Tableau Software (DATA) Christian Chabot on Q2 2016 Results - Earnings Call Transcript

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Tableau Software, Inc. (NYSE:DATA)

Q2 2016 Earnings Call

August 02, 2016 4:30 pm ET

Executives

Joni Davis - Director-Investor Relations

Christian Chabot - Chairman & Chief Executive Officer

Thomas Edward Walker - Chief Financial Officer

Analysts

Mark R. Murphy - JPMorgan Securities LLC

Brent Thill - UBS Securities LLC

Raimo Lenschow - Barclays Capital, Inc.

Karl E. Keirstead - Deutsche Bank Securities, Inc.

Jesse Hulsing - Goldman Sachs & Co.

Brent Bracelin - Pacific Crest Securities

Steve M. Ashley - Robert W. Baird & Co., Inc. (Broker)

Bradley Sills - Bank of America Merrill Lynch

Keith Eric Weiss - Morgan Stanley & Co. LLC

Rakesh Kumar - Cowen and Company

Thomas Roderick - Stifel Nicolaus & Company, Inc.

Operator

Good afternoon. My name is Julie and I will be your conference operator today. At this time, I'd like to welcome everyone to the Tableau Software Q2 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

Joni Davis, you may begin.

Joni Davis - Director-Investor Relations

Great. Thank you. Good afternoon and thank you for joining us today. With me on the call are Tableau's Chief Executive Officer, Christian Chabot; and Chief Financial Officer, Tom Walker. Our press release was issued earlier today and is posted on our website. This call is being broadcast live via webcast, and following the call, an audio replay will be available in the Investor Relations section of our website. Christian and Tom will begin with prepared remarks, and then we will open the call for questions.

Before we begin, I would like to remind you that during today's call we will be making forward-looking statements regarding future events and financial performance including our guidance for the third quarter and full-year 2016. We caution you that such statements reflect our best judgment based on factors currently known to us, and that the actual events or results could differ materially.

Please refer to the documents we file from time-to-time with the SEC, in particular our most recently-filed quarterly report on Form 10-Q and our annual report on Form 10-K. These documents contain and identify important risk factors and other information that may cause our actual results to differ from those contained in our forward-looking statements.

Any forward-looking statements made during this call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available in the future.

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

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

Christian Chabot - Chairman & Chief Executive Officer

Thank you, Joni. Thank you, everyone, for joining us today to discuss Tableau's second quarter 2016 results. Overall, we're pleased with our results as they demonstrate that the move to visual analytics continues to thrive. From inception, our company has been focused on helping people to see and understand their data, and now more than 46,000 customer accounts worldwide have chosen Tableau for business analytics.

Our results demonstrate that analytics is as important as ever to companies of all sizes, and we are extending our leadership position in the market at scale. In fact, in Gartner's recent market share report, Tableau was listed as the fastest-growing player in the business intelligence market.

In Q2, Tableau generated revenue of $198.5 million, up from $149.9 million in the second quarter of 2015. Licensed revenue grew 20% to $116.3 million. We're pleased to report that in Q2 we saw an uptick in sales productivity, as more reps became ramped and average tenure continued to improve. An increasing number of customers and prospects are interested in adopting our offerings on a term or subscription basis, which means the revenue is recognized on a ratable basis over the term of the license.

We're pleased with the growth of both Tableau Online and our ratable business as a whole. Revenue from Tableau Online, our cloud-based product line, grew more than 100% year-over-year. The growing appeal of our enterprise and OEM licensing models are also positively impacting our ratable license bookings mix. In Q2, 16% of licensed bookings were ratable; double that of the same period last year. The long-term value that the ratable model yields for our business is very positive because among other things, it gives us better visibility into our revenue. This is a trend we will continue to encourage and embrace in the future.

In Q2, we continued to see strong growth outside of the U.S. as international revenue grew to a record 29% of total revenue. International revenue was $57.1 million, up 55% year-over-year. In Q2, our expenses came in higher than planned. As we mentioned last quarter, we made adjustments to our full-year operating plan, which impacted expenses in Q2. We believe we took the right steps to strengthen the business and we're working to improve operating margins for the rest of the year. Tom will discuss expenses in more detail later in this call.

Tableau's ability to deliver value to customers resulted in record new customer growth. In Q2, more than 3,900 new customer accounts chose Tableau, the highest quarterly addition in our history. In Q2, Tableau welcomed new customers, such as the California Department of Public Health, Bausch & Lomb Korea, Bank of California, the City of New Orleans, Allegiant Travel, Care Forum, the Utah Jazz and the City of Seattle Police Department, and we expanded relationships with existing customers, including Verizon, Wells Fargo, Honeywell, Deloitte, Lufthansa and JLL. We also had a good quarter for large deals. During the second quarter, we signed 332 sales orders greater than $100,000, up from 233 in Q2 of 2015.

Tableau has always embraced simple pricing to help fuel our customers' success and we are focused on making it even easier to expand with Tableau. Earlier this year, we rolled out new pricing frameworks for the sales force, giving them more flexibility in large deals. During the quarter, 16 customers spent more than $1 million with Tableau, including several under these new frameworks. We are enthused by the response we are receiving from many of our large enterprise customers.

For example, one enterprise customer signed a multi-year ELA with Tableau, the largest deal of the quarter. Tableau is deployed across this enterprise, supporting use cases in network performance analysis, fraud detection, marketing analytics, pricing strategy, field technician metrics, network operations and more. Tableau is also being used at this customer to conduct network analytics to anticipate, detect and prevent service disruptions. This analysis has proved critical to helping the customer provide the best customer service. We continue to be very successful in deals where multiple products are evaluated. Our win rates remain strong against all competitors.

There are four fundamental areas that are critical to enabling pervasive self-service analytics at scale and Tableau delivers all four. The first is delivering powerful analytics people love to use. Our customers appreciate the capabilities we deliver that enable fast, agile, visual analytics. We provide people with the ability to ask and answer questions of data. The second area is delivering a trusted, flexible and scalable platform for the enterprise. Tableau's server products provide a modern analytical platform for IT to implement self-service in a governed way. Tableau Server also enables IT to leverage and integrate with existing security protocols. Using Tableau Server, IT can manage users and permissions with their preferred authentication method, including OpenID, SAML and Kerberos, among others. And finally, Tableau's APIs enable developers to extend the reach of our platform and embed analytics within other applications or on any device.

The third criteria to deliver self-service analytics at scale is delivering a platform that's easy to manage and deploy. Tableau's platform is easy to integrate and administer in existing IT environment, including those portions that are on-premise, in the cloud, and which run across mobile devices and operating system. Finally, Tableau makes a business analytics platform that delivers the best return on data with the lowest total cost of ownership or TCO. As companies look to deploy Tableau more widely in their organizations, they typically scale up the deployment with our Tableau Server or Tableau Online product. Our pricing on those products brings the cost per user down to hundreds of dollars per user at scale.

Turning to product news, we are constantly improving and extending our platform capabilities through development efforts and technology partnerships, our more than 46,000 customer accounts appreciate the capabilities we are delivering to them. Over the quarter, excitement continued to build for the release of Tableau 10. Let me share a few highlights with you.

We had our largest beta test group for our product release with more than 14,000 participants. We held our largest ever virtual user group with more than 16,000 views of the event to-date. We have more than 75 Tableau 10 events planned as part of the release in cities ranging from New York to Melbourne to Cape Town. In fact, by the end of August, we expect more than 10,000 people will have attended our Tableau 10 roadshows.

We're excited about the upcoming launch of Tableau 10. It will bring big advancements to the Tableau platform, including Tableau Desktop, Tableau Server, Tableau Online and Tableau Mobile. Tableau 10 will be one of the most significant releases and focuses on empowering business users and IT. It brings with it innovations in the areas of visual analytics, data preparation, enterprise capabilities, mobile, cloud, and an improved user experience. Tableau 10 was built with the help of more than 75,000 passionate community members, many of its features are the result of requests in Tableau's community ideas forum, including the ability to filter across data sources and subscribe others to a workbook.

The new enhancements in Tableau 10 prompted one customer to proclaim, thank you so much for working on the new data integration capability. It will be a paradigm shift advancement in the use of Tableau. And another customer told ComputerWorld, the additions to the product have the potential to change our business. In Tableau 10 Desktop, we've made advancements in user experience, advanced analytics, data preparation and data connectors. At the request of customers, we added direct and secure access to Google Sheets and QuickBooks Online, and to Presto, Facebook's open source distributed database.

We've also made improvements to empower the mobile workforce. We've added mobile device management support making it easy to deploy Tableau Mobile across the organization, with AirWatch and MobileIron. Tableau 10's new device designer allows users to create dashboards that render at the right size for a range of devices, including Apple and Android phones. It also gives users the option to customize views in a single file so they can create several device-specific views but publish just one. Integrating and cleaning data is easier than ever in Tableau 10. Features such as cross database joins help people bring together disparate data sources at the role level without the need to start complicated integration projects.

Cross data source filtering allows a single filter to be applied to multiple data sources in workbooks, letting users coordinate analyses across dashboards. Tableau 10 has a host of new analytics capabilities that make complex analysis more accessible. Drag-and-drop clustering automatically identifies patterns and groups data based on K-Mean. The new custom territories feature allows users to do advance geographic analysis with a few clicks. The data highlighter makes it easy to call out particular insight while keeping the rest of the data visible for context, improvements to histograms, grouping, table calculations, plus a new look and feel allow users to complete and express analyses with greater ease and depth.

In Tableau Server, we've made advancements that make it easier for large customers to roll up self-service analytics at scale and empower everyone in a trusted environment. Tableau 10 includes powerful new features for enterprise deployments, including simplified set up, site-level single sign-on support and monitoring of desktop usage across the organization. For developers, new APIs have been added to Tableau that enable them to write custom applications that leverage data from Tableau. The new version of Tableau Online makes it easier to do more on the web. Tableau 10 contains more web offering functionality, including the ability to offer dashboards and format workbooks in a browser. Tableau Online also improves the experience of helping customers migrate their data to the cloud.

Tableau is becoming the enterprise analytics platform of choice for a growing number of customers to adopt Tableau Server or Tableau Online to enable self-service analytics at scale. Tableau is now used by people in 90% of the Fortune 500. Of those customers, more than 75% have adopted Tableau Server or Tableau Online, and only 29% of the Fortune 500 have spent over $1 million cumulatively with Tableau, providing ample expansion opportunity.

In a recent analyst report, Ovum recognized Tableau for enterprise readiness, governance and data management after attending the Tableau Conference in London last month. The analyst proclaimed, overall I came away with the confidence that I could safely recommend Tableau to our enterprise customers, even ones with complex analytical needs and a diverse technology stack.

I'd like to highlight a few case studies of Tableau's enterprise deployments. Lufthansa, the largest airline in Europe and the fourth largest worldwide, has deployed Tableau broadly across the organization to analyze data in sales, production and maintenance. Today, more people are able to perform analytics in the office and in the field using their mobile phones and iPads. For example, Lufthansa's maintenance and supply subsidiary, known as Lufthansa Technik, uses Tableau to optimize process management and engineering to record and analyze measurement values and cycle time.

And La Poste, the largest deliverer of mail in France, highlights the effective partnership between business users and IT that can be enabled by Tableau. The Tableau community at La Poste started with a few business users and has grown to more than 1,000 users across commercial, sales, quality control and finance. Tableau integrated into their existing environment, letting people at La Poste work with data in the cloud or on premise, while making advanced analytics simple. For instance, Tableau Server is helping La Poste track mail fraud across France and improve processes across the company.

I also wanted to provide an update on our executive search for a President that we launched last quarter. We've made great progress. Our executive team, along with our board, are actively involved in meeting with candidates at this point. We've met with a number of extremely talented people. We'll update you when the process is complete.

In summary, I'm really excited about Tableau's future. We're very pleased by the customer adoption trends, as more companies deploy Tableau's platform more broadly across organizations. We believe Tableau 10 will drive the next wave of adoption. I'd like to recognize the tremendous effort and commitment of our more than 3,200 employees worldwide. Thank you for your contributions in the quarter.

I'll now turn the call over to Tom.

Thomas Edward Walker - Chief Financial Officer

Thank you, Christian. Good afternoon, everybody. Thanks for joining us on the call today. Second quarter total revenue grew to $198.5 million, up 32% from the $149.9 million in Q2 2015. In Q2, license revenues grew to $116.3 million, up 20% year-over-year. As a reminder, license revenues include revenue from Tableau Online, our cloud product, OEM and term deals, which are recognized ratably.

Ratable revenue experienced another record quarter. As a reminder, Tableau Online, OEM and term deals are recognized over the term of the agreement. The terms of these agreements can vary in length. The shift in our license bookings mix has progressed faster than anticipated. We are seeing an increase in our ratable bookings and these deals are not having an immediate impact on our top line. Note, we define bookings as the first year of contracted revenue only and do not include additional years beyond the first year unless a customer pays up front.

While we don't provide guidance with respect to bookings, I wanted to give you additional perspective on how the shift to ratable impacts our overall model. Our ratable license bookings mix year-over-year increased to 16% of total license bookings, doubling from the same period a year ago. This is also up significantly from 12% of total license bookings in Q1 2016. In Q2, while license revenue grew 20% year-over-year, our license bookings grew 28% year-over-year.

We rolled out new large deal frameworks last quarter to give our sales team more flexibility in helping our customers expand their use of Tableau throughout their organizations. Although it's early, customers are very receptive to the discussions and appreciate our approach to bringing analytics further into their organizations, and we are encouraged by the results thus far.

In Q2, 16 customers spent more than $1 million with Tableau, including several under the new large deal frameworks. Some of these deals require ratable revenue recognition. During the quarter, we had 332 transactions greater than $100,000, up 42% from the prior year, which exceeded our expectations. We anticipate the number of large transactions will continue to fluctuate on a quarter-by-quarter basis.

International customers contributed a record 29% of total revenue this quarter. International revenue grew to $57.1 million in Q2, up 55% year-over-year.

Total revenue this quarter from the United States and Canada was $141.4 million, up 25% year-over-year. As a reminder, the majority of our global sales are denominated in U.S. dollar, and therefore we have limited direct foreign exchange exposure within our revenue lines.

Maintenance and services revenues grew to $82.2 million in the quarter. The maintenance component of maintenance and service is our largest recurring revenue stream and has renewal rates exceeding 90%.

Turning to margins and operating expenses, which are all discussed on a non-GAAP basis; these metrics are reconciled in the press release tables and posted on our Investor Relations website. Gross margins for the second quarter were 89%, which is consistent with the previous quarter. For the quarter, total non-GAAP operating expenses were $177.8 million. Our second quarter non-GAAP operating loss was $1.4 million, and our operating margin was negative 1%.

In Q2, our expenses came in higher than planned. There are a few areas of expense where I would like to provide further details. First, as we mentioned last quarter, we made adjustments to our full-year operating plan, including moderating our hiring plans for the year. This resulted in additional adjustments to our sales plan, impacting quotas, sales territories and overall compensation expenses, and we underestimated the expense impact in Q2.

We also overachieved on bookings attainment for the quarter, which was led by improved sales productivity and early traction with our large deal frameworks. As a result, we experienced higher commission expense in Q2.

Lastly, during the quarter, we held our annual company-wide meeting in Seattle with most of our 3,000-plus employees in attendance. We incurred higher-than-expected costs on this key annual event. During the meeting, we made some extra investments in staff development and training, particularly around the roll-out of the large deal frameworks and the launch of Tableau 10. We see this investment as an important part of building a solid foundation, and we are pleased with the early results.

These expenses will not recur in the second half of the year. Looking ahead, we are confident our revived operating plan for the year has taken into account all the adjustments, and we have factored expenses appropriately.

Turning to our departmental operating expenses; overall, sales and marketing expenses for the quarter were $103.3 million, up 39% from the prior year. We ended Q2 with sales and marketing head count of 1,440. We invested $55.1 million in product development in Q2, up 58% from the same period last year. We ended Q2 with R&D head count of 899.

We're looking forward to the release of Tableau 10. Tableau 10 provides enhancements in areas of user experience, mobile and additional data source connections, among others. A big thank you to our entire team for the efforts of bringing even more capabilities to help our customers see and understand their data.

We continue to expand in strategic areas, but at a slower pace than historically. In Q2, we added 80 net new employees to Team Tableau, bringing the total head count at the end of the second quarter to 3,248.

Our non-GAAP net loss for the quarter was approximately $300,000, and we had non-GAAP breakeven loss per share. During the quarter, our weighted average share count used for GAAP EPS was 74.8 million shares. Since we had a net loss, our basic and diluted share counts were the same.

On the balance sheet, cash and cash equivalents at the end of Q2 were $834.7 million, up $26.7 million from the prior quarter. Accounts receivables were $134 million and our DSOs were fewer than 65 days, consistent with prior periods. Total deferred revenues were $231.1 million, up 53% from the prior-year quarter. Total deferred revenues primarily consist of maintenance contracts with a smaller portion attributable to license contracts – ratable license contracts. We expect ratable license contracts to grow as a percentage of total deferred revenues.

Now, turning to guidance for Q3 and the rest of year, we are pleased by the increase we have seen in our ratable revenue sources, including Tableau Online, OEM and term deals. As a result of this, we expect the mix of ratable will become a bigger part of Tableau's business. From a modeling perspective, this means more revenue will be recognized over subsequent quarters. Ratable revenue sources also give us better visibility into future quarters and better long-term profitability, but it'll dampen the current quarter's revenue.

Our guidance assumes the mix of ratable revenue from Tableau Online, OEM and term deals will represent approximately 17% of our license bookings for the second half of 2016. This represents approximately 100% increase year-over-year in ratable license mix. This is an adjustment upward from the prior quarter assumption when we assumed only 12% was built into our license revenue guidance. Note, this mix may fluctuate on a quarter-by-quarter basis.

Based on these revised mix assumptions, we expect Q3 total revenues to be between $210 million and $215 million. Using the high end of this range, this represents 26% year-over-year growth. For the full year, we expect total revenue to be between $825 million to $840 million. Using the high end of this range, this represents 29% year-over-year growth. This equates to 2016 license revenue growth of approximately 15% at the high end of this range.

The increasing portion of ratable revenue also impacts our bottom line. Revenue from our ratable transactions is recognized over the term – over the associated term of the contract, while our commissions are recognized in the booking period. Our guidance factors in the updated mix assumptions that we just outlined. We are focused on generating positive operating margins for the rest of the year. For Q3, we're expecting non-GAAP operating income of $5 million to $10 million. For the full year, we're expecting non-GAAP operating income of $20 million to $35 million, or a 4% operating margin at the high end of the range.

Capital expenditures for the first half of the year were $28.1 million, which includes $4.7 million in unpaid property, plant and equipment. We expect capital expenditures for the remainder of the year to be between $57 million and $62 million, in line with our previous guidance. As a reminder, we plan to have our new headquarters completed in Q4 of this year. Our long-term non-GAAP effective tax rate continues to be 30%.

We expect Q3 non-GAAP diluted earnings per share in the range of $0.04 to $0.09 per share, assuming 80 million diluted shares. For the full year, we expect non-GAAP diluted earnings per share in the range of $0.18 to $0.31 per share, assuming 80 million diluted shares. In closing, I'd like to thank Team Tableau for continuing to execute our mission of helping people see and understand their data and committing to delivering a great solution to our customers and delighting them.

Thank you for joining us today. Now I'll turn the call over to Christian for some closing remarks.

Christian Chabot - Chairman & Chief Executive Officer

Thank you, Tom. I'll close by adding that we're really pleased with the progress we've made with Tableau Online. The growing success of that product demonstrate that Tableau's investment in the cloud is paying off and that we are well positioned for the cloud transition many customers are going through. We're also pleased with the conversations we're having around our new enterprise deal frameworks. We believe both of these initiatives will provide long-term value.

Thank you for joining us today. I'll now turn the call over to the operator for questions.

Question-and-Answer Session

Operator

Our first question comes from the line of Mark Murphy from JPMorgan. Mark, your line is now open.

Mark R. Murphy - JPMorgan Securities LLC

Yes. Thank you very much for taking my question. So, Tom, you've mentioned the 28% license bookings growth that you produced in Q2, so there was a noticeable acceleration there and it was well above what we expected. Just given the way that you have recasted the guidance and the mix assumptions for the year, can you walk us through how you would expect that metric to perform in Q3 and also in Q4 in terms of license bookings growth?

Thomas Edward Walker - Chief Financial Officer

Yeah, hi, Mark. This is Tom. So, overall, we're not – as I mentioned in my prepared remarks, we're not going to guide to the license bookings. What I was just trying to highlight is that as this transitions from 12% in Q1 to 17% for the second half of the year, that it'll have an impact on the overall top revenue line, while we're still expanding and growing our customer base. We expect healthy license adoption as we continue to expand, but we're not going to guide to that and we'll just update you as we go forward.

Mark R. Murphy - JPMorgan Securities LLC

So, Tom, also you stated that you had over attainment on bookings, which drove the higher commission expense in Q2. And I'm just curious, if that were to recur, again, relative to the plan that you just gave us, is there a scenario where that would actually cause you to moderate your hiring plans incrementally from what you had last disclosed to us, or if the over attainment on the bookings is causing this commission expense to rise, while also pushing off – the mix shift is pushing off some of the revenue recognition, do you think that you would – would it be your preference to essentially maintain the hiring plans and thus causing maybe an extended period of pressure in terms of operating margins?

Thomas Edward Walker - Chief Financial Officer

Yeah, I think that's a good question, so two parts, so I'll hit hiring first and then I'll talk about kind of the mix to more ratable license and the commission expense associated with that. So overall, we have moderated our hiring plans for the year. For the second half of the year, we'd expect somewhere between 100 net new people to 200 net new people joining Tableau. With respect to going from 12% to 17%, we expect that those costs are factored in to those commission costs and that extra cost is factored into the guidance and the operating margins that I put forward for the rest of the year, so feel comfortable about that.

Mark R. Murphy - JPMorgan Securities LLC

Okay. One last one, Christian. I wanted to ask you quickly, just in terms of pricing, where do you think we are in the evolution of the pricing curve for the analytics industry? And are there any different dynamics in terms of realizable pricing for the power user segment versus the mass market segment today?

Christian Chabot - Chairman & Chief Executive Officer

I don't think too much has changed. Tableau and a few others pioneered an affordable path forward for companies of any size to execute a world-class business analytics strategy. And we're seeing – well, you can see in our new customer account number as an example, without any change in our prices, we're signing more customers than ever. And so I don't really detect a big equilibrium change myself. Where we on our end have been more aggressive on deals and seeing discounting go up is on the high end as part of our effort to be more flexible and open armed to companies trying to drive the Tableau mission at scale in their companies.

Mark R. Murphy - JPMorgan Securities LLC

Thank you.

Joni Davis - Director-Investor Relations

Great. Thanks, Mark. Operator, can we have our next question, please?

Operator

Certainly. Your next question comes from the line of Brent Thill from UBS. Brent, your line is now open.

Brent Thill - UBS Securities LLC

Good afternoon. The shift to ratable is not necessarily new in the software industry, but clearly, Tom, this is something you're seeing a quicker adoption rate. What do you think is causing this shift as quickly as you're seeing it? Are you now incenting the sales force to go more ratable and creating incentives, or is this just the way that customers are choosing to go forward with you?

Thomas Edward Walker - Chief Financial Officer

Hey, Brent. So, yeah, two things there. I think it is actually the way customers are choosing to go forward. I think a lot of what we were focused on last year at the end of the year is, how our larger customers can continue to expand and grow broader with the Tableau analytics platform. And so I think the new deal frameworks is helping us go broader and reach more people, so that is one thing. And we are absolutely – the sales team is motivated to sell those because those are larger deals and they would receive good incentives for that.

The second thing is Tableau Online. And so it just continues to be the way people are adopting it and its growing. As Christian in his remarks commented, it's growing triple digits, so it's growing very, very fast. So, a combination of both of those things, which are really good is what's happening.

With respect to the incentive, so with Tableau Online, basically commissions are at parity, so whether you sell on-premise, you sell Tableau Online, the sales team is indifferent between those seats and we've set up the commission that way. With respect to the bigger deals, the team does get credit for if they sell a larger ELA type of deal, the team would credit for the larger deal. So, in essence, we are incenting that, but it's much more towards what the customers are wanting to do and expand.

Brent Thill - UBS Securities LLC

Christian, a couple competitive dynamics. Obviously, Power BI's been out about a year. I would assume you're figuring out their motion in terms of how to diffuse their go-to-market. Can you give us a sense of where you're seeing Microsoft? And on the flip side now with Click going private, what are your thoughts in terms of what you're going to see there?

Christian Chabot - Chairman & Chief Executive Officer

Yeah, I reflected on this question in advance because I knew I would get it, and I have to say, with regard to the quarter, there's really no new news on either front. The Microsoft offering started to become a factor in the industry when it was launched. But within the lens of this last quarter, there's really nothing new to report there in terms of the competitive dynamic. In fact, our win rates there are very strong.

And then likewise, with regard to Click and the go private transaction, for us in terms of daily operations it's not really impacting us, and again, our win rates there remain really strong. So, really nothing new to report, other than the fact they both continue to be competitors of our company.

Brent Thill - UBS Securities LLC

Thanks.

Joni Davis - Director-Investor Relations

Thanks, Brent. Operator, can we have our next question, please?

Operator

Certainly. Your next question comes from the line of Raimo Lenschow from Barclays. Raimo, your line is now open.

Raimo Lenschow - Barclays Capital, Inc.

Hey. Thanks for taking my question. Can I talk a little bit about the cost base? I get the point on the sales and marketing, because it's ratable. But if I look, your R&D spending is actually the fastest growing. G&A spending overshot somewhat as well. And you talked about the conference. But can you talk what's going on in R&D and how you see that evolving? Is that Tableau 10, or is that a whole shift move towards more cloud and hence higher investment levels? Thank you.

Thomas Edward Walker - Chief Financial Officer

Hi, Raimo. This is Tom, and so Christian can come in behind me if he wants. Overall, I think we've got a robust appetite for investing in R&D and we'll continue to do that. I think going forward you will see that moderate over time. The investments that we are making are not only on the current Tableau 10, but we're already looking beyond that into next year. And we've got a really healthy development pipeline. So we'll continue to grow and invest that.

I would not expect the expenses from a year-over-year perspective and the moderation in hiring that I had mentioned, it'll be across the board, so I would say that. And then inside of overall expenses also is, as we get ready move into our – we have a new building, a new office coming online in the second half of the year, but actually some of those expenses are starting to hit us now from an operating standpoint. So you're seeing those and so those will scale over time.

Raimo Lenschow - Barclays Capital, Inc.

Okay. Thank you.

Joni Davis - Director-Investor Relations

Thanks, Raimo. Operator, can we have our next question, please?

Operator

Your next question comes from the line of Karl Keirstead from Deutsche Bank. Karl, your line is open.

Karl E. Keirstead - Deutsche Bank Securities, Inc.

Thank you. A question for Tom. Tom, I know you probably don't want to talk 2017, but could you give a little bit of color when we would reach a steady state where this mix shift to ratable would normalize in terms of a steady state license growth rate, steady state margins? Are we looking at back half of 2017? Thank you.

Thomas Edward Walker - Chief Financial Officer

Hi, Karl. Yeah, and so looking at 2017, it's hard for me to comment on that, but let's just reflect on what happened between Q1 and Q2. So we're seeing actually an acceleration. And in Q1 when we spoke, back in May on the Q1 results, we talked about it being gradual and our expectation for it to be gradual.

We have changed our position there. We expect it to be going faster. And so at the second half of this year, we're expecting it to be 17%. I don't know at which pace it continues to grow beyond that. So right now that's what we're modeling. We feel good going into the second half of the year.

Another thing that I would just call out is, it's an interesting factor now when we couple in ratable license revenue with our maintenance, which has got 90%-plus renewal rates. 40% of our overall revenue sources are now recurring, so this is a very good thing for us and it's a very healthy thing for us as we grow. So, we'll continue to update as we go and we'll probably talk about a glimpse on 2017 on the next call.

Karl E. Keirstead - Deutsche Bank Securities, Inc.

Okay. Good. And, Tom, may I ask a follow up? I'm trying to understand the relationship between the new pricing framework and the new guidance you've provided. Is the link that the more flexible pricing framework and maybe discounting at the high end could be leading to more and larger ELAs, more of which are getting ratably recognized? And hence that's the relationship between the changes you're making on the pricing front and the fact that the ratable mix is up? Or do I have that wrong? Thank you.

Thomas Edward Walker - Chief Financial Officer

Karl, you've got it exactly right. That's exactly what you're seeing there. So, part of the deal frameworks is there is some bulk buying discounting options, but most people are looking for much more of an expansion – expanding license arrangement, and whether that's a subscription license arrangement or a pool of funds or true-ups. So there are options that we have, but those are all ratable in nature, and so you've exactly right.

Karl E. Keirstead - Deutsche Bank Securities, Inc.

Okay. Thank you very much.

Joni Davis - Director-Investor Relations

All right. Thanks, Karl. Operator, could we have our next question, please.

Operator

Your next question comes from the line of Jesse Hulsing from Goldman Sachs. Jesse, your line is open.

Jesse Hulsing - Goldman Sachs & Co.

Hi, guys. Thanks for taking my questions. Sorry, I was hopping over from another call. I wanted to ask a question about pricing and how it's trending because I look at your new customer adds, which are up about – or new customer growth, which is up nicely, and your deals over $100,000 rebounded to north of 40%, and license bookings were 28%, and license was 20%. But it seems like there's a little bit of a disconnect between those, which I view as kind of underlying drivers of your business, and the license growth. So, how is pricing trending in the space? And do you think we'll get to a point over the next couple of years or over the next couple quarters, we'll get to some stability? Thank you.

Christian Chabot - Chairman & Chief Executive Officer

Well, as people start – this is Christian. Good question. As people start their Tableau journey, not much has really changed on the pricing front. As measured across our vast number of orders, we have a high-volume transaction business going as part of our business model. As measured over the vast number of orders, discounting really hasn't changed very much, it bounces around within a range and we know we're a little more aggressive, but really no news to report there.

We have very affordable prices, they have a great TCO, they're consumable by teams and people in groups of all sizes and really steady as she goes there. I mean, if there's a sub-headline there on the adoption part of the business, it's that more and more customers are choosing to start with Tableau Online and the cloud product instead of Tableau Server the on-prem product. And so, that's not a discounting thing as much as a, again, a ratable versus upfront – how they start their journey.

So that comment all refers to the large volume of transactions and people initially adopting Tableau. We don't really see pricing pressure there. We're – on the high end of the business, I mean, a business opportunity we've been taking on since the beginning of this year, we've talked about it every earnings call, is the expand part of our business has not been going as well as we would like it to, and so we're being more aggressive there, generally across the sales force, and in particular with the large deal frameworks, and those things are taking time to fully come to fruition.

As we reported, we saw some great progress here in Q2, including our biggest deal of the quarter under that framework. But it's still a story that's unfolding, and so I guess I'll close by saying, I don't see a sea – I mean, other than the move to subscription, I don't see a sea change in pricing in the road ahead before us. So I hope I answered the question there.

Jesse Hulsing - Goldman Sachs & Co.

Yeah, that was perfect. And one quick follow up, Christian. When you look at your roadmap, what is your thought process about new products, and you've talked in the past about data preparation and adding that as a feature in the Tableau. Any thoughts there around adding a new SKU over the next year or so, and are there any other adjacencies where you see opportunity in the long run? Thank you.

Christian Chabot - Chairman & Chief Executive Officer

Absolutely. As you know, as an organization, we've been very committed to research and development. Ever since the IPO, we have made very clear that we're a product-oriented company, we believe in the power of R&D, we believe we're in an exponentially expanding market opportunity, and that there are a number of contiguous areas that we're very interested in expanding into. And so if you're looking at the R&D spend as an example, you would be correct to surmise that there are some new products in development as part of that, absolutely.

With regard to areas R&D spend is going to unfold, some of the advancements, like for instance some of the data preparation advancements, since that's one you happened to mention, will actually just fall into our current SKUs, and I can tell you the reason for that if you want to double-click here in a few seconds.

And so, not everything we do is going to go peel out as a new SKU, a lot of it is hardening this 21st century business analytics platform we're making, and that has a lot of great sectors of investment to it. But I will close by directly answering the question which is, yes, even as we're doing that, we're also identifying areas that we can invent and ship new products in, and data preparation and advanced analytics and data as a platform are three logical areas we're looking into and you can expect things over the years in those areas.

Jesse Hulsing - Goldman Sachs & Co.

Great. Thanks, Christian.

Joni Davis - Director-Investor Relations

Thanks, Jesse. Operator, can we have our next question, please?

Operator

Your next question comes from Brent Bracelin from Pacific Crest Securities. Brent, your line is now open.

Brent Bracelin - Pacific Crest Securities

Thank you for taking the question. Christian, I wanted to follow up on the no news kind of commentary around the kind of the competitive environment. And I just look at the number of kind of large deals over $100,000. That grew by 36% in Q4, decel'ed to 8% in Q1, now it's reaccelerated back to 42% growth in Q2. So, if there's nothing new on the competitive front, what's driving this reacceleration in large deals? 16 million-dollar-plus deals seems like a pretty big number. So, help me square the trend line that we were seeing in large deals, the resurgence here, and what's driving that. If it's not industry conditions, what's the big change that you've done internally that's going to drive that and, A, is that sustainable?

Christian Chabot - Chairman & Chief Executive Officer

That's a good question. I mean I think a lot of our efforts here in operating the company have been focused on sales excellence, sales execution, sales productivity and a more flexible orientation towards people wanting to expand. Everyone knows that's one of big operational areas we have needed to work on and I think the most direct answer to the question is, we're starting to see the results of some of those investments pay off. And so just to give you the full picture on competition, again, we remain in a fiercely competitive environment, so I wanted to make sure you got my comments in context. All I mean is I don't – there's no real big update to that in Q2.

The competition will remain an important factor in our business and so although we're really pleased how well we did competitively in Q2, I don't want to get over the skis on projecting forward. We fight for our business. We fight to win. I'm pleased to say we're seeing a lot of progress in big deals, six figure spend levels and seven figure spend levels in the quarter and hopefully it's here to stay.

Brent Bracelin - Pacific Crest Securities

Great. Two quick little follow-ups. One, pipeline of large deals still looks pretty healthy going into the second half of the year. And then two, did you mention the date on Tableau 10 launch?

Thomas Edward Walker - Chief Financial Officer

So pipeline – Brent, this is Tom. So pipeline is built into our guidance for Q3, so I won't add anything more beyond that and Tableau 10 is – should be coming out imminently. So it will be out very shortly.

Brent Bracelin - Pacific Crest Securities

Great. Thank you.

Joni Davis - Director-Investor Relations

Thanks, Brent. Operator, can we have our next question, please?

Operator

Your next question comes from the line of Steve Ashley from Robert W. Baird. Steve, your line is now open.

Steve M. Ashley - Robert W. Baird & Co., Inc. (Broker)

Thank you. Tom, if we were to take a one-year term deal and juxtapose that next to a license, regular perpetual license, what is the dollar relationship? If someone buys on a term basis, is it a third of what they would have spent on license, or is there any general relationship you can give us there?

Thomas Edward Walker - Chief Financial Officer

Yeah, approximately a third, that's probably a good way to look at it and it just depends. If you think about Tableau Online, right, and you think about Interactor and let's just say Tableau Online is $500, a list price of Tableau Online seat and then Interactor is $1,000, $800 of that is perpetual and $200 is reoccurring maintenance. And so right there, the answer there is $500 versus $1,000 but at the end of year two then you have $500, $200, so over the course of three years you're pretty much at breakeven there. Beyond three years the subscription is more beneficial to us.

Steve M. Ashley - Robert W. Baird & Co., Inc. (Broker)

Great. And you've talked quite a bit on this call about trying to improve your flexibility to execute better on the expand in enterprise business. And you've said that you've empowered your reps with this large deal framework, a pricing structure. Have you done other things to help the enterprise sales force be more effective, outside of giving them pricing latitudes?

Thomas Edward Walker - Chief Financial Officer

Yeah, I think it'd the most important thing to call out is that Tableau really had quite a run as a hyper growth company for four or five years in a row, seeing compound growth rates there that had seldom been seen in our particular industry. And so we ended up with a large number of sales people, both in the inside force and in our field force that were fairly new to position, lots of new managers and that kind of thing, and so we've made a big push around sales training and sales enablement, and then better marketing our enterprise message, and of course, just waiting for average tenure to pick up.

And so it's not quite as easy to just put a little bow on it as rolling out more flexible deal frameworks, but it's equally important we have a sensational sales team. They're getting their legs under them and getting confidence and increasing their training and investments in their territories. The year is getting more mature as we go on. People have those territories now since January, and so we're pretty optimistic about their ability to deliver.

Steve M. Ashley - Robert W. Baird & Co., Inc. (Broker)

Perfect. Great insight. Thanks.

Joni Davis - Director-Investor Relations

Thanks, Steve. Operator, can we have our next question, please?

Operator

Your next question comes from the line of John DiFucci from Jefferies. John, our line is open.

Unknown Speaker

Hey, guys. This is Joe (49:22) on for John. Thanks for the question. You guys had strong growth in the $100,000 order growth, growing 42% to 332 transactions, but license only grew 20% and total rev only grew 32%. And then you also had some commentary about large $1 million deals being strong at 16 in the quarter. Does this imply a moderation at the low end or what are you guys seeing there?

Thomas Edward Walker - Chief Financial Officer

Hey, John (49:47). This is Tom. No, not so much that because we also put up a record number of new adds. And so I think what you're seeing is a combination of us both acquiring and expanding our customer base and also being able to further grow that base in different ways. One of things around the $100,000 mark, and sometimes everybody focuses on that, we have people that expand and expand and expand. It doesn't necessarily have to be over the $100,000 mark for them to expand, so we've got customers that expand at smaller tranches.

I think that's some of the flexibility that we bring to our customers and grow. But overall I don't think there's necessarily a disconnect between that as much as the larger deals are becoming more important, if you will, and they're becoming a larger portion of how we're going after expanding that opportunity inside some of our existing customers.

Unknown Speaker

Okay. That's helpful. Thanks, guys.

Joni Davis - Director-Investor Relations

Great. Thanks so much. Operator, can we have our next question, please?

Operator

Your next question comes from the line of Brad Sills from Bank of America Merrill Lynch. Brad, your line is now open.

Bradley Sills - Bank of America Merrill Lynch

Great. Thanks, guys. Just a question on Online. I know you mentioned the preference for ratable is there because largely customers prefer it as a purchasing vehicle. But is there something about the product with Tableau Online versus Tableau Server, was there a delta in features that's now you're closing that gap with some of the dot releases recently and in Tableau 10? Is there something about the product that's making Tableau Online more attractive on a relative basis?

Christian Chabot - Chairman & Chief Executive Officer

Yeah, with every release – and we're on sort of a 90-day release cadence now as we move to a more agile development organization. And so there have been a number of things flowing into the Tableau Online product that have strengthened it from a customer proposition perspective. And there's a few more coming in Tableau 10. One area to call out is that we're starting to play better with peoples' on-prem data even if they adopt our cloud-based product. So that's an example of something there.

Nothing that I would point out as a giant sea change, but as the years go by and we continue to invest big in the cloud, I think there's going to be more and more people who just pick the cloud-based products because why wouldn't you.

Bradley Sills - Bank of America Merrill Lynch

Sure. Great. Thanks. And then in international, if I may, another nice uptick this quarter. The spread between growth international versus Americas widened again this quarter. Can you point to certain countries where you're seeing more success? And a little color on just international I think would be helpful, please. Thanks a lot.

Thomas Edward Walker - Chief Financial Officer

Hey, Brad. This is Tom. So, I don't think I'll call out individual countries for that, but overall we've got tremendous sales leadership internationally and they're doing quite well. You think of Tableau years and years and years ago, and that's how the regions feel. So they're growing. They're doing well. They're bringing analytics, but overall we're focused on expanding it because we see that as a very big growth opportunity for the future.

Christian Chabot - Chairman & Chief Executive Officer

Yeah, maybe one other point of color is that we price in dollars and so we have seen some headwinds and challenge there in Europe that we just don't see in the APAC region. And so although both regions are doing well, I think we have more worry about Europe because of currency.

Bradley Sills - Bank of America Merrill Lynch

Got it. Great. Thanks, guys.

Joni Davis - Director-Investor Relations

Thanks, Brad. Operator, can we have our next question, please?

Operator

Next question comes from the line of Keith Weiss from Morgan Stanley. Keith, your line is now open.

Keith Eric Weiss - Morgan Stanley & Co. LLC

Thank you and thank you for taking the question. A question for Tom. Given the shift to more ratable, I'm expecting that the cash flow trajectory, the cash flow margins, if you will, will probably hold in a little bit better than the operating margin. Should we start shifting our focus towards that, or is there any help you can give us in terms of how cash flow, given that you're doing more bookings and more ratable recognition should act versus the operating income line?

Thomas Edward Walker - Chief Financial Officer

Yeah, overall – hi, Keith. This is Tom. So overall, I think we'll continue to update on the the cash flow metrics as we look forward. I think the shift that we're seeing from the first half of the year and what we're expecting the second half of the year and the impact on commissions and such, I want to mitigate the expectation on cash flow expansion going forward.

But doing larger deals, collecting that money upfront, will absolutely be additive to cash flow, even though we won't be seeing it on the top line of the income statement. And so that's what we would expect going forward. But right now, just given the change of what we saw in the operating expenses that were higher than we expected in Q1, I want to keep that muted for the time being.

Keith Eric Weiss - Morgan Stanley & Co. LLC

Got it. And then just maybe a question on guidance philosophy, if you will. In terms of Q2, the ratable mix got away from you guys from what was originally in your expectations on the expense side. You're maybe a little bit too aggressive in terms of how quickly costs could come out of the equation. Did you guys change the way that you were looking at the guidance for the back half of the year to be a little bit maybe more conservative on both sides of that equation? Something you could help us garner some confidence that the deck is really cleared here in terms of what could further impact our estimates in the back half of the year?

Thomas Edward Walker - Chief Financial Officer

Yeah, I think what you're seeing is in Q2, having it be 16%, that mix increased 100% year-over-year. So that's not necessarily an aggressive assumption and we weren't baking that kind of assumption into the guidance in the previous quarter. And so going forward, we do expect it to continue based on the traction that we've seen thus far. And so we're confident in what we see with the pipeline, the traction that we're getting. But I don't think it's really a change. I think what we do as far as guidance philosophy is we update based on the facts and circumstances in front of us and we make sure that we adjust it every 90 days accordingly.

Keith Eric Weiss - Morgan Stanley & Co. LLC

Got it. Okay. Thank you.

Joni Davis - Director-Investor Relations

Thanks so much, Keith. Operator, can we have our next question, please?

Operator

Your next question comes from the line of Derrick Wood from Cowen and Company. Derrick, your line is now open.

Rakesh Kumar - Cowen and Company

Hi. This is Rakesh Kumar sitting in for Derrick Wood. Thanks for taking our question. You guys talked about an uptick in sales productivity. And last quarter you talked about less than 50% of reps that were ramped. I was hoping if you could provide some more color on percentage of reps that are ramped.

Thomas Edward Walker - Chief Financial Officer

Yeah, so overall we're not going to update the percent of reps that are ramped every quarter, that's not something we're doing. But overall we are looking and we have been focusing on this for three quarters now, is making sure that the people that we have are able to be successful. So not over hiring in certain regions and in that nature, making sure that the patches that they have are rich enough for them to expand and grow the opportunities with our customers. And so what Christian was mentioning there was that we're seeing good uptick. We still have work to do, we still want to continue to increase productivity, but overall it's good progress from Q1 and that's why we updated it the way we did.

Rakesh Kumar - Cowen and Company

Great. And if I could squeeze in one more around (57:11) release. Did you see any slowdown in front of the release? Could this be an incremental catalyst for growth and adoption?

Christian Chabot - Chairman & Chief Executive Officer

No, this is Christian. I don't think so. We're on a license and maintenance model, we're not on an upgrade model, and so we don't have order surges around release dates per se. Our releases are better viewed as a general hardening of our competitive position and delighting our customers. There's always some launch momentum that feels good and it's a little hard to track directly to a quarter, but we're optimistic about its impact on our business, of course, but not one that we can pinpoint so precisely.

Joni Davis - Director-Investor Relations

Great.

Rakesh Kumar - Cowen and Company

Thank you.

Joni Davis - Director-Investor Relations

Thanks so much. We have time for one more question today. So operator, can we have our last question, please?

Operator

Your final question is coming from Tom Roderick from Stifel. Tom, your line is open.

Thomas Roderick - Stifel Nicolaus & Company, Inc.

Hey, guys. Thanks. Good afternoon and thanks for taking my questions. I'm going to try to follow up on Steve Ash's question relative to the kind of comparable term versus perpetual license. But Tom, when you talk about 28% license bookings growth, I'm not sure if there's a good apples-to-apples way of thinking about that. But maybe you could help by defining sort of what's in that bookings from a ratable side. In other words, is it just the first year of the subscription arrangement packed into that, so in other words we're looking at another $7 million, $8 million in first-year ratable and therefore the comparable license might be sort of three times that? Can you just go into a little bit more detail in terms of how you break apart that license bookings figure and how we might think about it apples-to-apples?

Thomas Edward Walker - Chief Financial Officer

Yeah, so I think I'll give you some kind of feedback on that. So, overall, the bookings number would be the SKUs, right? The SKUs that are license SKUs that we sell and so it would reflect the first year license amount of the license SKUs that we sell, whether they were perpetual or whether they were ratable. In cases where people are buying multi-year, let's just say a large deal, or multiple years of Tableau Online or something like that, which is more the exception not the case, that would also be included in that overall number. But for the most part, it's just the sum of all the SKUs, license SKUs and that we've invoiced.

Thomas Roderick - Stifel Nicolaus & Company, Inc.

Got it. And then quick follow-up for you. Just in terms of the commissions accounted for on your ratable deals, are those all expensed at the time of the deal closure or are they expensed as the contract plays itself out over the coming years?

Thomas Edward Walker - Chief Financial Officer

In the booking period is when they're expensed, yes. That's exactly what I said in my prepared remarks. So, yeah, those commissions are recognized. Thanks.

Thomas Roderick - Stifel Nicolaus & Company, Inc.

Okay. Good. Thank you.

Joni Davis - Director-Investor Relations

Thanks, Tom. And with that, I'll conclude today's call. Thank you so much for joining us. Have a good evening.

Operator

That concludes today's conference call. You may now disconnect.

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