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Executives

Sydney L. Carey - Chief Financial Officer and Executive Vice President

Vivek Y. Ranadivé - Chairman, Chief Executive Officer and President

Murray Rode - Chief Operating Officer and Executive Vice President

Analysts

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

Nabil Elsheshai - Pacific Crest Securities, Inc., Research Division

Mark R. Murphy - Piper Jaffray Companies, Research Division

Tim Klasell - Stifel, Nicolaus & Co., Inc., Research Division

Kash G. Rangan - BofA Merrill Lynch, Research Division

John S. DiFucci - JP Morgan Chase & Co, Research Division

Steven R. Koenig - Longbow Research LLC

Brad A. Zelnick - Macquarie Research

TIBCO Software (TIBX) Q3 2011 Earnings Call September 22, 2011 4:30 PM ET

Operator

Good afternoon, ladies and gentlemen. I'm Kristen. Welcome to TIBCO's Third Quarter 2011 Conference Call. [Operator Instructions] 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 confirmation code is 96124467.

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 non-GAAP and GAAP financial information, please see our website at www.tibco.com.

The presenters on this call are Vivek Ranadivé, TIBCO's Chairman and CEO; Murray Rode, Chief Operating Officer; and Sydney Carey, Chief Financial Officer. I would now like to turn the call over to Vivek.

Vivek Y. Ranadivé

Well, thanks, Kristen, and hello, everyone, for joining us today. I'll begin the call with summary remarks on our third quarter performance and comment on the environment at large before turning it over to Murray and Sydney to discuss the details.

Once again, we delivered a strong performance in Q3, with healthy growth in both revenue and profits. For the third quarter, total revenue came in at $229 million, up 24%. License revenue came in at $91 million, up 29%. Non-GAAP operating profit grew by 28%. Operating margins expanded 80 basis points to 25.2%, and non-GAAP fundings per share came in at $0.23, growing, once again, by more than 30% over the same quarter last year.

I've spoken to you before about the tipping point our business has hit, and the evidence continues to mount. This past quarter marked the seventh consecutive quarter we've grown license revenue by more than 20%, the seventh consecutive quarter we've grown earnings per share by more than 30% and the 13th consecutive quarter where we've beaten consensus EPS estimates.

What's more, our vision of The Two Second Advantage is really hitting home. The idea simply is that it's far more valuable to have a little bit of the right information just a little bit beforehand than all the information in the world after the fact.

Certainly, it's true that these are uncertain times we live in and lots of questions abound. Governments struggle to do more with less. Banks continue to grapple with managing risk, and businesses of all types complete ferociously to build loyalty from a savvy retail consumer. Markets will rise. Markets will fall. But some changes are unstoppable. The shift from desktop to laptops, the shift from landlines to cell phones, the shift from transactions to events. A transaction is an agreement between parties, whereas an event is simply when something happens.

The threats and opportunities of our time require a software platform that is engineered from the ground up to operate in realtime and to handle the volume and velocity of events. Such a platform must do 5 things: One, it must detect relevant patterns and correlations amidst a wave of big data and events; two, it must provide powerful analytic capabilities, so that anyone can interpret what is happening when it counts; three, it must have the automation ability to initiate corrective action and support flexible composite applications; four, it must scale elastically on-premise and off; and five, it must provide a natural means for collaboration between humans and machines. Only TIBCO has a complete and integrated platform to detect, harness and make sense of the threats and opportunities that lie in events.

So as it turns out, if you're actually selling something that people want today, you are in pretty good shape. This is a time and this is a market of separation, haves from have-nots, 21st versus 20th century, winners versus losers. While the old companies will fight to hold on to their dying businesses, there's no denying the underlying shifts that compel this world and our opportunity forward. Namely, the explosion in data volumes, the rise of the cloud, and push not merely for Software as a Service, but software as a self-service.

Part of our mission statement is that if you can get the right information to the right place at the right time and put it in the right context, we can make the world a better place. Together with our amazing customers, we believe we're doing just that. We couldn't be more excited about the opportunity ahead.

Now I'll turn it over to Murray. But before I do, I hope to see many of you next week at TUCON, our user conference. There, you will hear more how we are extending our innovation leadership and delivering The Two Second Advantage to our customers.

Now to Murray.

Murray Rode

Thanks, Vivek. I will focus my remarks on key operating metrics in the quarter and year-to-date trends. I'll also briefly comment on Nimbus, our recently announced acquisition, before turning it over to Sydney.

I'll start with our license transaction numbers. During Q3, we had 126 deals, over $100,000 in license revenue, up from 112 such deals a year ago. Our average deal size this quarter was $658,000, up from last quarter and about $100,000 larger than the average last Q3. There were 21 deals over $1 million in license, an increase from 13 a year ago, and our top 10 customers comprised just under 23% of total revenue versus 21% a year ago.

Looking at the geographic mix, total revenue broke down as follows: Americas at 54%; Europe, Middle East, Africa at 36%; and Asia-Pacific and Japan at 10%. Our growth was well balanced geographically, with Europe and APJ each up about 31% year-over-year and the Americas up about 19% over last year.

We were very pleased with our European teams' performance this quarter. While we hear and read the economic news like everyone else, we continue to see strong demand in Europe for our products. We also saw a good performance in Asia, with notable strength coming from Australia and greater Asia. Our Americas team continues strong and steady, with the best year-to-date performance of the 3 regions.

From a vertical market mix perspective, our total revenue was as follows: financial services, 22%; telecommunications, 13%; government, 12%; energy, 11%; and manufacturing, 8%. It's worth noting that life sciences and retail both came in just shy of 5%.

We saw a year-over-year decline in financial services, but this was largely expected, as we were up against a difficult comparison, having had a particularly strong Q3 last year in this vertical. We continue to like our value proposition in financial services both in retail and capital markets, and we also continue to see good demand and a solid pipeline.

As our top line performance would suggest, other verticals continued to grow nicely this quarter. Energy grew 85%; telco grew almost 70%; retail continued its recent ascent with 42% growth over Q3 last year. We also were up significantly in our government vertical, where we closed a large deal for approximately $18 million of license revenue, a little over half of which was recognized this quarter and the rest will be recognized in Q4.

On a year-to-date basis, financial services is down 4%, while transportation and logistics is up 72%; retail, up 61%; energy, up 59%; government, up 51%; and telco up 30%. We've talked about going -- about a growing mainstream appeal for our event-driven platform, and we believe these results are a testament to that fact.

Turning to our products. The breakdown of license revenue among our major product families was: SOA at 60%; business optimization, 29%; and BPM, 11%. We had broad-based performance across the portfolio this quarter.

Business optimization grew 22% led by a very strong quarter from Spotfire. SOA grew 30% with a particularly strong performance from messaging and MDM. Year-to-date, we've grown our MDM business by 3x over last year. Lastly, BPM grew 43% year-over-year for the quarter, with a particularly strong performance from ActiveMatrix BPM.

tibbr, our enterprise social media product, had its best quarter yet. Given tibbr is such a new product, there is no year-over-year comparison, but it nearly tripled in revenue sequentially from last quarter.

Overall, we see strength across a variety of products, even in small segments of our overall portfolio. But the key growth drivers continue to be in the areas of event processing, analytics, BPM and MDM, complemented by ongoing demand on our core messaging and SOA middleware.

Early this month is we announced the acquisition of Nimbus Partners, a U.K.-based provider of process, discovery and analysis applications that help companies drive adoption of business process initiatives. While this is essentially a technology acquisition, we believe it adds some valuable new functionality to our platform.

Whereas TIBCO is traditionally focused on the automation of data systems and processes, Nimbus allows business users to collaboratively describe and document all aspects of the business, from operational best practices to organizational and system models. Nimbus focuses on the large portion of most processes that is often not captured in enterprise applications and automated workflows and has found particular traction with business transformation, compliance and continuous improvement initiatives. We welcome the team from Nimbus and think this combination creates some exciting synergies across our platform for the future.

With that, I'll turn it over to Sydney.

Sydney L. Carey

Thank you, Murray. First, I will provide additional details on our financial performance in Q3, and then I will provide comments on our financial outlook for Q4. I'll review our financials on both a GAAP and non-GAAP basis. A full reconciliation was included with our press release, along with an explanation of our non-GAAP measures.

Some key performance data on our third quarter results are as follows. Total revenue was $229 million, up 24% year-over-year or 18% on a constant-currency basis. License revenue was $90.9 million, up 29% year-over-year or 22% on a constant-currency basis. Services revenue was $138.1 million, up 21% from last year or 16% on a constant-currency basis. We had strong performance in professional services, with growth of 36% from last year. With this growth, we have seen professional services increase from about 1/3 of total services revenue to approximately 38% in Q3.

Non-GAAP gross margin for Q3 was 74%. Non-GAAP operating income was $57.6 million, up $13 million or 28% from the same period a year ago. This resulted in an operating margin of 25.2% versus 24.4% a year ago. Non-GAAP EPS was $0.23 versus $0.17 a year ago. Q3 cash flow from operations totaled $60.8 million.

Moving down the balance sheet. Deferred revenue, including both long- and short-term components, totaled $231 million, up $41 million from Q3 of last year and up about $4.5 million sequentially over Q2's ending balance. We saw sequential increases deferred this period primarily due to a large government transaction that closed in Q3 2011, as part of this transaction was not recognized in the period. We expect this defer to be recognized as revenue in Q4 2011. DSOs for Q3 came in at 68 days. Also during the quarter, we repurchased approximately 2.6 million shares at an average price of $28.41. This leaves $155 million available on the current authorized buyback program.

Looking forward to Q4, we continue to see strong demand across all geographies and continue to be focused on top line and earnings growth. We will continue to invest in sales, marketing and services, in order to capitalize on the growth opportunity.

Our guidance for Q4 is as follows. We expect total revenue to be in the range of $278 million to $283 million. We expect license revenue to range between $132 million and $136 million. The non-GAAP operating margin is expected to be 30% to 31%. The non-GAAP EPS for the quarter should range between $0.33 and $0.35. Note that this guidance assumes a 30% tax rate; however, this can vary depending on the mix of foreign versus domestic profit. GAAP EPS should range from $0.25 to $0.26, with an assumed tax rate of 30%. For the full year of 2011, this implies total revenue growth of 21%, license revenue growth of 24% to 26%, non-GAAP operating profit growth of 23% to 24% and non-GAAP EPS of $0.93 to $0.94.

With that, we'll be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from the line of Kash Rangan with Merrill Lynch.

Kash G. Rangan - BofA Merrill Lynch, Research Division

My question on the vertical market exposure. It looks like government did particularly well, and I'm just curious to see if this type of strength is sustainable, especially given the talk that we hear that the U.S. government, at least, is trying to be more cost conscious. And also financial services, tough comparisons, completely see that. But how does the pipeline for financial services vertical look, especially in light of some concerns in the financial services vertical? So sorry to point my questions among the concerning areas, but other than that, the quarter looked really good. And that's why I'm not getting into the other things.

Vivek Y. Ranadivé

So we're very excited about the government deal. What it was, was a cybersecurity deal. And so they're using us, the most secure parts of the government are using us for cybersecurity. And we believe that, in and of itself, is a huge opportunity, where we think it's applicable to the commercial sector, and we're seeing lots of opportunity. So within government, things like cybersecurity or things that involve cost reduction. So we're doing some work for the state of California, where they want to reduce the number of employees by almost 50%, and they're using our BPM for doing that. So even within the government sector, we're seeing lots of opportunities, when it hits the sweet spot of things like cybersecurity or reducing or doing more with less. Financial services, we continue to see a lot of demand in that sector. I know that people were skeptical, and we had what we thought was a good quarter. We had a big deal a year ago that kind of skewed the number, but it was a strong quarter for us. We closed banks in Spain, banks in Italy, banks in other parts of Europe. So we're continuing to see a very, very strong demand across the board. We did see lots of upside in the government. And within banks, areas like retail are going to be big opportunities for us.

Operator

Your next question is from the line of Derrick Wood with Susquehanna Investments.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

I'll start out, what product was sold into the large government deal?

Vivek Y. Ranadivé

So we're calling that a cybersecurity platform, and so -- and I don't know how much we're allowed to talk about it. But basically what -- I can tell you what they're doing is they're using our event-driven backbone for looking at events. And the approach that we're taking to cybersecurity is rather than trying to build a bigger and better lock, again, it's kind of The Two Second Advantage where we look at events and try to help you find suspicious activity in the neighborhood by looking at those events. And so it's really our -- it's kind of our backbone for looking at events.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

So it's your -- it's the Business Events product, or is it multiple products that was sold into that large platform?

Vivek Y. Ranadivé

Yes. I don't want to say too much since it's like the securities -- security is part of the government, so. But we are now taking this forward. And by the way, this is applicable across the board. So even if you're building a smart grid, you need this approach. And so we're working now with a smart -- we've got a smart grid deal on the East Coast, and we're helping do that. But then they are also interested in the cybersecurity platform, because you can easily hack and shut down buildings and shut down cities. So this is widely applicable area for us.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

Okay. And then if I look at your deal composition, you had really big growth in deals over $1 million, a little bit of growth in deals over $100,000. So I don't know if this is for Vivek or Murray, but I'm curious, as you look at your pipeline over the next 6 months, are you seeing any changes in terms of composition of deal sizes or product sets or verticals? Any kind of color you can give, maybe versus 6 months ago?

Murray Rode

We are seeing a little bit of an increase in some of the larger deals in the pipeline, and we've taken that as a good indication about demand. That's been building incrementally for a while. Second thing is, and we've talked about this in terms of the results themselves, but the vertical diversification is really good. So we like the mix of business across the variety of verticals that we see in the pipeline.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

Okay. And lastly, I just wanted to hone in on the MDM and the events -- the Business Events events product. There's been some other competitors out there that have had trouble or made some comments around deal flow getting a little tougher or projects getting tougher to approve. So I'm just curious what you guys are seeing with respect to those 2 specific products.

Vivek Y. Ranadivé

Those areas are exploding for us, Derrick. So our MDM business actually tripled year-over-year, and we're just seeing a massive explosion in that area. We believe we have the goods. Everybody needs multi-domain MDM, where you're able to look at product data, customer data, store data, shelf data and so on. And in terms of eventing, that's become a wide, wide -- it's just -- it's gone mainstream. And so it's not just for a few now. There isn't a company that doesn't need Business Events. So we're seeing just massive opportunities in that area. I think over the next decade, everyone will have a bus, and everybody will have eventing engine, similar to everybody having a database and an app server.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

Okay. Maybe if I could just squeeze one more, just on the pipeline again. Where would you focus your efforts in terms of growth? Are you going to balance it between going after new customers? Or would you try in this a little bit more uncertain environment to do more cross-selling into the installed base? Or is that pretty weighed evenly?

Vivek Y. Ranadivé

It's both. And so historically, we still do a lot of business with our existing customers, but we're seeing lots of new opportunities. The other thing is tibbr has taken off like a rocket. And so we're seeing customers starting to just sign onto that. And often, they tend to be brand new customers. So now with 4,000 customers, it's hard to say who's a new customer. But we're seeing opportunities across the board, and so we're not seeing the caution and the slowdown that people are seeing in other areas.

Operator

Your next question is from the line of Mark Murphy from Piper Jaffray.

Mark R. Murphy - Piper Jaffray Companies, Research Division

I was interested, Sydney, if we could get your latest thoughts on this aspirational goal of reaching 30% operating margin by the time you reach $1 billion in revenue. The -- I'm just wondering, first off, do you think you could reach the $1-billion milestone next fiscal year? And if so, are you deeply committed to trying to get to a 30% margin? Or is there a chance you would back off on that and maybe make some incremental growth investments, just based on the strong traction that you have here?

Vivek Y. Ranadivé

Mark, I think -- this is Vivek. And we actually, the last earnings call, we actually said that given the type of growth that we were seeing and given the massive demand that we were experiencing, we were going to not be held to that goal of having that milestone, that when we hit $1 billion, we're going to hit 30%. So last earnings call, we actually made that statement, and we continue to feel that. So we're investing massively in our field, in our sales organization, in marketing and engineering.

Sydney L. Carey

Our services organization.

Vivek Y. Ranadivé

Our services organization has grown quite a bit. We have a user conference coming up, and we have a dramatic, dramatic increase in the number of attendees. And so we're investing, and so we're -- we have said that we're not -- we don't want to be held to $1 billion and 30%. We'll still keep expanding our margins, but we don't want to have this artificial target of 30%, $1 billion. Sydney, do you want to add anything?

Sydney L. Carey

Yes. I mean, I just -- just to reiterate, that we look at -- we look out at the growth with leverage. So we will continue to expand the operating margin. But that stake in the ground of 30% at $1 billion, for us, right now, with the investments we can make, just doesn't make sense. So we are making the investments. We're making the investments for growth.

Mark R. Murphy - Piper Jaffray Companies, Research Division

I guess the other part of the question was, and I know you haven't guided on next year, but I mean, is there any reason to think that it would be difficult getting to a 10% or 11% growth rate that would put you at $1 billion next year?

Vivek Y. Ranadivé

I think the thing that we've said over the last year or 2 is that we believe that we can keep hitting 15% to 20% EPS growth year after year after year. And I don't think we've made any more commitments than that, right, Sydney?

Sydney L. Carey

That's correct, yes.

Mark R. Murphy - Piper Jaffray Companies, Research Division

And then, Vivek, I also wanted to ask you, just as you consider the competitive landscape, including the, I guess, the vendors that we all think of: IBM, Oracle, Pegasystems, Informatica, et cetera. Obviously, you're winning a lot of business in the marketplace. But just from what you can see, which of those vendors do you think are fading away versus ramping up? And I was also curious if you see any signs ever of the -- some of the smaller, emerging, open-source vendors that have gotten some funding recently.

Vivek Y. Ranadivé

Okay. So just answering the question backwards. We don't see any of the smaller vendors. The company that we see constantly is IBM. SAP has kind of faded away. Oracle, we're seeing less off. Informatica, we didn't ever really see. But now that we've aggressively gone after the MDM market, we're seeing them in MDM. And quite honestly, we're crushing them in MDM. The other guys, we see them here and there. But it's IBM that is our big, constant competitor.

Mark R. Murphy - Piper Jaffray Companies, Research Division

Okay. Then one last quick one, just for Sydney. I'm wondering what type of close rates you're embedding into the Q4 guidance. Obviously, the revenue guidance is above consensus. And so just wondering if it's -- if you're applying a higher close rate than last year based on the recent success, or is it more of a bigger pipeline with maybe a more conservative close rate assumption, to reflect the possibility that the environment gets a little choppier?

Sydney L. Carey

We haven't changed our approach to guidance. What -- the close rates that are in line with what we've seen in the past. So no, we haven't changed our approach.

Operator

Your next question comes from the line of Nabil Elsheshai with Pacific Crest Securities.

Nabil Elsheshai - Pacific Crest Securities, Inc., Research Division

Just to follow up a little bit on Mark's question about margins though. Obviously, we're in an uncertain period going into next year. Your customers are setting their budgets now, and you guys have to plan. So just philosophically, how are you guys -- you've talked now about investing for growth. But if it looks like budgets are coming out weak next year, does that mean you'll pull back on some of those investments on the sales and go-to-market side?

Vivek Y. Ranadivé

Yes. Nabil, we -- if you look at our history, we tend to be very cautious and conservative. And so if we see signs that our confidence is not based on what we're seeing, then we'll change our approach. But we have a user conference starting on Monday, and I'll see many of you over there. We've had a 50% to 70% increase in attendance. And I think like a 70% increase in paid attendance, almost a doubling of support from partners who are going to be there. So we're not -- we're seeing -- we're not seeing anything but demand for our products and services. Now if over the course of the year, we see that something has changed, then we'll act accordingly. But, Sydney, do you want to add to that?

Sydney L. Carey

Yes. I mean, just to go back to an earlier point. We've committed to 15% to 20% earnings growth. And we watch our forecast, and one of the levers is expense control. And I point back to 2009, where we did a very good job of controlling expenses and delivering earnings growth and a 400-basis-point margin expansion. So I think we are very conservative, and we will continue to monitor it.

Nabil Elsheshai - Pacific Crest Securities, Inc., Research Division

That's great. Then real quick on the, I guess, types of deals and how you guys are going to market. As you pointed out, you're seeing a few more large deals. Is that a function of companies doing larger projects? Or is that a function of you guys having more success selling more of your products into that -- into those customers or types of deals?

Vivek Y. Ranadivé

Yes. I think what it is, is that the market has kind of cleared, and so the choices are limited. And so if you're trying to do certain kinds of things, then either we're the only game in town or we've already established credibility. So that they're willing to make a firm-wide commitment, or they're buying us more as a platform, and so it's a bigger deal. So I think it's a variety of factors. And people are -- then maybe they have fewer spending priorities, but they're putting a lot of wood behind the few priorities that they have. And we tend to be one of those priorities. But I don't know, Murray, is there anything you want to add to that?

Murray Rode

Well, the other thing I'd add is, I think you kind of alluded to it, but the kinds of projects that we're supporting, too, are pretty critical to customers in terms of helping them either reduce expenses in what they might perceive to be a difficult environment or helping them generate new revenues at a time when customer loyalty and cross-sell, up-sell is a key driver. So that, I think, is part of it as well.

Vivek Y. Ranadivé

Yes.

Nabil Elsheshai - Pacific Crest Securities, Inc., Research Division

Okay. And then just a couple of housekeeping. Is there a revenue assumption on Q4 on Nimbus and -- or an annualized number in terms of revenue run rate that you guys are going to...

Vivek Y. Ranadivé

Yes. No, that's largely a technology buy. So we think in the future, there'll be a lot of opportunities as we incorporate it into our product and sell it. But, Sydney, we don't really have any assumptions.

Sydney L. Carey

We're not expecting, yes, a lot of revenue from it in Q4.

Vivek Y. Ranadivé

Yes.

Operator

Your next question is from the line of John DiFucci with JP Morgan.

John S. DiFucci - JP Morgan Chase & Co, Research Division

My first question has to do with the financial services vertical. Vivek, you've -- and team, you've been close to this vertical for some time. It's typically an early adopter vertical. I've realized this quarter, you're up against a difficult comp. But this is -- this vertical has always been a real heavy user of your flagship, sort of low-latency messaging solutions. Just curious if you're seeing this customer base broaden their interest in TIBCO beyond these products. And if you could, even just roughly, the percentage of the pipeline in the financial services vertical for -- percentage messaging versus percentage other than messaging, might be helpful for us to sort of gauge the workings of -- to the reaching out beyond your sort of flagship products.

Vivek Y. Ranadivé

Yes. I don't know how much of that we break down, Sydney. But we're seeing, obviously, continued strong demand for the messaging and low-latency messaging. We're seeing demand for the eventing capability and a lot of demand across the board with the retail bank side of the business, so analytics, eventing, messaging, those are all areas, some business process management, some ActiveMatrix BPM. And so we're seeing banks that are shifting to a full SOA platform, and there's some large deals in that context. So it goes beyond just pure messaging, and I don't think we break that out. But I would say that messaging component is probably less than half of what we do in the financial services. It's probably less than 1/3 even, if you look at the financial services sector.

Sydney L. Carey

Yes. We don't break out details around the pipeline and by product and by vertical, but I would agree with Vivek's comment.

John S. DiFucci - JP Morgan Chase & Co, Research Division

Okay, great. And just a quick follow-up. In trying to get a gauge on the macro environment, you guys have continued to do an excellent job out there, in the face of others struggling in good times and bad. And it's really good to see such breadth across your customer base, again, in regards to the industry vertical. But I did notice that transportation logistics was not 5% or greater of revenue. And just sort of wondering if you can share any thoughts around this, because that's sort of a vertical not necessarily specific to TIBCO, but is generally, when we look out across the macro environment, it's often thought of as sort of a leading indicator. And just wondering what you saw in that vertical this quarter and perhaps what it looks like going forward.

Vivek Y. Ranadivé

Yes. I would -- you might read into it for -- from other people, but I would not read anything into it from TIBCO. So we're seeing very strong interest from that vertical. And they -- the airlines are all very interested in becoming event driven. There's not an airline that isn't interested in this kind of technology right now. I was in Dallas with the executives of a big airline, and they just are -- they were one of the few airlines that isn't a TIBCO customer. And when they saw what was possible, they just were moving -- wanted to move at lightning speed. So I wouldn't read anything into that from TIBCO's numbers. We've had large deals here and there that might have driven the percentages up and down, but that continues to be a great, great vertical for us. And we expect that every transportation and logistics company, every airline is going to be event driven over the next couple of years, and it will be TIBCO that deals with that.

Operator

Your next question is from the line of Brad Zelnick with Macquarie.

Brad A. Zelnick - Macquarie Research

Vivek, just turning back to that large government deal in the quarter. Aside from the size, we were really surprised by the use case. We've always expected banks to be doing those types of large deals with TIBCO, but cybersecurity is something that's certainly new or the first thing that we're hearing about it.

Vivek Y. Ranadivé

Yes. And again, that was the area, and I don't want to be specific about. These are government deals [ph]. But what I can tell you is that what -- here's what a cybersecurity platform of the 21st century looks like. Most people are trying to build bigger and better locks, and the problem is you build a big lock and somebody finds a way to pick it. And our approach, again, is in keeping with The Two-Second Advantage, so it's more like a neighborhood watch. So we look for suspicious activity in the neighborhood. So we pick up events, and we try to make sense out of those events. And then if we see that there's suspicious activity, then we can shut everything down. So this is something we believe that every company needs, and the 20th century approach is to just try to keep building bigger and better locks. And we are uniquely, uniquely positioned to do this, and we're talking to places where we're selling them smart grids. We're talking to just a whole variety of companies that -- I don't think there's a company that doesn't need this kind of approach. So what we've learned from that deal is widely, widely applicable everywhere.

Brad A. Zelnick - Macquarie Research

Vivek, and just -- but my question is really about the diversity of the pipeline. And I know this question was asked by vertical or by product. But beyond that, can you maybe speak to the diversity of the pipeline, in terms of use cases, maybe even sharing some of the more exciting new use cases, things that perhaps the platform hadn't been applied to before that you're looking to do for customers, as you look out to the next quarter and beyond?

Vivek Y. Ranadivé

We're just seeing just -- as you pointed out, the diversity is actually even stunning to us. So you might see a company that makes vaccines that wants to become completely event driven, so that they can see -- they can anticipate if the vaccine batch is going to turn out to be bad. So we're seeing huge interest and applicability in the healthcare sector. We talked earlier about transportation and retail. There isn't a retailer that doesn't need to be able to up-sell, cross-sell its customers, and there isn't a retailer that doesn't want to tie its amassed data through the whole value chain. Energy, we're seeing huge demand in the energy sector. And we believe that, just going beyond the trading side into the drilling side, the exploration side and tying all that together and using analytics, looking at events, there's a huge, huge demand for that. So we're seeing it in government. We're seeing it in transportation. We're seeing it in energy. We're seeing it in banking. We're seeing it in healthcare, retail. Everyone's become a retailer now, so that's the other thing. So there isn't a company that isn't touching consumers in some way, including the government. When you walk through and get checked at a passport checkpoint, if you're walking in with a stolen passport, then you're probably a bad guy. So you need be able to detect that in a few seconds. And if the information is sitting somewhere in the database, then it does no good. So there's a wide, wide movement from databases. Database is where you store transactions. It's kind of like a landline. It's a phone that doesn't ring. And to operate in the 21st century, you need the phone to ring and you need the buzz. So I could go on and on and on all day, but -- so I don't want to take up your time. But you're absolutely right, the diversity of what we're seeing is pretty amazing.

Brad A. Zelnick - Macquarie Research

And Vivek, you're a visionary by many definitions of the word and in so many ways. When I think about the -- your R&D investment going forward and you think about the pipeline, can you maybe just take a moment, peer out for us, what is it today that we haven't yet even heard about that gets you very excited and might have future potential to really drive a meaningful impact to the financials, maybe 3 or 5 years out?

Vivek Y. Ranadivé

Well, I think it's when you'd start thinking about the explosion of data, if you can pick up that data at that right moment in time -- in many ways, my new book, The Two-Second Advantage, talks about this. And if you can pick up that data at the right moment, then you can actually prevent a lot of bad things from happening, and you can take advantage of opportunities. So we want to make the offer to you before you leave the aisle, not 6 months after you leave the store. So in the data, I like to say that math is trumping science. And so you don't really need to know why something is happening. You just need to know that if A and B happened, then C will happen. And we're giving you that ability to pick up the event, tie it back to the pattern and then do the exact right thing at the exact right moment in time. So we're just in the infancy. We've seen nothing yet. But this is going to apply to the healthcare; it's going to apply to everything. You're going to know how -- what the status of your health is on an ongoing basis. And you're going to be able to be healthy. And so there isn't a aspect of your life that this does not apply to, and we believe that this is a staggering opportunity.

Brad A. Zelnick - Macquarie Research

If I could sneak in one last one for Sydney. Sydney, with this $9 million in deferred license just to that one deal, it raises the question, at least for us, around deferred license revenue, and I appreciate it's not something that you've specifically disclosed in the past. But even qualitatively, can you talk at all about deferred license revenue trends? And how it is set up exiting Q3 and into Q4?

Sydney L. Carey

We do have a significant portion coming in from the government deal this quarter. In our deferred revenue, there's -- we always have components of license in there, but the majority of it is maintenance. We -- it varies kind of quarter-to-quarter. Items go into deferred for a variety of reasons, flexibility, product features, cash base with customers, things like that. So I don't want to be too specific about how we're exiting, but that, that deal wasn't -- isn't deferred as we exited Q3 and will be recognized in Q4.

Operator

Your next question is from the line of Tim Klasell with Stifel, Nicolaus.

Tim Klasell - Stifel, Nicolaus & Co., Inc., Research Division

So just a couple quick metrics here. First, I didn't hear the sales force target. Are you progressing towards your goal for the end of the year? And maybe you can tell us where you are.

Sydney L. Carey

Yes. We ended the quarter at 220 quota-carrying reps. It's a little bit down, given the summer quarter, but we're still targeting to be between 230 and 240 by the end of the year.

Tim Klasell - Stifel, Nicolaus & Co., Inc., Research Division

Okay, great. And then I just wanted to jump over to tibbr. You said that tripled. Now granted, it was off of a small base, but can you give us a little bit of color what's driving that? Is it more people doing initial pilot deployments? Or is it that being driven by the installed base of pilots beginning to go viral? And I know that can drive revenues on both sides.

Vivek Y. Ranadivé

Yes. It's all of the above, Tim. It's very, very easy to use, and so literally, we can be up and running in an hour. When somebody says they want to try it out, we just load up the e-mail addresses and off you go. And we're finding -- we had -- can we talk about the retailer that -- are we allowed to mention that or no?

Murray Rode

I'm not sure. Yes I don't...

Vivek Y. Ranadivé

okay. So we had a big retailer that's a household name, and they put in like they tried it on like 50 people. And they came back a week later, and they moved it to 50,000. And they put their entire business on it, every employee on it. And we're seeing that kind of phenomenon repeat itself over and over again. There is absolutely nothing like this on the market. And so with Chatter, it has to be in the cloud, and it's really for sales force data. The other solutions are more 20th century in nature, and we come right out of the gate where we allow you to have it on-premise or in the cloud. We come with adapters to all the internal systems, and we allow you to follow subjects. We allow you to apply some logic to those subjects. We provide video capability with that, so that you can have people jump on a video conference and talk about it. But it's emerging as kind of the desktop for everyone, and it's becoming the inbox. And we're actually amazed at the ways that people are applying this. So the -- and in the government sector as well, we're seeing wide applicability of this. So we expect that -- I've said that I would be surprised if I didn't have 10 million people on it over the next few years.

Tim Klasell - Stifel, Nicolaus & Co., Inc., Research Division

Okay, great, great. And then got to beat the macro horse here one more time. Have you noticed any changes in the RFPs? Because with your sales cycles, I'm assuming you're not seeing much change in what you've sold over the last quarter. But are you beginning to see any changes in what customers are asking for, i.e. looking at, this is a way I can help reduce expenses or reduce risk versus maybe applications that are designed to drive revenues or something like that?

Vivek Y. Ranadivé

Yes. So last night, I was at a dinner with the CEO of the biggest credit card company. And I asked him and his executives point blank, "What do you want? Do you want us to reduce cost or do you want us to increase revenue?" And without hesitation, he said, "Increase revenue." And so we're not seeing any kind of impact. And we see -- we obviously look at the news and we see what people are saying. And if you look at just our user conference, which many of you are coming to, we've had like a 60%, 70% increase. And we shut down, and people are still signing up for it. And we're going to end up having many, many, many more people than we had last year. And so -- then when you look at the deals that we're doing, we're not seeing people putting them on hold. We're not seeing people saying that we need to analyze this more or we need yet another level of signature. We're not seeing that. Then when you look at the diversity of the business, we're seeing it from every sector, from every vertical, from -- and from every geography. So we -- we're as paranoid as the next person, and Sydney, Murray and I look at this all time. And perhaps there's something out there that'll come, but we are not seeing it.

Operator

Your next question is from the line of Steve Koenig with Longbow Research.

Steven R. Koenig - Longbow Research LLC

Look, I'll start with one, and then maybe then give you a follow-up. On -- clearly, eventing is a big part of your message this quarter. And for many quarters now, it's been a key part of your positioning. Revenue-wise, it looks like Business Events, for example, is still just a fairly small part of revenue though. Can you talk to maybe how it is -- how often does it -- is it in multi-element deals? Does it lead to multi-product deals? What's the multiplier there? That would probably be helpful. Or is it a vision that you see really becoming more significant over time, but a small part of the growth right now?

Vivek Y. Ranadivé

Well, I don't know how you look at it as a small part. It's almost 1/3 of our business is -- we call it business optimization, and much of what we do is driven around eventing. And in some ways, even the SOA is really event enabling the enterprise. And so the notice system is part of SOA, the analytics analysis, the tools as part of business optimization; and then taking actions based on those events is part of BPM. So we think of Oracle as kind of the platform for transactions, and we're the platform for events. So I don't know, Murray, am I missing something here that Steve is asking?

Murray Rode

No, I think that's true, that we probably point to the fact that it's a significant part of the revenue already. And it's a -- it is a, as Vivek outlined there, a linchpin component of a lot of those solutions that we sell now. And I think we've seen pretty dramatic mainstreaming of Business Events as part of the solutions we're selling, particularly as we came into 2011, and that's continued through the year.

Vivek Y. Ranadivé

Yes. And there isn't another company that is. Everyone's talking about it. They might use different terms, but there isn't a enterprise software company. When SAP talks about in-memory and realtime and events, that's the TIBCO message. When IBM talks about the smart planet, that's all TIBCO. If you look at what Palmisano said in his last call, it was all about eventing and smart planet and making sense out of large amounts of data. It was all eventing. So I don't think there's a player out there that hasn't jumped on this bandwagon.

Steven R. Koenig - Longbow Research LLC

Okay, that's helpful. And then for a follow-up, I'd like to ask about -- you had really good SOA performance in the quarter. Clearly, events, I believe that that's a driver. Is that still -- is your AMX platform driving that? Were there some good, large deals in the quarter? Any sort of color you can provide there would be helpful. And then before I leave you, the last thing I'd ask is, maybe you could give us a little teaser on what we might expect from TUCON in terms of your roadmap. You had a great roadmap you laid out in that TUCON 2010 last year that really seemed to help. And so I'm just wondering if you can help -- if you want to give us any sort of preview there.

Vivek Y. Ranadivé

Sure. So it's become -- it's kind of become a must-have for people now. You have a database where you store your transactions, and then you need a SOA platform as the way you move around events. And you need it both because you want to cut costs so that you don't have to keep building point-to-point interfaces, and you also need it so that you can reuse applications, and then you need it to become event enabled. So all of those 3 factors are coming into play. And so there isn't a company on the planet that is not going to have an SOA backbone. Every single company is going to move in that direction; they are moving in that direction. I think what you'll see at TUCON is that the whole message of The Two-Second Advantage is coming to its own. And you have -- unlike other companies who have conferences, you guys, all our attendees, pay to come to the conference. And as I said, our paid attendance has gone up dramatically. But we also don't hire paid speakers. We have customers talking, and we're going to just have a wide array of customers standing up and talking about how they're using The Two-Second Advantage and how they're using -- event enabling their companies to get that advantage and the amazing impact that it's had on their business. And I think you're going to be blown away by that. And what's going to emerge is that TIBCO is becoming that definitive platform for events, and there is no other company that can even pretend to make that claim. And the roadmap will sketch out that platform in detail and tie all the pieces together in a very comprehensive fashion. Murray, do you want to...

Murray Rode

I think you covered it. We don't want to give too much away.

Operator

Ladies and gentlemen, we have reached the allotted time for questions. I would now like to turn the conference over back to Vivek for closing remarks.

Vivek Y. Ranadivé

Okay, we'll conclude this call. Thank you all for joining us, and have a great day.

Operator

Thank you for joining us. We will now conclude TIBCO's Q3 2011 Earnings Call. You may now disconnect.

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