ran the $60 billion printing and personal systems business. Prior to that he was the CEO at Palm and his earlier leadership experience includes Gateway, GE, Dun & Bradstreet and FedEx. He is a seasoned executive with a wide range of experience, growing companies and operating large businesses.

I believe Todd will bring important skills and experience that will help speed the growth transition to becoming a multibillion dollar company. Todd will report to me and be responsible for all customer facing functions. His first objective will be to shape our overall field execution strategy for low touch and high touch, across our various product lines and geographies for growth to a multibillion dollar scale.

Third, Raj Verma, the current Head of our Infrastructure Business in the Americas will become the Global Head of Sales for that business, reporting to Todd. Raj has done a tremendous job reestablishing our infrastructure business in the Americas. Finally I’d reiterate the changes mentioned by Jim and Murray regarding subscription revenue and the consolidation of the analytics business under Brian Gentile.

These changes in strategy, board composition and management should make clear both my and the entire executive team’s intent and commitment to making TIBCO a long term success; and in so doing, a high valued company for our customers, our employees and our investors. I already have investor calls and meetings scheduled for after earnings and I look forward to talking with many of you in the coming weeks about my vision for TIBCO.

No journey is without challenges and we’ve had our share; as a $50 million company, $500,000 million Company and now as a $1 billion company, but we’ve always faced those challenges and succeeded. With the plan we laid out today we are ready to meet our current challenges and capitalize on the opportunities ahead. For those of you who believe in fast data, TIBCO is the world leader in fast data solutions. Like I say, if you’re not real time, you’re history.

Now I’ll turn the call back over to the operator to take your questions.

Question-And-Answer Session

Operator

(Operator Instructions) Our first question comes from Kash Rangan with Merrill Lynch. Your line is open.

Kash Rangan - Merrill Lynch

Thank you very much Vivek. I certainly appreciate the longer term perspective that you’ve been providing on how you see the technology landscape shifting. But I just wanted to understand if there was something deeper because your infrastructure business have been I thought at least on a rebound path and certainly it was up but not as much as -- not up as much as it could have been. And I’m just wondering if there are other things that you might have uncovered, if it’s something on the product side or maybe little bit more attention.

I know that you’ve been personally involved in a new venture on the sports side, I’m just wondering if this is the time to take stock at whether there’s a product issue or purely an execution issue because certainly you’ve certainly you’ve proven that you can come back from these setbacks in the past. So I just wanted to understand the nature of the setback this time relative to the prior setbacks and what is it that puts you in a better position to address these spots. Thank you very much.

Vivek Ranadive

Thanks Kash. So, we are very, very confident about where the infrastructure business is. Quite honestly if Spotfire had even been flat from last year, then our numbers would have been just fine. We would been very happy with the result. So even if Spotfire had had zero growth from a year ago, the number would have been a very good number. So where we see this is we’re very excited about the whole opportunity with what we call Engage where you marry the social network to the perishable inventory. Where we have been weak is in the low end of the market. We have a very, very strong presence at the high end, the high touch model as we call it and what we need is to focus more on building the low touch model.

In the past, we were perhaps lulled into a little bit of false confidence because when QlikTech hit us at the lower end, we were able to successfully navigate that, beat them back and kind of regain on momentum with Spotfire. Tableau has come out at even the lower end and we’re go into the enterprise and we’re told that they like us but Tableau has already made inroads into that. So we’re very focused on fixing it at the low end of the market. The sports thing Kash, I appreciate you bringing that up. It’s just at the end of the day my passion is selling and building and inventing new software. And the Kings are actually a showcase of what we can do with our Engage platform. And one of the largest deals we had this quarter was actually with another basketball team, the Raptors. And the same technology is also being used at places like Macy’s, beverage companies, MGM, casinos. So I view all that as a fast data opportunity to leverage.

Operator

Our next question comes from Matt Hedberg with RBC Capital Markets. Your line is open.

Matt Hedberg - RBC Capital Markets

Yes guys, thanks for taking my questions and certainly do appreciate the further granularity of the subscription revenue. That certainly helps us in building out our models for the transition. I’m curious though, as you look at the traditional license revenue line, we can appreciate the comments on sort of how long it’s going to take to get the Spotfire business back on track. But should we expect that traditional license line to grow at some point this quarter?

Vivek Ranadive

At this some point this quarter, did you…

Matt Hedberg - RBC Capital Markets

I’m sorry, at some point this year I meant, at some point this year.

Vivek Ranadive

Well, I -- and I’m sure Jim want to comment on this as well. But part of this transition does leave us with a little bit more variability on how the rest of the year plays out. This quarter is more transitional, Q3 is more transitional. We’d expect to be more fully transitioned for Q4. Obviously we’re trying to grow that software revenue category but we’re as focused on making that turn to subscription based licenses as we are on the perpetual growth.

Jim Johnson

Yes, we are anticipating sequential license growth in the quarter and the transition of subscription -- some of the subscription revenue will be incremental through acquisition. The Jaspersoft subscription revenue will be fully in in Q3. Our Hosted products are growing nicely, sequentially and year-over-year so -- and then some of the subscription revenue will be a cannibalization of license revenue, particularly as we convert term licenses to subscription licenses. So it’s really a mix but we are anticipating and focusing on growing both license revenue and subscription revenue.

Matt Hedberg - RBC Capital Markets

And then may be just a quick one for Vivek. Obviously datacenters are changing by the minute. Can you give us sort of your high level view on how you think TIBCO wins in a hyper-cloud environment?

Vivek Ranadive

Yes, so entropy is TIBCO’s friend and whenever there is something new that comes up, then that needs to be integrated. So hybrid datacenters, there isn’t a company out there that can offer all manner of integration; could to on-site to on-premise, on-premise to cloud, premise to premise, on-premise to on-premise. So you look at all the different combinations and TIBCO out of the box can provide that integration either in the cloud or on premise.

So entropy is our friend and we’ve seen before right. Every time something new came and when there was people said now when you need integration or when everything was open sourced, why do you need integration but actually it was a catalyst for growth in our business. So, we do see the world that you’re describing where people will do things on prem and then do things in the cloud and we are the single source of integration for all of that.

Operator

Your next question comes from Brent Thill with UBS. Your line is open.

Brent Thill - UBS

Good afternoon. Vivek and Murray, just on the transition; you mentioned the transition that you are going through a Spotfire in the sales process. Do you envision the rest of the business also to follow more ratable transition? Oracle obviously had a shortfall tonight as well on their earnings call on talking about this across the board. It seems like a number of vendors are going through this. But I guess can you talk about that and also talk about -- Murray hinted that it’s going to take several quarters to get the sales motion right but how you are eventually changing the go to market motion on the sales training? Are you giving the sales reps a little more leeway in terms of how they’re comped and how they actually bring this in? If you could just kind of maybe tie it together, that would be helpful on the go to market?

Vivek Ranadive

So, Brent, I think one of the things is that Company that started the low end with the low touch model, invariably they run into the reverse problem which they have to create the high touch model and you see companies that are even trying to go public right now that are struggling, companies like Box that are saying we need an enterprise sales force.

And so the good news is that we have one of the best enterprise sales forces out there and we feel very comfortable with how that is doing and how they are performing and they will continue to perform. We also feel very good about where our products are at in terms of our differentiation, including the ease of use of many of the products at the lower end like Spotfire. Where we need to get a lot better is the low touch model of sales and putting it under Brian, we are very pleased with that change. Brian created that at Jaspersoft. They would have free downloads and they would open source and then people would come back and then will monetize it. But we will continue to invest in inside sales and marketing and also in our enterprise sales force in terms of enablement and pipeline and training. So we are doing all of that. But I think where we are furthest behind is in the low touch model. Murray do you want to add to that?

Murray Rode

Just that I think there is specific question there, Brent, about compensation for the sales force and yes we would look to normalize compensation treatment for sales people, particularly through the transition, whether it’s perpetual or subscription. Ultimately the incentive is to get us to more and more subscription and so we will tend to emphasize the incentives there more over time but it is something that we’ll do deliberately, that we’ll do carefully. We won’t switch everything at once. We want to make it an orderly transition.

Brent Thill - UBS

Okay. Just a quick follow-up for Jim, welcome to the team, great to have you on-board. I’m just curious on Jaspersoft for Q3. In the essence you gave, did you give a breakdown on what Jaspersoft’s contribution be? Thanks very much.

Jim Johnson

No, I did not.

Vivek Ranadive

Yes, I think the one thing we did say is in terms of subscription is that we believe -- our goal is that in 2015 and I’m not talking about Jaspersoft but that 20% of our software license revenue will be…

Murray Rode

20% of our software category of revenue will be subscription.

Vivek Ranadive

Will be subscription.

Operator

Your next question comes from Jason Maynard with Wells Fargo. Your line is open.

Jason Maynard -Wells Fargo

Hey good afternoon guys. It’s a lot of stuff to digest just here today but maybe Vivek, could you maybe touch on a little bit, what is your view when TIBCO comes out of this transformation both from a product standpoint and obviously from a licensing standpoint as to what you think the growth potential of the business is? Maybe I’ll just start with that.

Vivek Ranadive

We strongly believe, Jason that every company is running into the same problem, which is that they have a platform based on static data and every company needs a fast data platform. And so as I said in my comments that every company looks at its business as a social network on one hand and as having perishable inventory on the other. And so whether you’re selling hospital beds or airline tickets or banking products or soft drinks, everybody is looking at their business increasingly in that manner. So we think it’s a gigantic opportunity and we think that Tibco has assembled a set of assets that make it uniquely qualified to deliver that fast data platform.

We’ve run into speed bumps before at different points. People say how big can integration be. You don’t need integration. It can all be done on the database and then can you compete with the little guys and so we’ve run speed bumps along the way and we’ve always said look, everything is an integration problem and it ends up being the largest market there is. So now we feel that it’s actually even one better for us, because it’s not just integration but its fast data, because everything is going faster. As I’ve said before you want to make the offer before you leave the aisle of the store, not six months after you leave the store. You want to know that some fraud is going to be committed before it happens.

So we believe that just with the 4,000 customers we have right now, if we’re able to sell the full integration stack, we’re calling that Engage, then this is a gigantic market. The old stack was a database with ERP systems, with reporting systems called business intelligence with an app server. The new stack is information buzz with business process management, predictive analytics and events server. So we believe that that is, if you believe in fast data, which we do, then this is a market that’s gigantic, it’s huge with that.

Jason Maynard -Wells Fargo

And maybe to put a little few numbers around that -- you in the past have talked about putting the infrastructure and the Company and aspiring to be $2 billion plus in revenue. Without putting a timeframe on that, are you still comfortable that Tibco has the potential to be that size of Company with what I would call sort of industry respectable type of operating margins. Is that the financial profile?

Vivek Ranadive

Yes, we don’t question that. And we just announced that Doug Riley is coming on as President. And he’s -- the last job he had, he was running a $60 billion business. So we’re doing the things we need to do to put in the leadership infrastructure to grow to that size. And clearly the people that have come on board, the new board members Todd, they all see that kind of opportunity. So we see that absolutely to be the case.

Operator

Your next question comes from Greg Dunham with Goldman Sachs. Your line is open.

Greg Dunham - Goldman Sachs

I guess first off, the $7.5 million in subscription revenue this quarter, what was that last quarter? I know you provide kind of an updated non-GAAP analysis for the couple of years on the website?

Jim Johnson

Yes, we’ll update that accordingly.

Greg Dunham - Goldman Sachs

Okay, and then a big question that I have is that when you look at the Spotfire and its term based contracts and the level of the miss this quarter, it seems like it was a big surprise. So I just want to get a sense of what really surprised you and why such a dramatic fall off? And then the follow up is just to clarify what you mean by weak and the low end of the market? Are you talking about smaller size companies? Are you talking about being able to sell to large enterprises at the departmental level? Because I think that’s a very different dynamic and I just want to be clear that the large end of the market is not smaller than I would expect. Thanks.

Vivek Ranadive

Yes, so you know what’s happening is actually both Greg. So it’s selling to smaller businesses and that’s only a part of it. But a lot of these sales we’re running into is -- I was speaking to the CIO of a major bank and Tableau has made significant inroads into the bank. And what he said to me is that look all the smart people know, they all love Spotfire. But all the dumb people they use Tableau. And I looked at them and said geez, there’s many more dumb people in the world than there are smart people. So that doesn’t give me any comfort. And so what we’ve done is we made it very hard to sell. The previous leadership believed in this vertical selling, solution oriented selling and so on. And so when we would have somebody call up and say can I just buy this; we would be well, how are you going to use it? What’s the value?

And so what started happening is that Tableau made -- with Tableau you would just say, hey, here is my credit card, I’m buying it and you’d be done. And they made significant inroads into the enterprise as well. So by the time we go there and we try to deal with the CIO and the IT leadership, Tableau has already popped up everywhere.

So what we need to do is we need to make it really easy to consume the product. We think we’re okay on the ease of use. I think it’s more the ease of consumption; how you by it, how you pay for it, how you download it, those kinds of things. And we believe that we are actually going to do one better than Tableau with some of the things that we’re going on doing moving forward. So that’s why this low touch actually hits us in the enterprise as well. Because often times they’ll let the users buy it and before you know it, it’s all over the place. And then the IT leadership comes back and says, maybe we need an enterprise license for this. So I don’t know, Murray do you want to comment further on it.

Murray Rode

I think that covers it. When we say low touch though, again, just to be clear, it’s a lot more about small transactions to a broad range of buyers, whether they are smaller companies or smaller transactions to larger companies.

Vivek Ranadive

It’s the kind of business that Jaspersoft has really driven with a combination of marketing, lead generation, inside sales, done very successfully.

Operator

Your next question comes from Keith Weiss with Morgan Stanley. Your line is open.

Melissa Gorham – Morgan Stanley

This is Melissa Gorham calling in for Keith. So in the past few quarters you all have talked about changes that you were making to the go-to-market or sell strategy. You‘ve talked about focusing on getting your reps more productive and such. The other results are still below expectations. So there definitely seems like there is more work to be done, but have you seen any benefits at all from some of the changes that you’ve made over the past few quarters, or is the bulk of the work still ahead of us?

Vivek Ranadive

Well, in the infrastructure side of the business, we think we’re doing well. We’ve had gains in Europe and in the Americas and so we definitely have seen very positive signs on the infrastructure side. So really it’s on the Spotfire side where we have had issues. Murray, do you want to add to that.

Murray Rode

I think that’s exactly -- we felt really as we exited last year, even there were good improvements in terms of performance in the infrastructure business. I think that’s continuing. I think as Jim called out in his comments, the infrastructure projects are up 11%, half-year-over-half-year. The issues this quarter were very much focused on Spotfire sales and there the sales attainment was poor and so that’s really I think the big area where we need to focus our efforts on improving sales performance.

Melissa Gorham – Morgan Stanley

Okay, got it. And then one quick one. Did you disclose the number of quota carrying sales this quarter? I may have missed that.

Murray Rode

We did not, but it was -- we ended the quarter at 280.

Operator

Your next question comes from Derrick Wood with Susquehanna International Group. Your line is open.

Derrick Wood - Susquehanna International Group

You guys have obviously been approached by an investor looking to make changes. It seems like today you’re talking about changes at the field level and the pricing level, even at the executive and the board level. Is this the extent with which you like to make changes or are there – would do you consider other strategic alternatives, and is there thought at all that maybe you’ve got just too many assets and it can be distracting and there is an opportunity to shore some of the product assets up?

Vivek Ranadive

Yes, we haven’t -- we have, we’re always open to input from everyone. All investors a good investors and the Board is open to all that input. We think that we have really the assets that we need in order to be the fast data platform. And again, we’ve had a – we’re up 11% year-to-date on the infrastructure side of our business. The area that we’ve suffered is in the Spotfire division. And in some ways we have actually kept that two separate. So now that it’s under -- combined within under Jaspersoft and with a couple of other assets that we’ve combined it with, I think we’re going to be in a really strong position to reclaim the leadership mantle in the fast data analytics space. That’s important to us. Now there are things that we can do to simplify the way that we offer our products. And we will absolutely be working hard to do that. Murray, do you want to add anything to that.

Murray Rode

I think you covered it with the notion of this -- pointing to that fast data platform. I think that the notion of fast data solutions gives us a way to focus, does give us a way to kind of prioritize what assets mean the most to our strategy. So I think that is going to help us be more focused on what’s the core technology and where we need to double down in terms of our focus and our investment.

Derrick Wood - Susquehanna International Group

I guess, Murray, given the extent of the execution issues, have you seen much sales turnover and is there a need to kind of resize the sales force or rebuild it with some of the new efforts you have?

Murray Rode

Look I think anytime you have execution issues like this, there is going to be some need for rebalancing and you have to deal with some of those issues and we will.

Derrick Wood - Susquehanna International Group

One more to drill in here. You guys talked about seeing, I think Murray you mentioned seeing some delays in big deals, some downsized deals. That’s a bit more of a trend. People are buying more piecemeal. Is this just happening on the Spotfire side or are you seeing this on the infrastructure side as well or if not, why not?

Vivek Ranadive

Yes, I think this hit us more on the Spotfire side Derrick and I think that’s an area that lends itself to -- it’s basically a very fancy spreadsheet is one where you look at it and it lends itself to being able to take your credit card and buy it. So on the integration side -- it’s more -- it's still more of a strategic decision. So now having said that, our intent is to make everything consumable at the low end of the market.

Operator

Your next question comes from Abhay Lamba with Mizuho Securities. Your line is open.

Abhay Lamba - Mizuho Securities

Yes, thanks. Vivek just revisiting your comments on the core infrastructure business, it only grew 5% versus extremely easy compares and you also mentioned there even flat revenues in that segment would have been kind of good by your books. So what is the underlying growth rate of this market and where do you see your portfolio can grow? Can you be kind of in line with the market and how long it will take for you to get there?

Murray Rode

Well, I think if you look at the -- it’s Murray actually responding. The larger market for infrastructure software is growing sort of high single digits rather. That’s a big market. That’s a -- I think it over $20 billion market. So we do believe that there is opportunity to grow faster than that market than the broader market. I think we felt that for a while. I do think that the year-over-year comps on infrastructure – I’m not sure I’d necessarily describe them as that easy given the amount of change in retooling that we’ve done in the infrastructure sales force. So having added quite a few replace, quite a few sales people and kind of retooled our go-to-market, I think we felt like we saw a pretty good rebound there.

Operator

Your next question comes from Greg McDowell with JMP Securities. Your line is open.

Greg McDowell - JMP Securities

Great, thank you very much and I also extend my welcome to Jim. My first question, so the acceleration and the move to subscription and whether or not that changes your view on sort of expected EPS growth for the year and maybe how we should be thinking about EPS growth for the next two to three years beyond that?

Jim Johnson

Thanks, Greg. So first of all, increasing subscription revenue, there is a few ways to get there. One is to have a bias to acquiring subscription based revenue and that’s clearly incremental. Another is to introduce new subscription products within your kind of product portfolio. That can be incremental. And then there is a moving existing products with subscription basis, which can be some cannibalization or it can be also be incremental because keep in mind that the goal of moving to subscription is to grow. It’s -- you may have a different timing in the reporting of the revenue, but the purpose is to make your products make accessible, to have a lower friction licensing model and to kind of expand your technology consumption with your customers and so it really is a growth model. Regarding growth and EPS, as reported revenue, if we move more of our current licensing and products to a subscription model, we’re clearly going to see an impact on revenue and we will be looking at that very closely and we’re modeling that in our guidance.

And what we’re looking and Q3 is at the low end of the guidance. We’re assuming kind of a faster transition of term licensing which we currently use with Spotfire but is recognized up front. We’re considering a modeling of faster transition of that kind of at the lower end of that guidance. But there is a lot of changes in places. That’s -- we’re just talking in Q3 about moving Spotfire to a subscription basis or more of subscription basis without disrupting pipeline and without losing existing deals that are in process, but our bias is to move to more of subscription model with Spotfire in Q3. We will see more of that impact in Q4 of course and then we’ll be looking at what other products and what other obvious candidates we would have to offer incremental subscription offering.

Vivek Ranadive

And just to underscore what Jim said, we firmly believe that this opens up new markets for us that we wouldn’t’ otherwise have and so moving to the subscription model is absolutely a way to expand how and who consumes our technology.

Greg McDowell - JMP Securities

And one quick follow up. So I just want to make sure -- so the subscription line currently does not include any term based Spotfire business. Is that correct?

Jim Johnson

For the most part that’s correct, yes.

Greg McDowell - JMP Securities

And then from a customer perspective, who is currently on term based Spotfire licenses, is it sort of a revenue neutral event to convert that contract from term based to subscription based?

Jim Johnson

Not necessarily because if it is a multiyear term based contract, those multiyears will be recognized upfront. The subscription model is truly a ratable model. So whatever term we end up designing for our subscription product, whether it’s a one year, two year or three year optional, it will be ratable over that full period. So it is a different model.

Operator

And our last question comes from Steve Koenig with Wedbush Securities. Your line is open.

Steve Koenig - Wedbush Securities

Just one primary question and then a real short one to follow up. I’m curious, as you take your go to market for Spotfire into what’s been a fairly good sweet spot for Tableau, what is going to -- what’s going to be unique or different about your value propositions, specifically for the low end and departmental market?

Murray Rode

So I think its a few things. One, Spotfire is a product that can do more things. So depending on what that user wants to do, we believe there’s going to be a broader range of use cases for Spotfire. So it should serve an even broader market.

The second thing is that in selling to that consumer Spotfire is going to have a lot of -- a lot of kind of upside for the enterprise. So individuals can use it and then it can nicely scale up to broader deployments, whether that’s to a division or to the enterprise and often that glide path is appealing to people. And I think the last thing is, you know the cloud version of Spotfire is I think ahead in that space and does provide real differentiation for people looking for a cloud option.

Vivek Ranadive

Yes, I think for people who would compare those two products side by side would say, in fact you know, I’ve had people tell me this that hey, this product is far superior to Tableau. You know you should be killing Tableau everywhere. And so it think anyone who has looked at the products would say that Spotfire is a financial product and this is before you look at other things like being able to feed data into it, making it real time, having much larger data sets and so on. Just on the pure functionality of it, it trumps Tableau.

Steve Koenig – Wedbush Securities

And then for the follow up I just was curious about, is there any color commentary you can offer on the deals in Q2 that got delayed or deferred, what the outlook is for getting that done in Q3 or in the second half of the year.

Jim Johnson

So, sure, I think in my comments I said delayed or downsized. I actually think there was quite a lot of downsizing in that, just where customers chose to make smaller purchases. So the follow on purchase will take time to develop as a subsequent sale. In terms of the deferrals I think the cases where they happen, they were pretty big deals and so it’s really just uncertain if it’s going to take a quarter or two quarters, or in the end you see a downsizing effect there. So, sorry I can’t be a little bit more clear, they’re all active deals, they’re not deals that were lost competitively but how they actually end up completing remains to be seen.

Vivek Ranadive

Okay, well thank you all for joining us today and I’ll talk to many of you when I’m on the road. Thanks.

Operator

This concludes today’s call. Thank you for joining us. You may now disconnect.

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