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Tableau Software (NYSE:DATA)

Q2 2014 Earnings Conference Call

July 31, 2014, 17:00 PM ET

Executives

Joni Davis - Director, IR

Christian Chabot - CEO

Tom Walker - CFO

Analysts

Brent Thill - UBS

Philip Winslow - Credit Suisse

Karl Keirstead - Deutsche Bank

Keith Weiss - Morgan Stanley

Steve Ashley - Robert W. Baird

Greg Dunham - Goldman Sachs

Brian White - Cantor Fitzgerald

Greg McDowell - JMP Securities

Abhey Lamba - Mizuho Securities

Matthew Hedberg - RBC Capital Markets

Derrick Wood - Susquehanna Financial

James Gilman - Drexel Hamilton

Srini Nandury - Summit Research

Operator

Good evening. My name is Chiron and I will be your conference operator today. At this time, I would like to welcome everyone to the Tableau Software Second Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

I will now turn the call over to Ms. Joni Davis, Director of Investor Relations. You may begin.

Joni Davis

Thank you. Good afternoon, everyone. I’m excited to be joining you here today as the new Director of Investor Relations. I look forward to working with all of you. With me on today’s call are Tableau’s CEO, Christian Chabot; and CFO, Tom Walker. As a reminder, today’s conference call is being broadcast live via webcast. In addition, a replay of the call will be available on our website following the call. By now, you should have received a copy of our press release that was distributed this afternoon. If you have not, it is available on the Investor Relations section of our website.

Before we begin, I would like to remind you that during today’s call, we will make forward-looking statements regarding future events and financial performance, including our guidance for our third quarter and full fiscal year 2014. We caution you that such statements reflect our best judgment based on factors currently known to us and that the actual events or results could differ materially.

Please refer to the documents we file from time-to-time with the SEC, in particular, our 10-Q and our Form 8-K filed today with our press release. These documents contain and identify important risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements.

Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. We disclaim any obligation to update or revise any forward-looking statements. We will provide guidance on today’s call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum.

During the call, we will also discuss non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the GAAP and non-GAAP results is provided in today’s press release. The projections that we provide today excludes stock-based compensation expense, which cannot be determined at this time and are therefore not reconciled in today’s press release.

With that, it’s my pleasure to turn the call over to Christian.

Christian Chabot

Thank you, Joni. Welcome to the team. I’d like to thank everyone for joining us today on Tableau Software’s second quarter 2014 earnings call. Following the strong first quarter, Tableau finished the second quarter with total revenue of $90.7 million. This represents an 82% year-over-year increase from 49.9 million in Q2 of 2013.

Tableau delivered a strong quarter on all fronts. We grew license revenue 80% and maintenance and services revenue 85% from the prior year. We added over 2,200 new customer accounts in the quarter. We also continued to see adoption within our existing customer base.

During the second quarter, we continued to experience strength in our international business. International revenue comprised 22% of total revenue in the quarter compared to 20% in all of 2013. As we grow our business globally, we continue to make investments in sales, marketing and infrastructure.

This past quarter, we closed 157 transactions over $100,000 as compared to 80 in Q2 of 2013, representing 96% year-on-year growth. We’re pleased that our land and expand strategy continues to be successful within our customer base.

During the quarter, we added over 2,200 new customer accounts bringing our total to over 21,000 customer accounts worldwide. Some of the new accounts include Arby's restaurants, Grupo Modelo, Kia Motors America, Tire Discounters and Polygon International.

During the second quarter, we expanded relationships with many of our existing customers including (indiscernible), Just Eat, Progressive Insurance, UnitedHealth Group, the University of Oslo and (indiscernible).

Now let me share a few stories of how customers are using Tableau. Goodwill Education, a nonprofit organization focused on adult education used Tableau to identify a key insight that’s helped to nearly triple its students program completion rate. The nonprofit is also using Tableau at 15 Indianapolis schools to analyze data on student performance, measure the effectiveness of its programs and reduce the time required to fulfill compliance reporting requirements.

Goodwill Education credits Tableau for helping them fulfill their mission more effectively than ever before. Goodwill’s former students have earned an estimated $9.3 million more in wages and benefits as a result of working with a nonprofit, which is a nonprofit.

Marico is one of India’s leading consumer products and services companies in the global beauty and wellness space. The company has a presence in more than 25 countries across Asia and Africa. Marico estimates that it has saved hundreds of thousands of dollars by choosing Tableau instead of a traditional business intelligence solution. Tableau’s ease of use enables Marico business managers to save 5 to 20 man hours per report every month. It has deployed more than 40 reports and dashboards since implementing Tableau in 2013.

Oi is the largest telecommunications company in Brazil with more than 75 million customers. Oi executives use Tableau to answer questions about more than 200 billion records from sales, marketing, consumer behavior and other areas. Questions that used to take days or weeks to answer are now answered right on time.

People continue to share insights on Tableau Public, our free online product that lets people share data on the public web. This past quarter, authors published dashboards about metro, traffic and freedom of the press around the world, the global state of malaria and just about every possible aspect of the World Cup including team statistics, all-time World Cup records and World Cup tweets.

The World Cup tweet dashboard showed that Adidas had the most successful hashtag campaign with over 5,000 tweets per hour on the day of the final group game. There was even a data dashboard on the cutest German player, Marco Reus being the crowd favorite.

In June, we launched Tableau 8.2. Tableau 8.2 is an important development milestone as it allows Tableau Desktop and Tableau Public to run natively on the Mac. The release also adds a Story Points feature, which enables people to create and share interactive data driven stories. Stories can be published to a Tableau Server, Tableau Online and Tableau Public so that anyone can view and engage with them in a browser or on a mobile device.

Tableau 8.2 also includes enhancements to our data connection experience on updated mapping feature and improvements to our Tableau Server to make the user experience even more enjoyable.

In the last few months, we held regional customer conferences in four cities; Sydney, The Hague, Munich and London hosting over 1,000 customers and partners and holding over 100 breakup sessions in total. Our customers engaged in hands-on training, shared customer used cases and networked with other professionals sharing a passion for data.

We’re currently gearing up for our 7th annual U.S. Tableau Conference which will be held the second week of September, just a few weeks away now. This year’s event will have exciting keynote speakers for 250 breakout sessions and countless opportunities to connect, learn and discover. Keynote speakers include Neil deGrasse Tyson, Hans Rosling, Dr. John J. Medina and Michael Lewis.

Tableau’s international growth continues to be important to our success. We opened our first European office in 2010 and started our APAC region with an office in Australia in 2011. Today, Tableau products are available in eight languages and used by customers in over 100 countries.

With the goal of helping Tableau become a truly global company, I will be based out of London for a year beginning next month. Our international opportunity is large, strategic and meaningful and I want to ensure that our growth abroad mirrors the tremendous success we’ve had in North America.

In closing, Tableau has performed exceptionally well in the first half of this year. We continue to land new customers, support and expand our existing ones and deliver impressive financial performance. I’d like to thank all of our team members worldwide for their hard work and dedication to making Tableau a success.

With that, I’ll turn the call over to Tom for a discussion of our financials.

Tom Walker

Thank you, Christian. Good afternoon, everybody. I’ll recap our second quarter results and then discuss the financial highlights in a little more detail. Later, I will update you on your outlook for the third quarter and full year 2014. As usual, we will conclude with a Q&A session.

Total revenues for the second quarter were 90.7 million, an increase of 82% year-over-year. During the second quarter, our team executed very well to deliver strong top line over-performance.

A few items about Q2 worth calling out. We saw the impact of heightened awareness on both new and existing customers. Kudos to our marketing, sales and ops teams for doing an excellent job. We had a record number of new lands with over 2,200 new customer accounts, an increase in 1,800 we added in each of the last two quarters.

We ended Q2 with over 21,000 customer accounts which is up 56% from the second quarter of 2013. We also saw strong continued expansion within our customer base. We had 157 transactions over $100,000 each close during the quarter. This is up 96% from the 80 transactions closed in Q2 2013.

This is the second highest number of large deals closed in the quarter behind only Q4 of last year. Q4 is typically our seasonally strongest quarter and as we have previously discussed, this metric can fluctuate on a quarter-by-quarter basis. Another key factor was our international business which grew over 100% year-over-year.

Turning to the income statement. Q2 license revenues were 60.4 million, up 80% from last year. As a reminder, the vast majority of these revenues are from perpetual licenses. Subscription in term license revenues represent less than 10% to total license revenues but have been growing as a percentage of our total revenues.

Our maintenance and services revenues in Q2 were 30.3 million, an increase of 85% compared to the second quarter last year. From a geographic standpoint, Q2 revenues from the United States and Canada were 70.6 million, representing 78% of total revenues. On the international front, we continued to see returns from the investments we’ve been making as international revenues exceeded 20 million for the first time.

To give you some perspective, Q2’s international revenues were almost as much as our total international revenue in all of 2012. Q2 was the fifth consecutive quarter in which we grew international revenues over 100% from the prior year quarter. We believe that international expansion represents a long-term opportunity for Tableau and we’ll continue to make investments there.

Our total headcount at the end of the second quarter was 1,532, an increase of 65% from Q2 2013. As you can see, we’ve continued ramping our hiring with 172 net new hires in Q2. Sales and marketing headcount ended Q2 at 674, R&D headcount ended at 404.

During [Q2] (ph) and the first nine months of 2013, we hired on average approximately 100 net new hires per quarter. In the past three quarters, we have accelerated our pace of hiring with an average of over 160 per quarter. We’ve asked more and more of our recruiting team in each quarter, they continue to rise to the challenge and deliver.

Our overall headcount pipeline remains strong and you should anticipate our hiring trend continuing in the second half of 2014. We’re hiring in all groups with an emphasis on sales and marketing and development teams. Please be aware there could be fluctuations with respect to headcount additions on a quarter-by-quarter basis.

Next, we’ll spend a few minutes discussing margins and operating expenses. Unless otherwise noted, all references to operating metrics are on a non-GAAP basis which are reconciled in the press release tables and posted on our Investor Relations website.

In Q2, our non-GAAP gross margin was 91% primarily as a result of continued investment and our global support in operations. We expect our gross margins to be less or lower than last year as we continue to expand and invest in this area.

Our second quarter operating income on a non-GAAP basis was $7 million. This is better than expected and primarily the result of our top line performance. As a reminder, the majority of our operating expenses are employee related and we are focused on expanding the team and investing for the long term.

In Q2 we posted non-GAAP net income of $3.2 million and non-GAAP earnings per share of $0.05. During the quarter, our weighted average diluted share count was 68.3 million shares.

Next, I will briefly review the balance sheet. Cash and cash equivalents at the end of Q2 was $627 million, an increase of over 10 million from the prior quarter. Accounts receivable was $56.4 million and our DSOs were fewer than 65 days. Deferred revenues were 83.5 million, up 10 million from the prior quarter and up 84% from Q2 2013.

Now, I’d like to move on to our guidance for third quarter and provide you with an update for the full year 2014. For the third quarter, we expect total revenues to be in a range of 90 million to 94 million. Using the high end of this range, this represents 54% growth over Q3 2013.

In terms of operating expenses, we plan to continue to make investments throughout the company. For Q3 we’re expecting an operating loss of 4 million to 8 million on a non-GAAP basis. We expect our sales and marketing expenses will increase in Q3 partially due to the several million dollar investments we are making in our annual customer conference.

As you’ve seen in prior quarters, our operating expenses can vary based on recruiting trends and the timing of new hires joining the company. For the third quarter, we anticipate our basic share count to be between 69 million and 70 million shares.

For the full year 2014, we are raising our prior guidance of total revenues from a range of 340 million to 350 million to a range of 366 million to 372 million, representing annual growth of approximately 60% at the high end of this range. For the full year, we expect non-GAAP operating income to be anywhere from 5 million to 10 million.

This concludes my remarks. Thanks for joining us today. Now, I’ll turn the call over to the operator for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Brent Thill with UBS.

Brent Thill - UBS

Good afternoon. Christian, I’m curious if you could just talk about the impact of 8.2? I know you didn’t get a full quarter, but obviously some very compelling features from new and existing customers to look at. Can you just give us a sense of that traction and how you expect that to play out through the rest of the year?

Christian Chabot

Yes, thank you. Tableau 8.2 as a release has gone very well. It’s been well received by customers, as I mentioned before, support for the Mac and Story Points and updated in mapping capabilities have all been important to that release. The data we have on trial uptake and upgrades and downloads all look great, even that we’re pretty early in the release cycle. From a revenue impact perspective, I wouldn’t point to any specific near-term impact. As you know, we don’t charge for upgrades. We’re not an upgrade business model, rather that gets folded into our maintenance stream for existing customers. And so we expect it to bolster our competitive positioning over the coming years but I wouldn’t point to that being a specific factor in this quarter’s success. But it’s gone very well to date and we expect good things from it.

Brent Thill - UBS

Okay. And there’s been a number of questions from your investors around the new [Clixsense] (ph) solution. I know it’s too early to judge, but any thoughts in terms of the potential for some of the sales cycles to elongate or anything you’re seeing as it relates to Clix showing new intentions to get more aggressive especially in the space that you guys have been obviously very successful in?

Christian Chabot

Yes, it’s a little early to say. My understanding is their first drop of that release, their first portion of that release was made available in the last few weeks. Our first review to get to the point is that it will not impact the competitive dynamic in a really fundamental way. Of course, as a reminder, keep in mind that Tableau is addressing a pretty greenfield opportunity bringing the power of analytics to organizations and people and situations that to date have nothing at all. And so in that landscape in particular we don’t expect the release to fundamentally impact our trajectory or competitive situation. That’s our first read.

Brent Thill - UBS

Thank you.

Operator

Your next question comes from the line of Philip Winslow with Credit Suisse.

Philip Winslow - Credit Suisse

Thanks, guys. Congrats on a great quarter. Just wanted to see if you could expand on just your international comments. Obviously, you talked about a year-over-year growth but wondered if you can just talk a little bit more what you’d expect in the second half and then next year obviously with the move over to London and so forth? Thanks.

Tom Walker

Hi, Phil. This is Tom. So I’ll jump in and Christian can come in behind me. Overall, as we’ve been doing for a few years, Christian mentioned that we started our first European office back in January of 2010, right. So we’ve been continuing to invest in it and that’s what you should expect from us. We’ve seen really good performance over the last five quarters, more on the upside but a lot of the investments that we’re making there are still very, very early but we’re going to continue to do so. So, there’s no real change. It’s just we’re seeing the opportunity to bring our technology to more and more people around the globe and we’ve got good leadership in all those regions; APAC, EMEA and Latin America and they’re really ripe for analytic technology. And so we’re just going to continue to invest.

Christian Chabot

I think that’s well said. I don’t think the nature of the move is fundamentally about back half impact per se. It’s about the bigger projects with company building over many years.

Philip Winslow - Credit Suisse

Got it. And then also – I mean outside of EMEA you just mentioned the APAC, just wondering if you can just walk us through sort of what you’ve been doing there and how you kind of see that market evolving too? Thanks.

Christian Chabot

Sure. So it’s evolving much like the U.S. We start small. We follow lead flow. We follow up with customers. We do the land and then we expand. So, Phil, it really does mimic our current model. The one thing I would highlight internationally is there’s a lot more channel or partner focus, so there’s a lot more corporation with partners. And so we continue to make those investments over there to work with partners to bring our technology there. But this model in general feels very, very similar to the way we do it domestically, right. We reach out, we try and get initial land and then use that as an opportunity to make customers successful and expand over time.

Philip Winslow - Credit Suisse

Great. Thanks, guys.

Operator

Your next question comes from the line of Karl Keirstead with Deutsche Bank.

Karl Keirstead - Deutsche Bank

Thanks. My question is for Tom. Tom, you mentioned that less than 10% of the license revenue bucket was – I think you mentioned subscription and term, so my question is during the quarter one of your rivals Tibco Spotfire announced a full transition to a subscription model. I know you’re not going to sort of change your economic structure overnight, but I’m just curious for your thoughts on the merits of a subscription model in your business? Is there real enterprise demand for that and would you expect that your own mix would accelerate going forward? Thanks.

Tom Walker

Hi, Karl. Yes, so overall – the first thing I’d call out is Tableau Online which just had its first anniversary. So that’s all subscription revenue and we do expect that to grow over time. It’s still early there, but that subscription revenue will be there. The other parts of the term, our subscription revenue have to do with our OEM contracts and those are all in nature there. But we also have some ELAs and some of those require us to spread the revenues over a period. And so we have seen that as an evolving trend as customers want to go to larger or deploy more of our technology. And so I would expect that percentage to increase over time. I just don’t know what timeframe it would be, because we’re happy to accommodate our customers and work with them to deliver solutions that they need at the time they need. Just history to-date, it hasn’t been a very compelling way we do business. In the land and expand where we get the perpetual license, people liked it that way. And so we’ve been very successful with that but we’re hoping to shifting towards SaaS and also some subscription terms especially around ELAs.

Karl Keirstead - Deutsche Bank

Okay. And Tom any direct comment on Spotfire’s pivot to subscriptions, what kind of impact that might have?

Tom Walker

I don’t know what to say. It’s not like we’re bumping into them all the time, Karl. Maybe they’re seeing some type of demand in their customer base, but I don’t know because we’re not getting the same kind of feedback.

Karl Keirstead - Deutsche Bank

Okay, great color. Thanks, Tom.

Operator

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

Keith Weiss - Morgan Stanley

Thank you guys for taking the question and great quarter. In the sea of really impressive metrics in this quarter, one that stuck out was the deals over 100k, it’s almost doubling on a year-on-year basis. I was wondering if you could – two questions. One, give us a little color on where those large deals are coming from? I’m assuming that a lot of that is from further penetration into existing customers. And the second question is, in terms of sort of the sales effort, any evolution or change in the sales process to really hone in on those large deals or the opportunity to sign those large deals?

Tom Walker

Hi, Keith. This is Tom. Overall, when you think about that expansion of large deal metrics, the lion share of those transactions are from the existing base because the acquisition metrics haven’t really changed. Kind of sub $10,000 landing is what we’ve been doing for a decade now, so most of those are going to be existing expansions although I can point to probably a handful or two that are actually new accounts that are starting. They’re able to get up and running fast and see value in what we’re doing and being able to start in a six-figure investment. So you’re right in that front. The other thing you asked for is on the sales front and I think we’ve been building the enterprise team and both the commercial team domestically for years now and so they’re engaging on more expansive conversations but it’s kind of a natural lifecycle of how technologies are adopted inside an enterprise. And so what you’re seeing is refining of skills but also just looking for different opportunities in used cases and the sales team is – once they get to know an account and see what’s being successful, they’re just following up with that and bringing other success cases to those customers.

Keith Weiss - Morgan Stanley

Excellent. Great quarter, guys.

Tom Walker

Thanks, Keith.

Operator

Your next question comes from the line of Steve Ashley with Robert W. Baird.

Steve Ashley - Robert W. Baird

Christian, I’d just like to ask what you hope to accomplish when you’re in London for a year? Is it something about building a partner network? Is it something about recruiting management talent and needing to be there? What are some of the priorities you have for that mission?

Christian Chabot

Yes, it’s a little bit of all of the above. I mean overall it’s pretty simple which is we dream of becoming a big, important, global technology company. That’s what we’ve been working on for a number of years. Today, as you can see from the numbers, we’re more U.S. North America focused than we will be if we reach our vision and grow up to reach our potential. And so in view of accelerating that and bolstering our investments in the EMEA territory in particular which is so important. I’m going over there temporary. My estimation is it will be about a year, but otherwise my role will be the same. I will be working out of our London headquarters instead. And to the extent I focus on some of the more local efforts there which is certainly part of the plan it will be in the areas of talent and awareness and credibility and partner network and of course meeting with our great customers over there. No one thing immediately jumps out but the combination of all of them I think gives us an opportunity to build Europe to the next level and I’m really excited about it.

Steve Ashley - Robert W. Baird

My follow up question is really just a high level question and it has to do with traditional reporting, the kind that maybe Business Objects had pioneered that Chris report. Do you see interactive dashboards replacing static tabular reports as a way of facilitating enterprise reporting in the future?

Christian Chabot

Yes. Okay, I’ll give the longer version. It’s funny, for so many years we’ve walked into customers and these are big sophisticated companies by the way. So often you’ll walk in and as a new technology company they’ll put us through the paces and one of the paces they’ll often put us through very early is beginning to know us is that they’ll say, hey, look, one of the things we’d like to see whether you guys can do is we’d like to see you replace our 80,000 reports we have. Can you do that? To which we immediately say, why on earth do you have 80,000 reports? And almost universally you drill down on this situation and you find they’re stuck in an old paradigm. The reason they have 80,000 reports is that every report answers one question. And so you’ve got – by country and by manager and by year and by quarter and by product line and multiply out of that permutation chain, you got 80,000 reports. Well, these days what most companies are doing is moving away from the paradigm of stacks and stacks of reports that answer one question and instead moving their workforce towards more participation with data to asking more on the five questions and really you get to have those products, people are often replacing whole sets of reports with basically live interactive visual windows that answer any number of questions. And really our little interactive universes that allow you to go in any direction with your thoughts. And so you get the immediate win of replacing all of the gook and time and resources and complexity associated with having 80,000 reports in the first place but more importantly you enable a whole new world of a better thinking and better decision making. And so it’s an essential element of what’s going on in this industry and one that we’re going to continue to invest in. We’re very excited about that. So I’ll finish where I started which is yes.

Steve Ashley - Robert W. Baird

Terrific. That was very helpful. Thank you.

Operator

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

Greg Dunham - Goldman Sachs

Thanks for taking my question. I want to follow up on Brent’s question regarding the 8.2. I know you haven’t seen a revenue impact but this isn’t a normal dot release in terms of – and we’ve talked to customers in the sense of Mac capabilities and Story Points. Specifically when you talked to some of your customers in the education vertical, the tech space which maybe more prone to Mac usage, what’s the feedback then in the first month since the release?

Christian Chabot

Great question. The feedback has been absolutely fantastic. Interest in having Tableau on the Mac platform has been one of our top customer request going back years and years and years and the community keeps voting it up on our open boards on our community site of what features they’d like to see in products. And so we unveiled it with great fanfare. We even had a big coming out launch party in San Francisco. We even sent some buses to some of our big customers and all their rabid Mac users came out to party with us for the night and see the new features. And it’s sufficiently on the market. Boy, we worked on it for years as a big investment. It’s a lot of engineering effort and also enables our work on other OSs in the future. But to answer your question, the download data is great, user feedback data is great, testing data is great. It’s really met with a warm reception. Too early again to point to it like a real specific portion of the revenue that we can directly attribute to it. We’d probably have more news on that in the future, but it’s off to a great start. And from a product quality perspective, the feedback has been fantastic. And again, we expect good things from it.

Greg Dunham - Goldman Sachs

One more if you permit. The mapping capability, you decided to bring it in-house and suppose we go to a third party, why make that decision? Why do you want that control and what should we expect from your investments in that area down the road?

Christian Chabot

Yes, we’ve always wanted to make geographic intelligence a first-class citizen in business intelligence. In fact, I think this is one of the many ways in which the industry we operate in has been broken and awkward for decades, which is if you look back at the history of spreadsheets and reporting tools and semantic layers and BI platforms, I don’t know if you’ve noticed this but take a look at those. Look at those product lines that have dominated this industry for decades. None of them have much geographic intelligence to speak of. In fact, most of them don’t even contain any maps. Well, you’re not going to do much geographic intelligence without having maps. I mean even spreadsheets don’t have them. It’s strange and so we think there’s a huge opportunity to bring mapping and geographic analytics into the product lines that you use when you’re working with databases and spreadsheets. And so we take it very seriously. And as a result, we’ve taken that next step of investment. We’re big believers in investing in our own custom cartography to make sure that the information visualization is responsible and helpful. We’re investing a lot in geographic performance. In September at our customer conference, we’ll actually unveil on stage some new improvements to geographic analytics and so the stuff you referred to is just one in a number of steps we’re taking to make sure that customers can answer questions about where as well as they can answer other classes questions. Did I answer that for you, Greg?

Greg Dunham - Goldman Sachs

It does, thanks.

Operator

Your next question comes from the line of Brian White with Cantor.

Brian White - Cantor Fitzgerald

Yes. Good afternoon. Christian, I’m wondering if you can talk a little bit about some of the expansions in the quarter? I noticed you opened an office in Germany. It looks like you launched also in India. What’s the importance here and should we expect more office openings this year?

Christian Chabot

Tom can take the forward-looking thing. I mean certainly geographic expansion for Tableau is here to stay. We’re still at the early stages. I think the answer to the (indiscernible) question is pretty simple which we we’re looking at the world’s big important strategic influential markets for analytics products and we’re interested in going after them. And Germany, as an example, is a simpler example of a major economy with a sophisticated set of knowledge workers that is strategically important for any business even outside of its geographic components because it’s home to so many Fortune 2000 style companies and one where we haven’t had an office to date. We have had some field staff there doing the early missionary work, but it’s a great example of a country that’s really important that we’re now taking to the next level and that means local fuel presence, local marketing presence, local marketing investments, local support and so on down the line. So we ended up taking – although we’ll have staff all over the country, we ended up picking Frankfurt for the office. It’s up and running and it’s going very well. A similar story in India and so on down the line. I don’t know if there’s anything on the forward that you’ll want to add?

Tom Walker

Hi, Brian. This is Tom. The only thing I’d add is we look for opportunities. When we start to get to a critical mass with customers and we see a forward opportunity that we think we can make the investment, we usually do and that’s when we plop down a [shingle] (ph) or plop down an office. Usually, we start with some resources potentially working out of their homes at first. But then once we see that traction, we make those investments. And so you should expect more of that as we find there are a lot of areas in the world that we still have not penetrated and we want to. It would go towards big markets, if you will, such as China. Sydney you didn’t mention but we’re expanding in Sydney, Australia, we’re doing that. And so you can expect more of that, but it mostly has to do with where we’re getting good customer traction and the opportunity to build out an ecosystem there.

Brian White - Cantor Fitzgerald

And if we look at your go-to-market today direct versus indirect, just ballpark, how does it break down and how should we expect that to evolve over the next two to three years?

Tom Walker

So overall, in any given quarter since the history of the company, I think the direct-indirect has been about a 75%-25% split. Indirect has never exceeded 25% of overall contribution and so that’s an aggregate for everybody – for the entire company. We expect that to grow. And specifically if you think about the domestic split versus international, there is way more contribution or influence with channels, so it’d be higher than that 25% number I mentioned. It just gets weighted down, but the U.S. it’s more of a direct model. And so you should expect that to grow over time and especially in the international markets is where we’re seeing that being a large contributing factor to our success.

Brian White - Cantor Fitzgerald

Great. Thank you.

Operator

Your next question comes from the line of Greg McDowell with JMP Securities.

Greg McDowell - JMP Securities

Great. Thanks very much. Hi, everybody. I have a sales velocity and marketing velocity question and what I was wondering is if you’re seeing any sort of trends on the download to purchase time and whether those times are compressing? And along those same lines, if you could talk a little bit about the time between customers making their initial land of Tableau and that second purchase and that third purchase and whether those times are starting to compress? Thank you.

Tom Walker

Hi, Greg. This is Tom. So I’ll start and Christian can come in behind if he wants to, has a little more details. Overall, I don’t think the trend has changed much at all over the last decade. So I think that initial land takes a little bit of time for people to consider. They download it in desktop anywhere from one to two minutes anywhere in the world, they’re using it for a few weeks and then we try and convert them in a very short order. So that really hasn’t changed, so there’s not a lot of compression. I think we all wish it could go faster but it’s the natural way people evaluate technology and get successful. With the expansion business, it’s the same. I wouldn’t call out any type of acceleration or compression of time with respect to that, because we got customer who can upgrade quite frankly within 30 days of buying and then we have people that might take six months. It is situational. And if you think about – now we have over 21,000 customer accounts. We got some very, very large customers in there. We’ve got some very, very small customers in there, so it’s kind of all over the map with how people want to adopt it. I think the beauty is and it’s one thing that’s kind of key to our technology and how viral in nature gets out is people can make expansion decisions very quickly and we can get them up and running. And so there is no friction there. If you want to add some users to the server, you just call and we can send you a new license key. You’re up and running in less than a few minutes. So it’s not a big heavy complicated process for expansion. Now I think pulling that friction out has helped us but we’ve been doing that for years. So we’re not like compressing anything at all.

Greg McDowell - JMP Securities

Thank you.

Operator

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

Abhey Lamba - Mizuho Securities

Thanks. Tom, clearly there’s nothing not to like in your results, so congrats on another great quarter and solid execution. Can you walk us through how you’ve come up with your guidance and what have been the specific sources of upside versus your outlook over the last few quarters, especially as we enter the next quarter and you’ve already anniversaried your IPO process now. How should we think about the impact of those sources of upside versus your guidance?

Tom Walker

Thank you. Hi, Abhey, it’s good to talk to you. Overall, we’re primarily a perpetual model, right. We’re offering you guidance 30 days into a quarter. So we look at a forecast. We do a bunch of things that we do to evaluate our pipeline and what we expect in the trends to come up with a forecasting guidance. What we’ve experienced since being public is a considerable amount of upside to what our internal expectations were, but it’s because of awareness and I think it’s because of the way our technology is able to be deployed and adopted throughout organizations. But the overall philosophy is to assess where we are, assess our capacity, assess the investments we’re making and some of those are longer term in nature. So we don’t expect them to pay dividends in the next quarter or not or even a year and basically come up with numbers that we think are prudent and we can hit. But what we have seen is Q1 we had the Gartner report come out, the Magic Quadrant and that generated a lot of awareness for us and that did rollover into Q2. So that helped with the overall awareness that I mentioned in my prepared remarks. That awareness leads people to our website. They download the product and then we start to engage with them and so it’s a very, very critical part of it. And so it’s hard to forecast awareness, if you will, because the marketing team is trying a variety of different things to get more awareness and they’re doing a great job, but we’re seeing good upside and that’s the way it is. I’ll let you ask a follow-up question if you have one.

Abhey Lamba - Mizuho Securities

No, thank you. That was helpful. The second part is are we getting to a point where we should see enterprise agreements starting to become a bigger factor for you? And will that have any noticeable impact on your growth in the near term or is that still far away and they could still remain fairly small? Thank you.

Tom Walker

Yes. The overall enterprise agreements, so I think we’re going to see more and more of those as we come. I do not know the velocity or the pace that they will come onboard. Most of the time with those types of arrangements, you’ll be spreading the – prorating the revenue over a period of time. It could be anywhere from one to three years or potentially even more. So, historically, we’ve done a handful of these types of deals but we do expect as we get larger deployments in federal organizations that they will become a more significant portion. And as I mentioned with the prior question from Karl with the Tableau Online, it would also be kind of subscription that will have a spreading effect on revenue also.

Abhey Lamba - Mizuho Securities

Thank you.

Operator

Your next question comes from the line of Matt Hedberg with RBC Capital Markets.

Matthew Hedberg - RBC Capital Markets

Hi, guys. Thanks for taking my questions. Congrats from me as well on the quarter. You guys have certainly been hiring at a rapid pace which helps fuel the growth here. Wondering if you can comment on your ability to attract and retain top talent here? And also sort of on the productivity of these new reps, is it in the right neighborhood that you’d expect from some of the recent hires?

Tom Walker

Hi, Matt. This is Tom. Yes, so overall it takes a lot of effort to find and attract and recruit top talent. And so we have a recruiting team and all the hiring managers spent a lot of time and effort making sure that we’re focused on hiring top talent. It’s not easy, I’ll tell you right now. It’s a lot of hard work and effort. But it is paying dividends, because when you get the right people it really does help move things. But we’re very focused on it. We have a large recruiting team that is dedicated to this. With respect to the ramping, I wouldn’t say there is any changes to that. Under the sales leadership, Kelly Wright, and the whole sales leadership team, we have a lot of on-boarding, ramping, training programs that we stick all of the new sales folks through and it’s a pretty good rigorous course and just follow ups. So we’re constantly spending a lot of time and effort making sure that we’re doing that. And with respect to how is it going, it is going as we want it. We’re tweaking the course as we go and new opportunities come, but overall it’s a really good program in sales training and it’s helping us dramatically.

Matthew Hedberg - RBC Capital Markets

That’s great. Thanks, Tom.

Operator

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

Derrick Wood - Susquehanna Financial

Thanks. Congrats on the quarter. Christian, you talked about interactive visualization applications having a good fit in traditional BI environments. Are you starting to see more replacement deals or is this more of a long-term vision and most of your business today is still greenfield?

Christian Chabot

Well, the headline is that most of the business is still greenfield, it just is what it is. I mean there’s tens of millions of organizations out there. The category of technology we’re in is totally horizontal. It’s as applicable to a big corporation as it is to a medium-sized manufacturer as it is to a little community college as it is to a nonprofit ThinkTank government agency, so on down the line. It’s just fundamentally horizontal technology. And of course it’s knowledge workers from all walks of life who ultimately are the users of the product. And so most of that opportunity so to describe is greenfield and they don’t have anything other than spreadsheets. And so that has been and will continue to be the headline going forward. Now, I will say which I think is the spirit of your question you’re after that we do more and more see companies moving away from traditional enterprise and BI platforms generally speaking. We’re witnessing a market transition from an old way of doing things to a new way of doing things. And so although initially our customers often first adopt Tableau in groups where people don’t have anything, as I said, they often start to realize that it’s a better way for just about everything. Once you’ve experienced a way of completing an analytics project that is faster and easier and more visual and more affordable and requires less staff, I mean once you’ve tasted that, why would you want to go back to the old way. Now there are good reasons they have to stick with the old way for some period of time. Big investments they’ve made and training they’ve done and rollouts that are running and so we’re not as a matter of business strategy going after those all the time. But companies in a very organic and healthy way are fundamentally moving towards Tableau’s way of doing things and I think that’s an important part of our opportunity going forward.

Derrick Wood - Susquehanna Financial

Great, thank you. And then Tom two quick model questions. First, the CapEx number was up quite a bit this quarter. Can you just give us some color on what’s driving that and what to expect for the year? Could you just update us on maintenance renewal rates? I don’t know if you give that out, but it would be curious to hear what that is?

Tom Walker

Sure. Hi, Derrick. This is Tom. So I’ll start with the maintenance renewal. So continue to have strong maintenance renewals greater than 90% this quarter as the overall metric. And so that’s been consistent over time. With respect to capital expenditures, absolutely, so you saw Q1 was lighter than expected. So the timing of CapEx will vary from quarter-to-quarter, but overall I think for start of the year we were talking somewhere in the ballpark about 30 million in capital expenditures over the year and so that’s what I would expect in general if you wanted to model that out that way.

Derrick Wood - Susquehanna Financial

Thank you.

Tom Walker

You’re welcome.

Operator

Your next question comes from the line of James Gilman with Drexel Hamilton.

James Gilman - Drexel Hamilton

Thank you. Good evening, gentlemen, and congratulations on the nice results this quarter. Christian, I want to follow up on your last comments around moving into the enterprise and new vision. I think one of the questions might be around or maybe the perception that could be or objection you might have to overcome is that one version of truth. When you’re maybe in a small department or whatever, you kind of know where that data is but once you get to a large enterprise, the data might be despaired in many different locations geographically and also the type of store. So, my question to you is how do you overcome that objection as you expand into a large organization.

Christian Chabot

The short answer is we embrace it. In the situations where our company can deploy one version of a truth or a dataset, it’s a fantastic idea. They should continue to do it and Tableau is a hand in glove fit for it. If you have a nicely tuned Oracle data warehouse or a SQL server data mart set up and it’s special-purpose and humming or you’ve invested in Teradata, one of our biggest partners or Vertica or Nartiza or SAP Hana. If you’ve made those big back office, big iron, universal view of the truth centralized data investments, there is no better solution than Tableau. Our Live Query architecture as one example, less companies tap into that data where it lies and rollout a self-service analytics paradigm for their company, a data-driven workforce for their forward direction running directly against those, our system. And so customers, you’ll notice from the case studies on our website, give us great kudos for being the best fit for that environment. Now furthermore we have invested in other technologies to support one view of the truth in just data governance and responsible data management and all these wonderful goals. A second example just to keep going is Tableau’s data engine. Now people not very familiar with Tableau might think that it can only be used in an independent way and that just isn’t true. Tableau has invested in – this goes back years now – something called the Tableau data server. It’s built in to our Tableau server platform generally speaking and it lets customers of just about any size build the share data models that are secure and version and centralized and administered and managed and then use those data models, those blessed data models as the backbone of this all service analytics strategy that they then rollout to the broader workforce. I can keep going with other development support for that, but again we don’t view that as an objection at all. We view it as something that is an important part of the market, something where we play very strongly and an important part of our growth in the market.

James Gilman - Drexel Hamilton

Great and thanks for answering that. I do have one follow-up question and I guess Tom, you might be best to answer this one and that is around the sales during the quarter. I know there has been questions pertaining to that and kind of getting on a better feel for the guidance going forward. You haven’t really, I don’t think the word came up, but can you talk a little bit about the transactional business? I think you might have alluded to it, but indifferences there this quarter and in the past?

Tom Walker

Hi, James. This is Tom. The large transactions we mentioned, 157 transactions over $100,000 each. The other metric that we did is in thousands and thousands and thousands of other transactions that we do in any given period. So we’re continuing to see strength there. And I think you saw that in the new customer adds, the 2,200 new customer additions. So we’re seeing really good – a lot of volume of transactions and it’s just something we’re used to and it continues to increase as customers adopt and expand their usage. So no change in the trends at all, so it’s more of the same just higher numbers to be honest.

James Gilman - Drexel Hamilton

All right, thank you gentlemen.

Tom Walker

Thanks, James.

Operator

We have time for one final question. Your final question comes from the line of Srini Nandury with Summit Research.

Srini Nandury - Summit Research

Thank you, guys. Thank you for taking my call. I appreciate it. I was just looking at the large 100k deals and so forth and my guess is that you’re not alone getting those deals, right? I expect that there could be some competitive bake offs between you guys and Click and Tibco in particular. So how often do you see these bake offs, if any, and what do you (indiscernible) there?

Christian Chabot

So overall I would say the larger the deals – you’d absolutely be right that there would be probably more competition inside those types of deals. It’s not always the case because as I was trying to explain earlier was a lot of these are expansion case scenarios. So where we’ve always gotten in, gotten traction and now they’re just going bigger and so that’s not necessarily a bake off, if you will, because at that point in time the technology has always been proven, the productivity gains are always spreading to our organization and people are clamoring for more of it. So it’s not as much in that kind of environment. But I did mention there are some net new wins in that number and those larger transactions do have more competitive. The dynamics have not changed over the last year or two at all quite frankly. We run into all the traditional and then with Gartner we called the data discovery ones, but the dynamic hasn’t changed and I wouldn’t say any of the win ratios have changed either. We do very well when we’re invited to a table because our technology shows very well and we’re able to get it up and get it running and improve value very quickly.

Srini Nandury - Summit Research

All right, thank you. I got one more follow up, if you can. I’m just looking at your relationship with various players, so just Oracle or BI into the data. Can you provide us some color what’s going on there?

Christian Chabot

Well, our partnership strategy with regard to technology companies is usually around their data stores, so I wouldn’t really say we have a partnership with Oracle or BI. That doesn’t come to mind. I don’t know what you’re referring to there. But with regard to the Oracle database including even some of the legacy ones like S Base, we embrace those data stores. We tune our products to work well in conjunction with that so that big customers of those technologies can again unleash this vision of agile, easy analytics against the data stores they’ve already invested in. Now, if I were to comment on partnerships that are particularly exciting, Teradata comes to mind because of the wealth of data in those data stores, the advancement of their technology and their usage by some of the world’s most interesting and data intensive accounts. We’ve partnered with Vertica as another example. Fast data stores are something we like to see. We’re actually even pretty excited about SAP Hana. They are in memory database. We have some customers employing against Hana and again it’s just one of those just hand in glove fit with our technology and I can go on this for quite a bit, but maybe I’ll close with some of the more innovative things happening recently which is cloud databases. You’ll notice Tableau has done probably the best job of any analytics vendor out there casting the power of this new generation of high performance often massively parallel databases being hosted in the cloud like Google Big Query, like Amazon Red Shift. If those aren’t on your database radars for that segment of the industry they should be because customers are adopting them and they love them. And Tableau again has invested in the engineering to have really strong support of those data sources and it’s something that we think is part of the wave of the future. So those are the comments that come to mind. I don’t know if that answers your question or not.

Srini Nandury - Summit Research

Absolutely. Thank you so much.

Joni Davis

Great. Thanks everyone for your participation today and that concludes our second quarter earnings call. Have a good evening.

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