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Executives

Vivek Ranadive – Chairman and CEO

Murray Rode – COO and EVP

Sydney Carey – CFO and EVP

Analysts

Derrick Wood – Susquehanna

John DiFucci – JP Morgan

Derek Bingham – Goldman Sachs

Nabil Elsheshai – Pacific Crest Securities

Yun Kim – Gleacher & Company

Tim Klasell – Stifel Nicolaus

Brad Zelnick – Macquarie Capital

Steve Koenig – Longbow Research

TIBCO Software Inc. (TIBX) F4Q2010 Earnings Call Transcript December 21, 2010 4:30 PM ET

Operator

Good afternoon, ladies and gentlemen. I am Christine. Welcome to TIBCO’s fourth quarter 2010 conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. You can also listen to this call via the internet at www.tibco.com.

Today’s call is being recorded and will be available for playback from TIBCO Software’s website at www.tibco.com. In addition, replay will be available through Intercall for one month following today’s call by dialing 800-642-1687 from the U.S. or 706-645-9291 internationally. The pass code for both the call and the replay is 29493957.

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, forecasts of revenues, operating margins, operating expenses, outstanding shares, and earnings per share for future periods.

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

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

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

Vivek Ranadive

Hello, Christine, and thank you all for joining us today. I am joining today’s call myself from outside. Before I start, I would like to give a shout out [ph] to my dad, the captain, who never missed a call. He passed away a couple of months ago, but I know that wherever he is he’s still dialed in. So, I love you dad.

On today’s call, I will break my comments into 3 parts. First, I will briefly review our Q4 and 2010 highlights. Second, I will comment on the very strong market position we find ourselves in, and third, I will share some thoughts on where our focus lies has we enter the New Year. I will then turn it over to Murray and Sydney to discuss the details.

Q4 provided a strong and fitting close to what has been an excellent year for TIBCO. I have spoken previously about the tipping point our business hit over the course of the past year, and I believe the numbers for both Q4 and the full-year support this notion. In Q4, we once again exceeded expectations for growth and profitability.

Total revenue grew by 23% over Q4 of 2009 and came in at 241 million. License revenue grew by 21% and came in at 115 million. Non-GAAP operating margins were 31.6%, and non-GAAP EPS was $0.31. Total revenue grew 21% to 754 million. License revenue grew 22% to 302 million.

Non-GAAP operating profit grew 36% to 190 million for an implied operating margin surpassing 25%, and non-GAAP EPS came in at $0.76, a full 38% higher than last year. Cash flow from operations grew 29% to 149 million, and we spent more than 200 million during the year repurchasing 15 million of our shares. But we are only just getting started.

As we look forward, there are three great forces shaping the enterprise software landscape, and TIBCO sits at the nexus of all three. First, there is the shift from transactional systems centered around the database event-driven systems that incorporate in-memory data management and our base on distributed middleware. Second, there is the explosion in mobility, which is helping create a mass of events, requiring the new architectures mentioned in my first point. And third is the emergence of the cloud.

The cloud is, of course, about utility computing, but it is also bringing a new deployment model to the enterprise and creating a whole new set of demands and opportunities for middleware like TIBCO’s. Just as on-premise infrastructure software and middleware has garnered a larger share of spend over the past 10 years, Cloud infrastructure, such as what we provide, will see a similar trend.

The ability to harness these three forces of event-driven, Cloud-based, and mobile computing through a common infrastructure will allow companies to address 21st-century problems and opportunities, and give our customers what I call the two second advantage. I talk about this in my upcoming book of the same name with the simple premise being that it is better to have a little bit of the right information just a little bit beforehand, rather than all of the information in the world after the facts.

After all, what is the point of knowing we lost a customer after the customer is gone, or knowing fraud has been committed when the money is out to door, or knowing you have a power outage when you are already immersed in darkness. To solve the problems, and take advantage of the opportunities of the 21st Century you need 21st Century technology.

Let us take the example of a retailer today who wants to maximize the sale opportunity with the visit from a loyal shopper either online or in a store. In the old model, the shopper would receive offers weeks or even months after they had left the store. In the new model, the menu of technologies that TIBCO provides makes it possible to have directed offers before you leave the website, or even the aisle in the store.

The customer would leverage TIBCO’s SOA and middleware products to collect data, and business events are BusinessEvents, our correlation engine to detect the physical presence of a shopper on store premises, via the mobile phone or through their website. They would leverage TIBCO’s massive data management offering to uniquely identify the customer and his/her value in the loyalty database.

They would leverage TIBCO AMX BPM to launch a particular business process and targeted promotion at the point of sale, they would leverage TIBCO’s Spotfire to perform in-memory statistical analysis on customer opportunity, or the effectiveness of promotional programs, and they would leverage tibbr, our social collaboration platform for the enterprise to gain real-time visibility across the supply chain.

We have already seen examples of banks, retailers, telcos, airlines and even governments moving to this new model. TIBCO is the first software company that provides a comprehensive platform of infrastructure software to address the needs of the 21st Century. Legacy approaches just simply don’t cut it anymore.

We couldn’t ask for a bigger market opportunity. Going forward, we will maintain our focus on extending our innovation leadership, growing our business profitably, and working with our customers to realize their two second advantage.

As a last remark, I would like to thank the unshakeable commitment that TIBCO’s employees bring the work in serving our customers every day of the year. Thank you for job well done. Now I will turn it over to Murray.

Murray Rode

Thanks, Vivek. I will provide some additional details on trends in the business for the quarter and the year, and then turn it over to Sydney. From a product standpoint in Q4, the breakdown of license revenue among our major product families was as follows; SOA 59%, business optimization 28%, and BPM 13%. Overall the product families had a strong finish to the year, especially given the tougher year-over-year comps in Q4.

A few significant trends to note. SOA grew 20% over Q4 of a year ago, ActiveMatrix MDM [ph], messaging, and our connectivity products all did well in the quarter. Business optimization was up 26% over last Q4, with Spotfire doing especially well. BPM also had a good quarter growing about 16% over last year. On an annual basis, SOA continues to be our largest license revenue category for products, and grew over 21% for the year, while business optimization is our highest growth category, generating over 31% growth for the year as a whole.

We continue to see growth potential across the board, and like the diversification we have with our portfolio of products. Again this quarter, we showed balanced performance across a range of vertical markets. Total revenue in Q4 broke down as follows; financial services 28%, telecommunications 12%, energy 9%, government 7%, manufacturing 6%, transportation and logistics 5%, and life sciences 5%.

Retail had a particularly strong quarter and finish to the year, and is now about a 4% contributor, more than doubling from Q4 of last year. For the whole of 2010, retail grew close to 50% over 2009. On an annual basis, we saw other diversification in our vertical presence with insurance growing 26% for the year, manufacturing up 32%, and transportation and logistics up 20%.

In terms of geographic mix, total revenue broke down as follows, Americas 56%; Europe, Middle East, Africa 36%, and Asia-Pacific 8%. Americas was the standout region this quarter growing 55%. For the year in total, APJ grew the fastest at 45% with the Americas up 29%, and Europe, Middle East and Africa up about 7%.

Partners continue to be a growing part of our business with approximately 30% of our core business in the quarter influenced or sold through partners. Year-over-year this reflects about a 25% increase. On a separate note, Spotfire had their best revenue quarter ever on the channels front, and finished the year with nearly the double the number of resellers and OEMs as last year.

From our direct sales, we had a healthy mix in Q4 with 25 deals over 1 million in license, versus 19 a year ago. We had 164 deals over $100,000 in license versus 127 a year ago. New license customers numbered 59 in the quarter. The average deal size for transactions over $100,000 in license was 653,000, down slightly from 692,000 last year, but in line with our historical range.

Shifting to look ahead to fiscal 2011, we plan to continue to invest in our differentiated middleware platform, and remain committed to being an innovation leader in our market. We see a variety of short and mid-term growth drivers throughout our broad product portfolio. Some key offerings that already have a good critical mass of revenue and strong growth dynamics include business events, Spotfire analytics, BPM, ActiveMatrix, and messaging with our new licensee [ph] FTL product.

Longer term drivers include our Cloud and social collaboration offerings such as the Silver family, tibbr, Formvine, and the recently acquired Loyalty Lab. From a pure sales execution angle, we also see opportunity in simply continuing to expand our direct sales coverage, and our ecosystem of partners and resellers. In short, there are many ways for us to continue to drive growth.

With that I will turn it over to Sydney.

Sydney Carey

Thank you, Murray. I will break my comments into 3 parts. First, I will provide additional details on our financial performance in Q4. Next I will provide full year details on 2010, and then I will provide comments on our financial outlook. I will review our financials on both a GAAP and non-GAAP basis. A full reconciliation was included with our press release, along with explanation of our non-GAAP measures.

The year finished with a strong fourth quarter, and the key performance data are as follows, total revenue was $241.2 million, up 22% year-over-year or 25% on a constant currency basis. License revenue was $114.7 million, up 21% year-over-year or 25% on a constant currency basis.

Services revenue was $126.5 million, up 25% from last year or approximately the same on a constant currency basis. Also this quarter, non-GAAP gross margin in Q4 was 78%, down slightly from 80% last year; non-GAAP operating income was $76.2 million, up 31% from the same period a year ago. This resulted in an operating margin of 31.6% versus 29.8% a year ago. Q4 cash flow from operations totaled $35.3 million. Non-GAAP EPS was $0.31 versus $0.23 a year ago.

For 2010, we set out to deliver growth [ph] as leverage. Some highlights include total revenue came in at $754 million, up 21% year-over-year; license revenue came in at $301.5 million, up 22% year-over-year. We generated cash flow from operations for the year of $148.8 million. Non-GAAP operating profit for the year was $190.3 million, 36% higher than in 2009. This resulted in an operating margin of 25.2%, implying margin expansion of 270 basis points over 2009. Non-GAAP EPS was $0.76 versus $0.55 last year, and GAAP EPS was $0.46 as compared to $0.36 last year.

Tuning to our balance sheet, we ended the quarter with approximately $245.5 million in cash and short-term investments. Deferred revenue, including both long and short-term components came in strong at $198.1 million, up 13% from Q4 of last year. DSOs in the quarter came in at 69 days compared to 71 days in Q4 of last year. Also during the quarter, we repurchased approximately 5.8 million shares at an average price of $17.84.

Now looking forward, as we enter 2011, we continue to see strengthening pipelines and strong demand for our professional services. For Q1 2011, our guidance is as follows, we expect total revenue to be in the range of $178 to $184 million. We expect license revenue to range between $62 and $65 million. The non-GAAP operating margin is expected to be between 20% and 21%. We expect non-GAAP EPS for the quarter to come in between $0.14 to $0.15 with an assumed tax rate of 30%. GAAP EPS should range from $0.06 to $0.07 with an assumed tax rate of 30%. We expect cash flow from operations to range from $40 million to $45 million.

Regarding currency, we expect both license and total revenue to have a currency headwind of approximately 2%. For fiscal 2011 we see many positive signs for our business with multiple drivers for growth, and a broad range of opportunities. And with that we reiterate our previously committed to 15% to 20% non-GAAP EPS growth for the year.

And with that we will be happy to take your questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Derrick Wood with Susquehanna.

Derrick Wood - Susquehanna

Thanks. Nice job on the quarter guys. I was curious about the acquisition of DataSynapse last year, where is that product today and what are your plans to leverage that technology down the road?

Vivek Ranadive

Okay. Murray, I will let you answer that.

Murray Rode

Sure. Welcome, Derrick. The DataSynapse product is now really part of our broader Silver offering of products for the cloud, and so there is basically two parts to it. There is the GridServer offering, which we will continue to carry forward, and the FabricServer offering, which as I say is part of our broader infrastructure of cloud infrastructure products.

Derrick Wood - Susquehanna

You mentioned that cloud, it is still probably early development that is more of a longer term revenue driver as opposed to near term?

Murray Rode

That is right. Although DataSynapse has certainly been a great addition for us, and has performed well in terms of its ongoing business, and then we see that as being a core part of our future revenue in cloud going forward.

Vivek Ranadive

Yes, and we have actually seen quite an explosive growth in that area Derrick. We are also pleased not only with the technology, but also the people we got. So Peter Lee, who founded the company, is – we’re putting all of our cloud initiatives under him, and we see that as one of the huge growth drivers for the company looking forward.

Derrick Wood - Susquehanna

And one other question if I may, you know, I do get feedback that part of growth this year was rebounded [ph] financial services, but clearly you saw great strength out of a lot other verticals in 2010, is there any kind of color you can speak to in terms of given this confidence that demand will continue to be strong out of aside from the financial services vertical?

Vivek Ranadive

Yes. Actually Derrick, whenever you enter a new technology paradigm, as you are seeing now from a move from transactional to event driven systems, finance is often the first industry, the first market to pick up on it. So much of what you are seeing in finance is actually new things. So it is not just a catch up from past investments, but it is actually more on the retail side. So it is moving away from that CRM outbound marketing model to an inbound marketing real-time event driven model.

So a lot of the dollars you are seeing are actually not from the conventional areas but from new areas, and we’re seeing this across the board. The pick up that you saw in retail, where it is just an exploding market for us is an example for that. So we are very optimistic that this goes into every single industry.

Derrick Wood - Susquehanna

And the acquisition of Loyalty Lab help expand this vertical?

Vivek Ranadive

Yes. Absolutely, it is a very small company. So there isn’t much revenue there, but it is an area that every single one of our customers is focused on. So every customer is looking at how to get a larger wallet share from their existing programs, and when we combine the Loyalty Lab technology with our real time technology, there is nothing like it out there. And we think that is going to be a huge catalyst for growth.

Derrick Wood - Susquehanna

Great. Congratulations on the quarter. Thanks.

Vivek Ranadive

Thanks, Derrick.

Murray Rode

Thank you.

Operator

Our next question comes from John DiFucci with JP Morgan.

John DiFucci - JP Morgan

Thank you. Nice job everybody and question for Murray and Vivek, you have done a nice job over the past couple of years in both managing your operations and now growing even in this quarter, which was really your first difficult comp. Is there something here beyond good execution against what has always been at least a decent opportunity in integrating disparate systems? I mean your platform has broadened; you have actually brought some interesting assets along the way. But have you been able to broaden your sales into your core customer base beyond traditional integration solutions?

Vivek Ranadive

Absolutely, John. Most of the growth you are seeing is coming from the number one driver with our customers right now, which is customer up sell, cross sell. And so every single customer in every single industry is trying to move to that next generation, and using our database, using transactions where you are doing things 3, 4, 5, 6 months after they have happened isn’t going to cut it for them.

So we believe we have hit that proverbial tipping point over the last 12 months, and sure it is important to integrate, and sure important to tie together disparate systems, but really what this is about is moving to that 21st Century platform.

John DiFucci - JP Morgan

Thanks. So it sounds like you have moved more from I think early days into selling products to selling a solution, which you have been doing for quite some time, but it almost sounds like it is more than that now? Is that…

Vivek Ranadive

I think it is more than that. Companies are rewiring the entire enterprise. They are moving to that real-time infrastructure. They need a new master data management system. They need these customer up sell and cross sell systems, new kinds of project actions, the whole 20th-Century ERP, look in the database, see what happens. People just cannot afford to do that anymore, and we are saying just an avalanche of businesses and governments shifting to this model.

John DiFucci - JP Morgan

Okay. If I might, just one follow-up on Europe, EMEA I think you said [ph] was up 36% I think, and really I don’t think it was an easy comp. I think it was a difficult comp. I was wondering what you were seeing there now. We always just wait for what is happening over there. And what do you expect to see, what is implied in your guidance, do you expect a falloff in demand out of Europe, or do you actually expect it to hold up, or are you going to accelerate?

Vivek Ranadive

I think what I said was Europe, Middle East, Africa was 36% of total revenue in the quarter. Europe was up on the year, and I think we continue to feel positive about Europe. So we’re not – our business was strong there. We had a pretty good year. We had a very good year last year, and we continue to think the trajectory there is positive.

Murray Rode

Yes, for what we do, companies are investing John. So I don’t know, I can’t speak for other areas, but companies want to move rapidly to this type of infrastructure. And we’re seeing this in telcos, we are seeing this in finance, we are seeing it in pharmaceuticals, we are seeing it across the board.

John DiFucci - JP Morgan

So you pretty much expected it to stay – I mean it hasn’t been great in Europe by any means for quite some time, but you pretty much expect it to continue at the recent demand levels, is that…

Vivek Ranadive

Pipeline is up for us in Europe John. So our outlook is positive there.

John DiFucci - JP Morgan

Okay. Okay, great. Thank you very much.

Operator

Our next question comes from Derek Bingham with Goldman Sachs.

Derek Bingham - Goldman Sachs

Hi everybody. Congratulations on a great year. My first question was kind of just to try to get a little of a more understanding on the kind of pace of investment for next year. And you mentioned, is the way to think about it kind of mostly on the sales side, and how would your sales investments plan for 2011 compare with how you added headcount or invested in your go to market activities in 2010?

Vivek Ranadive

Go ahead.

Sydney Carey

Okay. We are seeing a lot of opportunity right now. So we are going to continue to invest in sales and marketing and lead generation. We ended the year with 196 quota carrying reps. In the first half of next year, we would like to see that expand by about 10%. When we feel like we have capacity going into the year, but in response to the opportunity, we’d like to continue to make some investments.

Derek Bingham - Goldman Sachs

Terrific. I mean would you characterize as kind of front-end loaded, or I guess you make those investments, and then see where you stand mid-year?

Sydney Carey

Well, again, we will continue to grow with discipline is what we would like to do. So we will make some investments and then monitor it kind of mid-year.

Derek Bingham - Goldman Sachs

Okay, great. On uses of cash, and this was a big buyback year the way that you ended it. I think you spent more than your cash flow this year. As you look ahead to next year, similar kind of pace or less pace, and would you do anything to be more aggressive like considering layering on some debt or something like that.

Sydney Carey

Well, we did spend about 103 million in Q4 on buying back shares. We also had about 5.5 million shares exercised within the period that generated cash in excess of 50 million in cash. So, on a net basis we spent about 50 million. One of the goals of the buyback is to offset some dilution, and so we just monitor our use of cash. We are generating a lot of cash, and we will use that cash for either returning to shareholders through a buyback or looking at acquisitions.

Vivek Ranadive

But I think the answer to that, the board has committed to keep that kind of program ongoing.

Derek Bingham - Goldman Sachs

Okay. Thanks Sydney. Thanks Vivek.

Vivek Ranadive

Thanks.

Operator

Our next question comes from Nabil Elsheshai with Pacific Crest Securities.

Nabil Elsheshai - Pacific Crest Securities

Hi guys. Thank you for taking my question. If I could first on Europe, they are on a little bit year-over-year, I heard your commentary, was there anything in this quarter it may be on the government side given all the stuff that is going on that was one time that caused that, a little of decline, or was it just a matter of tough comps, or any other color you can give there would be great.

Vivek Ranadive

Yes, I think Nabil you know Europe for us has been really a stand out performer for a number of years, and they have been on real string. So, I think there was a little bit of just some normal seasonality over the long run. Government is a little bit challenged I think across the board with budgets at the government level. But as we said, our outlook there continues to be positive across a whole range of industries. So still very optimistic about where the European business goes from here.

Nabil Elsheshai - Pacific Crest Securities

Okay. And then, you know, you have seen a nice uptick in the BPM line, what is the feedback then from the new product, is that growth attributable to the product cycle, or is there anything else going on.

Vivek Ranadive

That growth is I think attributable to the product cycle, and you know, that was released kind of midyear. So we obviously expect a little bit of ramp, and I think we saw the result of that in Q4.

Murray Rode

We believe we are going to classify ourselves with that product. You have some pure play guys and they are still working of a 10-year old product, and that being their only product, they really can’t take a two-year time out to re-engineer the whole product. So, this product is a quantum leap beyond what anybody else has.

Nabil Elsheshai - Pacific Crest Securities

Has it been driving business kind of new customer and new acquisitions, or is the success so far in primarily the installed base?

Vivek Ranadive

It is in both. So we have some new customers in the installed base. So it has been both.

Nabil Elsheshai - Pacific Crest Securities

Okay. And then on the channels, where I think the highest indirect influence, and I remember you mentioning, so obviously I think that is tied to Q4 to some degree, but where can that number go over the next year or two and what are the key leverage points. You guys have done a great job with that side channel, but is there more there, is it SI fees [ph], what are the key points there?

Vivek Ranadive

I think we’re getting to – we’re actually getting to a pretty good number on partners and indirect channels. I think particularly around the SIs that is a pretty healthy part of the overall partners business. I think the next leverage point is more focused on the ISPs or OEM partners. You know, we are still in the early stages of developing our reseller network, particularly around products like Spotfire. So I think that is the area where there is probably still more opportunity going forward.

Nabil Elsheshai - Pacific Crest Securities

Do you have a target for that number for the full year next year, I mean, I know you were 20 year-to-date before this quarter, but if you look at next year is it 20 again, or is it 30, do you have any target?

Vivek Ranadive

I think 25 to 30 is kind of what is okay with that. Murray is that fair to say.

Murray Rode

That is fair to say. Yes.

Nabil Elsheshai - Pacific Crest Securities

Okay, great. As for the detail, Sydney you had said you had wanted to add 10% in the first-half in terms of sales headcount, did I hear you correctly?

Sydney Carey

Yes.

Nabil Elsheshai - Pacific Crest Securities

Okay. Great. Thank you guys for taking my questions

Operator

Our next question comes from Yun Kim with Gleacher & Company.

Yun Kim - Gleacher & Company

Thank you and also congratulations on the strong quarter. If I could pick one thing out is the services margin, which did sequentially, I’m assuming it has even accelerated higher in your professional services organization. So, should we assume that the margin will get impacted a bit for a few more quarters out, or is it just for this quarter, as you continue to ramp your consulting organization?

Sydney Carey

It is a couple of drivers. Yes, you are correct, is one is the hiring that we have been doing has been impacting the margins a little bit, as well as just the mix of revenue, having a stronger portion of our services revenue be professional services versus maintenance. So we do expect looking at Q1 for that to dip a little bit, to continue to dip a little bit.

Yun Kim - Gleacher & Company

Okay. Do you expect to continue to ramp your consulting organization beyond this quarter where we might see that trending more or less at lower margins for at least the first half of the year?

Sydney Carey

We have been ramping that organization all of 2010. I think we have done a good job in our margin management in doing that. We will continue to ramp that organization into higher, based on the demand which today is very strong.

Yun Kim - Gleacher & Company

Okay. And then just a quick housekeeping question on any deals above 5 million and also any change or trends that you are seeing in your pipeline for deals above 5 million?

Vivek Ranadive

Well, we had in terms of the mix on the quarter, we had a really strong quarter in terms of deals over 1 million in license. There was 25, only one of which was over 5 million. And we continue to see in the pipeline good mix of deals in that kind of 1 million plus range, as well as larger deals as we look out in the pipeline.

Yun Kim - Gleacher & Company

Okay. And then just will you talk about – can you just talk about whether the scope of the projects that your customers are working on today, are they – are those projects getting larger and has that changed the buying behavior of your customers. For instance, are the buying your products at the beginning of each phase of a multi-year deployment, rather than buying everything upfront, or is it still more or less upfront large ELA driven with the longer term?

Vivek Ranadive

Well, I think it is more of what you said. But they are starting to do it as a multi-year thing. And so they will buy some, and they will implement it and then they will buy more. So if I understood the question correctly, we’re starting to see more and more of that. And our services business is actually helping drive that as well. And so we saw a tripling of our offshore services business. We saw a healthy growth in our services business. And so we are mapping that into this kind of deployment strategy.

Murray, do you want to add anything to Yun Kim’s question?

Murray Rode

No that is – no.

Vivek Ranadive

Okay.

Yun Kim - Gleacher & Company

Okay. And then lastly, Sydney the usual housekeeping question, how much did your top 10 deal represent in terms of total revenue?

Sydney Carey

This quarter the top 10 deals represented 20% of total revenue, and that this is versus 26% from last year. So again supporting very healthy mix of deals.

Yun Kim - Gleacher & Company

Okay, great. Thank you so much.

Vivek Ranadive

Thanks, Yun Kim.

Operator

Our next question comes from Kash Rangan with Merrill Lynch. Kash Rangan, go ahead with your question. It appears that Kash has withdrawn his question.

Our next question comes from Tim Klasell with Stifel Nicolaus.

Tim Klasell - Stifel Nicolaus

Yes, good afternoon guys, and I will throw my congratulations out there as well. Just a question around guidance, Sydney you mentioned 21% operating margin for Q1 that is about 150 basis point improvement. Is that what we should maybe a framework for thinking for the rest of the year, or after you have hire those sales guys, and assuming they start getting productive, could that actually accelerate throughout the year. What is your thinking on that?

Sydney Carey

Yes, the guidance is actually 20% to 21%, and we have done a nice job over the last two years expanding our operating margins. We will continue to look to grow profitably, and as we get the target up to that billion in sales, we should still trend towards that 30%.

Tim Klasell - Stifel Nicolaus

Okay, great. Good. I just want to jump over to the Loyalty Lab’s acquisition, can you guys have joint customers and if so what products normally get pulled along with the Loyalty Lab’s type of a sale, would you expect?

Vivek Ranadive

Right now, it is very, very new. The deal just closed. It is literally days old. I don’t believe we actually have joint customers. The customers that they have, they have a couple of dozen customers that they offer a cloud service to, and those would be upside customers for us, and we can actually sell into that our own – what they do is they manage loyalty programs, and then we can layer into that our customer up sell, cross sell software making offers on the spot.

Tibbr also is an area that we can layer right into that. In fact, we didn’t talk about tibbr on this call [ph] that is something that we are having huge success with. We launched it like three weeks ago, and we now have a few customers for it, and they present already 25,000, 30,000 users will be represented by those few customers, which actually is much heavy given that something like chat [ph] has been out for a year, and has about 100,000 users. So we already have about – a fourth to a third of their users.

So, Murray, are there any other products that fit into that?

Murray Rode

With Loyalty Lab, there are a few other…

Vivek Ranadive

Yes, the BPM and really a whole stack would play into that, right?

Murray Rode

Including Spotfire Analytics is part of that. So, Loyalty Lab has done great job of building a good platform, and really when you add our infrastructure and analytics and things like tibbr, it just broadens out what we together can do with that platform.

Tim Klasell - Stifel Nicolaus

Okay, great. And then, you mentioned on the call, and I agree financial services is not normally the leading edge of adoption, but retailer is sometimes on the other side of that curve. As people get – the retail begins to get more used to using your platform, what percentage of sales do you think that could be or maybe you could tell us what percentage of your pipeline is retail today?

Vivek Ranadive

You know, it is such an interesting question because the way we look at retail right now, you know, in a sense every company is retail. So, we don’t think of bank as being retail, or we don’t think of an airline as being retail, or we don’t think of an insurance company as being retail. But in fact, all of these companies are using our products in a similar vein, which is really making the customer experience being able to leverage that customer.

But in just terms of pure retail customers, you know, I would be surprised if we didn’t get up to double digits in the next 18 to 24 months on that, but Murray, I should let you add to that.

Murray Rode

No. I think as you point out it is a very good point that retail manifests itself in various ways in several verticals. But as Vivek says, we clearly see retailer as an opportunity for the future.

Vivek Ranadive

Yes, and if you look at a lot of people that have greatly benefited, if you go to United Airlines and see the experience and how it changed that is TIBCO Software, and you know, you don’t think of it as retail, but actually it is no different than what we did for Citibank, which is a bank or for Macy’s which is a retailer.

Tim Klasell - Stifel Nicolaus

Okay. Thank you very much.

Operator

Our next question comes from Brad Zelnick with Macquarie Capital.

Brad Zelnick - Macquarie Capital

Thanks guys. Vivek, I’m very sorry to hear of your dad’s passing, and I’m sure he is very proud of your recent performance.

Vivek Ranadive

Well, thank you Brad.

Brad Zelnick - Macquarie Capital

You are welcome. With that if I could just start out with a question for you in your prepared remarks, you talked about TIBCO’s leverage to the cloud and maybe specifically if you could just speak briefly on what is happening with silver and what kind of success are you seeing with customers?

Vivek Ranadive

Yes, this is probably one of our fastest growing areas right now. And every single customer has some initiative around this presently. So we are seeing this in the big customers who are moving to that platform. We are seeing this in a variety of industries. Murray, do you want to provide color on that?

Murray Rode

Sure. You know Brad, we really we have kind of two parts to our approach to the cloud. The first is the infrastructure side of things, is really taking the middleware that we have and moving it to the cloud, and that was the original part of the Silver product family launch. And then we added the technologies from DataSynapse. So that is now a fairly robust set of products on the infrastructure/middleware side. And then the new products kind of represent more almost applications, things like tibbr and now Loyalty Lab.

So both facets of that business are driving demand, and from kind of different parts of the customer, as many of our existing customers are really interested in how they can use the infrastructure side, and then tibbr and Loyalty Lab represent kind of a new sales angle to the offering that we have.

Brad Zelnick - Macquarie Capital

Thanks for the color. It is helpful, but maybe just in follow up to that, I don’t expect you to break out, and I guess it is at this point impossible to break out revenue contribution from DataSynapse, but is there anything that you can share with us so we can appreciate to the extent to which it is helping you to drive larger deals, and bring customers back to the table.

Murray Rode

Well, again, as you kind of acknowledged, we are not breaking it out separately at this point. But it is clearly either an extension to infrastructure sales we make. It is a follow on sale, or it is generating new business with new kinds of customers, things like customers like managed service providers. So it does represent a brand new customer acquisition opportunity too.

Vivek Ranadive

And also things like tibbr, where tibbr is a complete outgrowth of our cloud. So, simply the two types of things we do we offer things like tibbr as Cloud services and then we provide infrastructure/middleware for people that are trying to construct clouds, and so both of those are huge opportunities for us. And tibbr will often start – you will be able to add value added applications of tibbr once tibbr is in. And in three weeks, we have already signed a bunch of customers for tibbr, and now they are starting to look at things that we could add into that.

Brad Zelnick - Macquarie Capital

Thanks Vivek. And if I could ask one last one for Sydney. Sydney, if I look at the model, the sequential growth in deferred was a little bit less than we've seen in years past going into Q4 and the question there, and obviously if we make adjustments even if you hadn't – I mean obviously you don't have control of what could be taken to revenue, that's not a perfect science, if you will, but – and even if we assumed that you weren't able to recognize some revenue, it was clearly a strong quarter by just about all measures. But the question, is there any sense that you can give us for large deals, what percentage of deferred revenue is accounted for in license revenue and what are the puts and takes there of what's coming in and going out? Thanks.

Sydney Carey

Yes. The bulk of our deferred, I would say 85% is maintenance. The balance is special services and license. And we have ins and outs on all of those every quarter. Deferred was up 13% year-over-year. We had some renewal business, obviously it will slip into the first quarter, but you know, again we feel good about where we ended that and there is no change in trends in our deferred balance as we exit Q4 and go into Q1.

Brad Zelnick - Macquarie Capital

Thank you very much. Again, congratulations on a great quarter.

Vivek Ranadive

Thank you, Brad.

Steve Koenig - Longbow Research

Hi, good afternoon. Just one question and one follow up for you. The first question, I'm curious to get maybe some more color around your strong performance in your largest segment in SOA. What products are selling well there in the quarter? And then as you look at the year for SOA, how do we think about how you did versus how fast you think the market is growing?

Murray Rode

Sure. I think if you look inside the SOA category, it is obviously a big category, but the key component there was performance around our active matrix infrastructure that includes our BusinessWorks product, so that the core SOA technology did very well. The messaging products actually did well also on the year. Then all the various complementary pieces around that in the SOA category trended well through the year.

I think in terms of how that category of products is doing, we think it is outstripping actually the market growth rate by quite a lot. We see that broad category being up 21%, I don’t think the broad market is growing anywhere near that rate. So we feel like we’re actually taking share with our core SOA business.

Steve Koenig - Longbow Research

Okay. Okay, great. And then if I may ask one follow up. You all are getting within striking distance of your $1 non-GAAP EPS target. When I look at my estimates, I think you could even make it by 2012, which was the early part of your objective in terms of the time frame if I recall. I'm wondering what – would you think about additional incentives to go beyond the $1, or what's the – how can we think about the incentive there for TIBCO to achieve upside beyond that $1, if it looks like you're going to be able to reach that relatively sooner rather than later?

Vivek Ranadive

Yes, the way the incentive is structured is that we have to actually keep performing even after that number is reached in order for the reward to take place. So that’s factored into the program. Now that being said what Sydney, Murray and I have been saying on the road for a while Steve is that we believe that we can keep growing our earnings per share 15% to 20% a year, year after year after year based on what we see the opportunity and our position in the marketplace. Murray, do you want to add anything to that?

Murray Rode

I think that covers it. I mean – I think we’re focused right now on $1, and how that program works. And as Vivek says, there is incentives built into that for us to continue to perform. So we are though I think as a company and as a management team very focused on the long-term trajectory in continuing to drive growth and EPS results.

Steve Koenig - Longbow Research

Great. Thanks a lot and congratulations on your Q4.

Vivek Ranadive

Thanks.

Murray Rode

Christine?

Vivek Ranadive

Do we have any more questions, Christine?

Operator

There are no further questions at this time.

Vivek Ranadive

Okay. Well, in that case, we will conclude the call. Thank you all for joining us and happy holidays. Goodbye.

Operator

Thank you for joining us. We will now conclude TIBCO’s Q4 2010 earnings call.

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