Good day, ladies and gentlemen, and welcome to the RightNow Technologies Second Quarter 2011 Earnings [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Michael Johns, Director of Financial Reporting.
Thank you. Good afternoon, everyone, and thank you for joining us on RightNow's second quarter 2011 conference call. Joining me on the call today is CEO and Founder, Greg Gianforte; and Chief Financial Officer, Jeff Davison.
Before turning the call over to Greg, I'll read our Safe Harbor statement. During the course of this call, we may make projections or forward-looking statements regarding future conditions or events, which may drive our future business; current and new products and services and their performance; potential mergers or acquisitions; the size and strength of our market; and our future financial performance and outlook for the company. These forward-looking statements may include, but are not limited to, statements about revenue growth and profitability, our future strategic plans and perceived growth opportunities, market acceptance of our products and other statements relating to our operating results.
These forward-looking statements speak only as of today and are based upon the information currently available to us. This information will likely change over time. By discussing our current perception of our market and the future performance of the company and our products with you today, we are not undertaking an obligation to provide updates in the future. We caution you that such statements are just projections, and actual events and results may differ materially from what we discuss today. Please refer to the documents we filed with the SEC, specifically our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. These documents contain and identify important factors that could cause actual results to differ materially from those contained in our projections and forward-looking statements.
As a reminder, we are providing a supplemental data sheet for easy reference on our Investor Relations section of our website that contains historical information and other key metrics that we will be discussing on the call today. In addition, an updated investor presentation has also been posted to the site.
During the course of this call, we will also be discussing certain non-GAAP financial results. We direct your attention to our reconciliations of GAAP, which can be found in our company's earnings release, which is posted on the Investor Relations portion of our website.
And with that, I will turn the call over to Greg.
Thank you, Michael, and good afternoon, everyone. We had an outstanding second quarter with revenue and earnings ahead of guidance. I'm particularly excited to see our growth rate continue to accelerate from the investments we've made in the business over the last year. The CX opportunity in large B2C organizations is growing and our singular focus on customer experience enables us to clearly differentiate ourselves competitively in terms of our solutions, our engagement model and the business results we deliver for clients. But also, our financial results are enabling us to ramp up our investments in sales and marketing to drive even more profitable growth in the future. We're very pleased with the first half of the year and our prospects looking forward.
To quickly recap the financial results for Q2. Recurring revenue, the key measure of our growth, increased 31% over Q2 a year ago. Total revenue for the quarter was $54.8 million and non-GAAP EPS was $0.15. Current software backlog, which we believe is the best indicator of future recurring revenue growth, was up 43% year-over-year and 33% on a trailing 12-month basis.
Our success is really driven by 2 factors: The macro trends creating a tailwind for our business and our sales execution.
First, at a macro level, the 4 key mega-trends that we've been pointing to over the last couple of quarters continue to influence the market and create demand for our unique CX solution. Those 4 key mega-trends are: One, the growing empowerment of the consumer; two, the increasing acceptance of cloud-based solutions; three, the rise in the number of consumer interactions that happen on the Internet and social networks and mobile devices; and fourth, the wave of contact center replacements that's occurring in large enterprises as they recognize their legacy call center solutions just can't handle their current needs.
Large B2C organizations recognize the customer experience is the competitive differentiator in a world where consumers have lots of choices. We know that satisfied consumers spend more and refer their friends to their favorite brands. This is driving more C-level visibility of customer experience, and now we're seeing customer experience initiative pushed directly at all levels throughout an organization.
So far this year, I visited about 140 customers. In nearly all my executive meetings, improving the customer experience is one of the top corporate priorities and there are more customer experience job titles in B2C organizations than ever before. In fact, according to one online job site, indeed.com, the number of job postings that use the words customer experience has increased 450% within the last year.
The second factor driving our success is our sales execution around our land and expand strategy. Two key areas of focus for Wayne, when he started as Chief Operating Officer back in October, was the new customer acquisition and increasing sales capacity. So far this year, we've increased our quota-carrying reps by more than 20%. And our financial results are allowing us to continue to hire more sales staff. Of course, it takes time for sales reps to ramp, so we expect these investments to primarily impact 2012.
Wayne is also focused on increasing the efficiency of our sales organization. We better align the key elements of sales from lead generation and marketing programs to customer success and expansion opportunities to renewals. These alignments and focused efforts are starting to provide benefit and some of it showed up in the Q2 results.
We also have greater emphasis on our partner program as we begin to align ourselves with key influencers in customer experience. Historically, we've seen between 10% and 15% of revenue influenced by partners. This past quarter, it jumped to 18%. For example, this quarter, we landed a great new customer that's a leading retailer in the U.K. We started talking to this customer about a year ago when they began looking at a contact center transformation project. Simultaneously, it turns out the customer was working with Teleperformance to expand their online presence in France. Together, we were able to win the customer service and support project for this new site.
This win gives us the opportunity to prove our value and gain their trust and now expand into the contact center. It also provided us an opportunity for our sales and service teams to get more deeply engaged with Teleperformance in EMEA. This is reflective of overall performance with partners this year as we're doing more deals with partners and beginning to see greater traction from those efforts.
During the quarter, we added 76 new customers and renewed and expanded relationships with many others. One expansion we're excited about it is SiriusXM radio. They've been successfully using our knowledge base to power their contact center agents who serve their 20 million subscribers. This relationship positioned us well to take over the agent desktop. And in Q2, we signed a contract to power their multichannel customer experience strategy, including all their contact center desktops and their web. SiriusXM's goals around increasing customer retention and driving incremental revenue opportunities is exactly what RightNow CX provides, a mission critical multichannel customer experience approach. This is a great win for us and one that was made at the highest levels within the organization.
We believe these customer relationships are expanding for a number of reasons. On the one hand, because we have a singular focus on customer experience for large B2C organizations, our solutions, engagement model and expertise meet their needs to deliver exceptional customer experience and the associated business benefits better than any other vendor. We have not seen other solutions whether they're newer cloud-based offerings or old, traditional, on-premise solutions delivering the range of functionality that RightNow does. At the same time, the market requirements for customer experience capabilities are constantly evolving based on the 4 key mega-trends I mentioned earlier.
Our customers recognize that if they're going to effectively serve their customers, they need to have a partner with deep customer experience expertise and a fully integrated customer experience platform that's robust and continually evolving or they will fall behind their competitors. Consistently delivering exceptional customer experiences across the web, social and contact center channels is hard, complex and requires a vendor with a singular focus. We believe the combination of these factors are creating a very large market opportunity for RightNow CX. As I said, we're growing our sales and marketing team to capture this opportunity.
Before I turn the call over to Jeff, I want to invite you all to our Annual Summit in October at the Broadmoor Resort in Colorado Springs. If you haven't attended one of these yet, I strongly encourage you to do so. It's a great way to visit with our customers and hear first hand how they're using our solutions to implement their own customer experience strategies. If you have any questions, feel free to reach out to Todd or Stacie at The Blue Shirt Group.
We had a great quarter, and we feel good about the momentum in the business and confident about the opportunity that lies ahead. Since I'm sure I'll get the question about the federal government, I'll make one quick comment about Q3.
We have a very strong government pipeline heading into the end of their fiscal year. I have no special visibility about what's going to happen with the budget talks. But I'll reiterate what we have said previously about what drives our success in the federal government. Our solutions squarely meet the government's objectives and mandates to move to the cloud, improve citizen experience and deploy solutions that deliver ROI and fund themselves. Over the past years, we've successfully executed through government slowdowns, continuing resolutions and other bureaucratic shenanigans, and I've had great confidence in our team that we'll get the job done in Q3 as well.
In summary, we remain focused on delivering profitable growth and executing on our key 2011 initiatives that I laid out at the beginning of the year. First, we are aggressively growing a number of quota reps to build more capacity in the sales team. Second, we're adding more business development staff to feed the pipeline and find more opportunities. Third, we're putting more emphasis on our indirect partners, both to help identify new opportunities and to expand our sales capacity. Fourth, we'll be giving our sales force more solutions to sell both from internal development and through acquisitions. And lastly, we're expanding our international presence to take advantage of emerging opportunities around the globe.
With that, I'll turn the call over to Jeff.
Thanks, Greg. Good afternoon, everyone. Revenue in the second quarter was $54.8 million, 26% higher than Q2 of 2010. Recurring revenue was $45.4 million, a 31% increase over the second quarter of last year. Professional service revenue was approximately $9.4 million for the quarter. On the mix of revenue, we've seen an acceleration in recurring revenue, and that is reflected in our Q2 performance and our guidance. At the same time, we've seen a decrease in the need for our professional services work as a result of increasing traction with partners who are taking on more professional services work, as well as solution innovation that helps simplify the implementation and configuration processes. You can see the shift in our revenue mix towards more recurring revenue in our Q2 results and in our guidance.
The software portion of current backlog at the end of the quarter was $152 million, which is 43% greater than Q2 2010 and 33% greater on a trailing 12-month basis. We reported total backlog of $334 million, a 58% increase over Q2 of last year.
The mix of revenue across geographies for the quarter were 63% Americas, 21% EMEA and 16% Asia-Pac.
On margins and expenses, note that my comments exclude our non-GAAP reconciling items, which are stock-based compensation, acquisition costs and amortization of acquired intangibles.
Total gross margin was 72%. The margin on recurring revenue was 85% this quarter. And professional services gross margin was 6%. Total operating expenses were $33.4 million for the second quarter. We reported an operating margin of $5.8 million or 11% of revenue compared to 9% in the second quarter of 2010.
Non-GAAP interest and other expense for the quarter was $863,000. This excludes the $253,000 of amortization of debt issuance costs.
On the bottom line, we recorded GAAP net income of approximately $194,000 or $0.01 per share. Excluding non-GAAP reconciling items, our non-GAAP net income was $5.4 million or $0.15 per share. Headcount at the end of the quarter was 1,040.
Now moving to the cash flow statement. Cash generated from operations this quarter was $6.4 million. Capital expenditures for the quarter were $3.6 million. We ended the quarter with total cash and investments of approximately $256 million.
Now turning to guidance. First, I'll direct you to the tables attached to our press release that reconcile our GAAP to non-GAAP guidance. For the rest of the year, we are raising our growth expectations for recurring revenue to approximately 27%, up from our previous guidance of 24%. For the third quarter of 2011, we expect revenue to be approximately $57 million, driven by continued strong growth in recurring revenue. Please note my comments earlier about professional services. As we accelerate our move toward partners and our solutions become easier to implement, we are now expecting professional services in the third quarter to be flat with Q2.
We expect the non-GAAP earnings per share for the third quarter to be approximately $0.15 and GAAP earnings per share to be approximately breakeven. For the full year, we expect total revenue to be approximately $226 million. We expect annual recurring revenue growth to be approximately 27%. For the full year, we now expect non-GAAP earnings per share to be approximately $0.58 and GAAP earnings per share be approximately $0.08.
For the third and fourth quarters of 2011, we are forecasting an effective tax rate of 40%, calculated on GAAP net earnings. We are forecasting approximately 36.3 million fully diluted shares outstanding for the third quarter and 36 million for the full year. We expect capital expenditures for the year to be approximately $15 million.
In summary, we had an outstanding second quarter and look forward to our planned growth in the coming quarters.
And with that, I'll turn the call over to questions.
[Operator Instructions] Our first question comes from Laura Lederman with William Blair.
Laura Lederman - William Blair & Company L.L.C.
I hate to ask this after a good quarter, but I always do. How does the pipeline look after closing such great business? And also I noticed that the big deals were sort of relatively flat, only up 1 year-over-year, but there was a wonderful improvement in regular [indiscernible] business, deals between $100,000 and $1 million and wanted to talk about where that expansion came from? And then I have one final question.
So Laura, I expect this question from you every quarter and I'm happy to say that pipeline for Q3 is very strong, kind of across the board. I mean, it's part of what gave us the confidence to raise the recurring revenue expectation for the remainder of the year. We're just seeing good, strong momentum in the core business across regions and it's showing up in the recurring revenue growth.
Laura Lederman - William Blair & Company L.L.C.
And once again can you talk a little bit about the beautiful increase in the medium-sized deals of $100,000 to $1 million? It's good to see that expand in the quarter, not dependent on large deals, so can you tell me...
I think that's the real strength of the business. I mean we do a lot of transactions in a quarter, it's deals of significance are kind of in the $600,000 to $800,000 every quarter. There's always a handful. This past quarter, we had 12 deals over $1 million. But the bread and butter of the business is the stuff we do in that medium range, and that gives us a very robust revenue stream. And the sales teams are executing well. That's kind of the reason why I shown the light on that during my prepared comments. There's just good, strong business in this core market.
And our next question comes from Tom Roderick with Stifel, Nicolaus.
Tom Roderick - Stifel, Nicolaus & Co., Inc.
So in thinking about where some of the services business is going, maybe you can speak a little bit to some of your key partners that are gobbling up some of that work. And to the extent that they're not just deploying some of the services work, but actively assisting in the pipeline and in sales closures, can you talk a little bit about what role some of those services partners are playing in your business?
Sure, happy to. So I mean, some of the top partners for us here are still from the MSP space, people like Sitel, Teleperformance, Convergys. But we have expanding business now with IBM, with Interactive Intelligence. Not all of them are delivering services, but most are. Particularly, we've seen good success with some of the outsource partners doing Siebel replacements. And they typically provide some of the implementation -- the lion's share of the implementation services when we do those deals. We'll provide expert services to them. But there's really 2 factors in that professional services number, I think. And a couple of you all, had kind of uncovered that in your channel checks that the partners were more excited about the business they were seeing coming from us and that showed up in the jump in the percentage of partner-influenced business. But again they're delivering it. But we've also had solution innovation that has allowed us to make it easier to implement the product, and so that's really at the heart of it.
Tom Roderick - Stifel, Nicolaus & Co., Inc.
And Jeff, just the financial impact on that, I mean we've seen the recurring subscription services line accelerating. Should we think about professional services sort of flatlining at this current level? Or should it decline going forward, I mean, beyond the coming quarter? Maybe just a little bit of insight into how we ought to think about it longer term.
Yes, a good question, Tom. We really look at that organization and we tried to size it to kind of a base of business that we think we should expect going forward. So we're expecting it to be flat Q3. You might see some increase Q4, but really, our goal is to internally have an organization of a size that kind of can maintain, and then we hope to see the partners take on more and more of that portion of the work growth. So I'd say, Q3 probably flat, Q4 might be up a little bit. But otherwise, when I look out to next year, I wouldn't look at total professional services growing significantly at all.
Our next question comes from Nathan Schneiderman with Roth Capital.
Nathan Schneiderman - Roth Capital Partners, LLC
Jeff, last quarter, you gave us total bookings. I had $70.3 million. I was hoping you could give us that number as well as the ASP for deals over $25,000?
The bookings for the quarter, it's about $70 million. I think if you calculated out the metrics, the change of backlog plus recurring -- or plus total revenue, you're around $72 million, $73 million, somewhere there. We aren't providing that average selling price. It isn't a significant change. It's pretty consistent with what it's been over the last many, many, many quarters, over $100,000.
Nathan Schneiderman - Roth Capital Partners, LLC
Okay. And then, Greg, I was curious. With the acceleration in new customer additions, 70 plus for the last couple of quarters, do you feel like we're at a new level where it really shouldn't dip much below this? Or do you kind of look at Q1 and Q2 and feel like they were sort of spiky and we'd be back down to more traditional levels? And any particular drivers you would speak to related to the acceleration in new customers?
Well, good question, Nate. I mean, we -- as you know, we've been pushing down the accelerator on sales and marketing expansion. We've been doing a lot of hiring in that area. It's up over 20% year-to-date. A large portion of those new hires were in new customer acquisition areas. But I would say most of them are not up to speed yet. It takes a while, 6 to 9 months for a rep to come up to speed. So what you're seeing in terms of results here for Q1 and Q2, in terms of raw numbers is mostly delivered by the existing organization. So as those new acquisition reps come up to speed, I certainly think it's a reasonable assumption that we're going to maintain at the current levels and kind of a reasonable person would think it probably would go up from there.
Our next question comes from Greg Dunham with Credit Suisse.
Gregory Dunham - Crédit Suisse AG
The deferred revenue had a nice build to it this quarter. Was there anything onetime in nature or anything unusual about the build? And then a follow-up, the AR also I think, the DSO number was a little bit higher. And I would've expected a little bit more cash flow. Is that just on the come?
Sure. on the first question on deferred revenue, you're right, it's the first nice uptick we've seen in that and really that's just a result of where we're moving into the 1 year or past the 1 year anniversary on the CSA. And as we move into that model, you'll start to see deferred revenue build now as the backlog is built over time. We'll continue to give the visibility of the current software backlog, though, because that's a very meaningful number that you should be looking at. On the second part of your question, that was on the cash flow and the AR build. That's just really a result of the strength of our sales in June. We had real high level of sales in June. They're in receivables. We'll collect them in Q3. And from -- I would just comment on the health of the receivables. They're probably in the best shape, I think, we've seen them in. Our receivables have always been healthy. We've never really had problems there, and we're just really pleased with the business we closed in Q2.
Our next question comes from Michael Huang with Needham.
Michael Huang - Needham & Company, LLC
Just to follow up on question around the strong customer acquisition. Is that changing at all the mix of business that you're doing, kind of new versus existing, in terms of kind of the overall bookings? Are you seeing a higher concentration around new?
I wouldn't say on a percentage of revenue basis that wouldn't be the case. Remember, we're doing -- if you add the numbers up -- I didn't do the exact calculation on Q2, but if you exclude the deals below $25,000, you're probably 500, 600, 700 transactions, something like that. 76 of them are with new customers. The remainder are with existing clients. That's the strength of the model -- this land and expand. We can go back and get more. It's the partner influence. It's helping us add new customers, as well as beginning contribution from the new hires. But again as I mentioned earlier, that's at the very beginning of what we hope to get from that group.
Michael Huang - Needham & Company, LLC
Okay. And then just another question on Q-go. So I think last quarter, you updated us on some of the nice wins that you got from Q-go right out of the gate. Any further update for Q2? Were you able to put up some nice wins that you could highlight? And where are you from a product and sales integration standpoint?
Yes, good questions. I mean Q-go is a very important acquisition for us this year. It moved us from the support page to the homepage and it allowed us to start having conversations with our clients about increased revenue. From a financial perspective, we're right on plan in terms of the contribution we're expecting from Q-go this year. Since the acquisition, we have added new customers. I don't have a specific example from Q2 for you, but we're on track from a financial model perspective for the year. And the pipeline continues to build.
Our next question comes from David Hilal with FBR Capital Markets.
Philip Dionisio - FBR Capital Markets & Co.
This is Philip Dionisio for David. In EMEA, you had a really strong quarter there, 39% growth. Could you just talk about what you saw there in terms of the macro environment? And how much of that growth was organic? And also how the new head of sales is doing in terms of ramping up the region?
Okay. I would say that the bulk of that growth is the result of the Q-go acquisition. We did get a new leader in Europe. We think we found a very, very talented guy that's getting his arms around the program there, and he's kind of lining it out for us. So we see a lot of opportunity in Europe and that's why we're investing there.
Philip Dionisio - FBR Capital Markets & Co.
And then, Greg, I appreciate the comment on the federal government. But in your conversations with customers in government, are you getting any indications that they do have the budget for your software especially in the fiscal year end?
Well, I mean, the current budgets are already allocated, so that continuing resolution got kind of -- the budget got approved, 90 days or so ago and it trickled down. The organizations have their money. What are the ramifications of what's going on in Congress right now? I mean, you know as well as I do and I don't think the individual buyers in the federal agencies have any better view than we do either. Congress just needs to get their act together. But will that trickle down? We just don't know. We do know we have a strong pipeline. Independent of what's going on in Congress right now, the need exists. We've got a solution set that meets the need, and we have active deals in the pipeline that we're working.
Our Next question comes from Brendon Barnicle with Pacific Crest Securities.
Brendon Barnicle - Pacific Crest Securities, Inc.
In all the momentum you guys have, are you seeing deal closure rates get any easier or any way is the market getting less competitive? Are you guys starting to really see yourselves pull away? It certainly looks like that in the numbers.
I would say that -- as I mentioned in my prepared remarks, this exclusive focus on customer experience for large B2C organizations gives us clear differentiation when we go in at the executive level. There is no other firm that has this complete platform for customer experience, and that's their sole focus. Everyone else is conflicted in some way. That allows us to just be more focused in the way we go to market around the verticals we attack, and that is paying dividends. So the market, I would say, from a competitive landscape perspective, is about the same. However, this focus that we've developed over the last 5 years or so, focusing on customer experience, gives us clear differentiation. And as a result, our win rates when we're in our target markets, that is, the 6 verticals that we primarily address, our win rates there are very high.
Brendon Barnicle - Pacific Crest Securities, Inc.
And then as a follow-up on that, there was an interesting survey at Information Week recently that said in SaaS purchasing, they're seeing like -- I think the number was like 65% of decisions emanating from the C level as opposed to IT. From what you've said in the past, it sounds like that's your experience. Is that consistent with what you guys are seeing? And is there any trend towards more sort of C-level purchasing than in the past?
We've always focused primarily on the business side. IT -- as the systems become more and more important, IT is almost always at the table so we need to satisfy them. But the driver tends to be the business side. In my customer meetings, the most prevalent title is COO or CEO. The #2 title, I would note, though, is CIO, followed by somebody with customer experience or customer care in their titles, the #3 title. So it's primarily an executive-led decision. If you ask an executive today what are the top 3 things you're working on, 1 or 2 of those top 3 things are going to include customer experience. And we're the only vendor that has an exclusive focus on helping them solve that problem, and that's working to our advantage. And you're seeing it showing up in the growth in the recurring revenue number.
Our next question comes from Brian Schwartz with ThinkEquity.
Brian Schwartz - ThinkEquity LLC
Actually, just one question. Greg, I wanted to ask you, in my research checks, it looks to me that I'm seeing some signs out there that your business is starting to gain traction in the financial services vertical and that you're investing to go after the opportunity in that very large, but really a previously non-core vertical for your business. I was wondering if you could talk a little bit about that, if you are starting to gain some traction in financial services, and what do you believe really is the driver for these large financial services companies to increase spending on the RightNow product suite?
That's a good question. If you look, I think, in the current deck, trailing 12 months, financial services is about 6% of our total revenue. It's been pretty consistent at that level for a while. But I would say, anecdotally, we're seeing a lot more activity there. Kind of the history on that is we're probably the first company to evangelize mission-critical SaaS in large enterprises. And necessarily, IT organizations tend to have a bigger stick in financial services than they do in other verticals. So as a result, financial services tended to lag other industries in adoption of cloud-based applications. It's only been here in the last couple of years that kind of IT in financial services organizations have come around and realized this really is faster, better, cheaper and they can make their money go farther if they engage in a cloud -based application company. So we have seen an uptick in activity in financial services. And it, at a minimum, kept pace with the growth of the rest of the business. I would expect it to expand. If you ask me where are we seeing the most activity in verticals, I would definitely list financial services as one of the top 3 where we're seeing more activity.
Our next question comes from Terry Tillman with Raymond James.
Terrell Tillman - Raymond James & Associates, Inc.
Just a question and a follow-up. Greg, in terms of -- back to this new customer growth number, it is the best it's been since 2Q '08. And I guess one thing I'd be curious, are you all actually seeing more deals and more RFPs because of these mega-trends that you guys have talked about? Or do you think it's not so much that or the opportunity pool's gotten a lot bigger, it's just more of the execution's gotten stronger, the win rates and the ability to find that this business and win it, it's gotten better for you all?
Yes, I think it's a combination of those things. I mean, the recognition we've gotten on the Gartner Magic Quadrants has definitely gotten us on more shortlists, particularly with the position we have on the Web Experience 1, the great position we have in the Social CRM 1 and then the latest one that just came out on contact center, moving us really ahead of everybody except Oracle. Oracle's just above us and everybody else is below us. If somebody's doing a procurement contact center, if they look at the Gartner Magic Quadrant, we're going to be on the shortlist. That, combined with the expanded relationships we have on the partner channel, is helping us. Again as I mentioned earlier, we haven't gotten full benefit from the investments we've made in new customer acquisition reps. I expect that to come online later this year and into next year.
Terrell Tillman - Raymond James & Associates, Inc.
okay. And I guess on the CX platform, at a prior Analyst Day, I think one of your comments or the vision was an increasing percentage of your revenue coming from interactions or more of a usage or volume-based model. Could you update us on where you are with that strategy? Where is it as a percent of your revenue or of your bookings or backlog? And where it was 6 months ago and where do you see it going?
Yes, sure. We absolutely talked about increasing revenue from interactions. We also talked about increasing revenue from seats. And really, both of them are growing in parallel because 6 months ago, about half came from interactions, web interactions, mobile interactions, social interactions. And about half came from the seats in the contact center. Both sides of our business are growing. I'd say the percentage is about the same today, roughly so. And particularly as we do more of these contact center replacements, one of which we highlighted here this quarter with SiriusXM. We also did a large replacement, one of our large -- 12 large deals was a salesforce.com replacement where they had a failed salesforce.com deployment because they just couldn't handle the B2C requirements. So we're seeing increased revenue on the contact center seat side, but we're also seeing them on the interaction side.
Our next question comes from Mark Murphy with Piper Jaffray.
Mark Murphy - Piper Jaffray Companies
I just wanted to ask you about the contact center opportunity that you have, I think, highlighted before as well around $3 billion. Can you just let us know in which innings should we think you are playing in that replacement cycle as of now?
Sure. So if you think about our business, call it $226 million -- call it $200 million this year, and half of our business is contact center, we have a $100 million a year contact center business. Now it's a $3 billion marketplace, so I'd say we're still swinging the bat, warming up for the game.
Our next question comes from Sonya Banerjee with Jefferies.
Sonya Banerjee - Jefferies & Company, Inc.
I actually have a quick follow-up to the question that was asked a couple of analysts ago. But basically, as it relates to session-based rev, if you're seeing an increase in session counts relating to web, mobile and social, are you also therefore seeing early contract renewals just given that increase in the number of sessions? And I guess that specifically relates to those customers that are still on the older 2-year agreements versus individuals on CSAs?
Yes. Sonya, this is Jeff. We've always had a model where our customers purchase capacity for sessions. So historically, we've always experienced that our customer may under purchase or their business has a change where they start to exceed. And that forces you to come to the table and talk about upselling for the next level of capacity. I would say that's continuing to occur. Under the new CSA contract, we are seeing that one of the features of that contract allows the customers to wind down the usage over time. So we are seeing customers come back and need to repurchase more to kind of finish out the period of their first year of contract. So yes, sessions do drive early renewal conversations. They also drive just additional purchases to kind of round out the contract that's in place.
And then just a follow-up to the comment that was made about salesforce.com. I guess, if you could specifically speak to just what the competitive landscape looks like with B2C and contact centers, I guess, simply because it seems like based on the field work that we've done, we've heard about, I guess, just the competitive environment becoming increasingly crowded with salesforce, I guess, focusing more on B2C contact centers. So an update there would be helpful.
Yes. We do see salesforce in competitive deals, our win rate is extremely high. Occasionally, we see a client switch over. We've had multiple situations where people have kind of bought the promise that salesforce makes, and then it turns out to not be true. I mean, they are a great marketing organization. And then they come back to us. And I could list half a dozen accounts where that's happened. We also have had some very significant wins against them in head-to-head competition. We noted Yahoo! a couple of quarters ago and there have been a number of others. One of the big deals this past quarter was a failed salesforce implementation. The real difference is that because we have a singular focus on customer experience in B2C, we've built out agent desktop technology that handles the more complex workflow in these environments and customers recognize the difference when they actually have production experience with the 2 systems. They're certainly a strong marketing organization, but the promises don't always measure up.
[Operator Instructions] And our next question comes from Jeff Houston with Barrington Research.
Jeffrey Houston - Barrington Research Associates, Inc.
To begin with, regarding the 12 large deals that were signed in the quarter, did all of them include the call center features? And also how many of these deals were expansions of previous web clients versus brand new customers?
Yes, it's a good question. They all included some contact center components. There were a couple that were new customers. I'm looking at Michael Johns here. There are a couple that were new customers. The majority, 10, were existing expansions, which just fits right in with our land and expand. The lands we had last quarter will become expands the next quarter. And they did -- we did have at least one deal from every region around the world. So they're kind of spread around. It's very similar to what we've seen in the prior quarters.
Jeffrey Houston - Barrington Research Associates, Inc.
Then separately, it was good to see the indirect channel contribute about 18% of revenue in the quarter. What is your target mix there and how soon do you think you can get there?
Well, I'd say our goal is to grow it. I don't think it'll ever be a majority of our revenue because of the consultative nature of our go-to-market. But it's reasonable over kind of an extended 3-year period that it might double from where it is today. I mean, that's the right kind of expectation as we bring more partners online and they ramp up the businesses. It's certainly an area of focus for us.
Our next question comes from Jennifer Swanson with Morgan Stanley.
Jonathan Parker - Morgan Stanley
This is actually Jon Parker calling in for Jen. I just wanted to follow up with you guys now that I'm seeing you have pretty significant amount of cash that's built up post your convertible even after the Q-go acquisition, can you maybe talk through a little bit what you're seeing out there in terms of deals? Anything sort of interestingly in what spaces? How we might think about that going forward?
Sure. So we are looking at a lot of various things. I mean, to be honest, the valuations in the private markets have gotten pretty outrageous. And that being said, the things we're looking on, looking at are in this customer experience space. We're looking for businesses that have a focus on larger enterprises, B2C, help improve the experience either to reduce costs or increase revenue. There are some consolidation opportunities that we continue to look at so that's kind of the range of options. I don't have any new news on specific deals for you today. We might do another one this year. But that's not fixed either. Really, we have very specific set of criteria, and we're not prepared to compromise those.
Jonathan Parker - Morgan Stanley
Great. And earlier, you talked about, I think, you were up about 20% year-over-year in terms of sort of quota-carrying reps. I think you had originally talked about being up 20% to 30% for the year. Can you maybe talk to what we might see in the back half of the year, especially because it looks like your headcount -- you only added about 5 people quarter-over-quarter. So I'm sort of curious, sort of where that's pushing -- taken from?
Sure. Yes, we're up over 20% since the beginning of this year, right, which is, as we said, we'd do 20% to 30% this year. I think with the results we've turned in, we should be able to get a 30% increase this year. And continued growth like what we're seeing, we should be able to exceed that in terms of total quota heads. Part or the reason why the headcount didn't show up entirely in the Q2 numbers is, as Jeff mentioned earlier, as we saw lower demand for professional services, we did align that professional services organization. So the increase in quota-carrying heads is offset a little bit by the alignment we did in professional services.
Yes. And just to follow up on something we've previously said. We've set out margin targets that we planned to hit. We're not in a big hurry to get to the 18%. And our plan this year was as we over performed to our plan, we will reinvest dollars. So that to the extent that we over perform, dollars will be reinvested to a hire more sales heads to capture the growth opportunity we see next year.
And sir, I'm showing no further questions in the queue. I'd like to turn it over to management for any closing remarks.
Okay. Well, again thank you for your time today. We had an outstanding Q2. We're really pleased about the recurring revenue growth, and we appreciate your support. And have a great day.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone, have a great day.
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