TIBCO Software, Inc. F3Q07 (Qtr End 9/2/07) Earnings Call Transcript

TIBCO Software, Inc. (TIBX)

Q3 FY07 Earnings Call

September 27, 2007, 5:00 PM ET

Executives

Vivek Ranadivé - Chairman and CEO

Murray Rode - CFO and EVP, Strategic Operations

Analysts

John Walsh - Citigroup

Tim Klasell - Thomas Weisel Partners

Bryan McGrath - Credit Suisse

Sterling Auty - JP Morgan

John Difucci - Bear Stearns

Alan Cooke - Merrill Lynch

Katherine Egbert - Jefferies & Co.

Terry Tillman - SunTrust Robinson Humphrey

Yun Kim - Pacific Growth Equities

Derek Bingham - Goldman Sachs

Presentation

Operator

Please stand by. Good afternoon ladies and gentlemen. My name is Matt, and I would like to welcome you to TIBCO's Third Quarter 2007 Conference Call. At this time all participants are on a listen-only mode. Later we will conduct a question-and-answer session. And you can also listen to the call via the Internet at www.tibco.com. Today's call is being recorded and will be available for playback from TIBCO Software's website at www.tibco.com. In addition, replay will be available through Premier Conferencing for the same period by calling 888-203-1112 from the U. S. or 719-457-0820 internationally. The confirmation code is 3565214.

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, forecast of revenues, and earnings per share for future periods and statements regarding our ability to meet our hiring targets and realization of revenue growth as a result of increased sales headcount. Our actual results could differ materially from those projected in such forward-looking statements. The factors that could cause actual results to differ are discussed in TIBCO's most recent quarterly report on Form 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 and calculated in accordance with GAAP and a reconciliation of the differences between the non-GAAP and GAAP financial information, please see our website at www.tibco.com.

The participants on the call are Vivek Ranadivé, TIBCO's Chairman and CEO; and EVP of... and Chief Financial Officer, Murray Rode.

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

Vivek Ranadivé - Chairman and Chief Executive Officer

Thanks Matt... thank you, Matt and hello everyone. Thank you for joining us on our Q3 conference call. On today's call I would like to cover three things. First, I will focus on our Q3 results, second I will share some thoughts on our field organization and how that impacted our results, and third, I will close with some thoughts as we head into Q4, our historically strongest quarter.

So let me start with our Q3 results. Total revenues were $135.1 million resulting in year-over-year growth of 12%. License revenues were $52.6 million. Non-GAAP operating income was $16.3 million resulting in an operating margin of 12%. Fully taxed non-GAAP earnings per share for the quarter was $0.06. Cash flow from operations was $19 million. We closed 89 deals over $100,000 and we closed 12 license deals over $1 million. We added 65 new license customers. We also increased and successfully expanded our business with market leaders such as BNP Paribas, CLSA Limited, The Carphone Warehouse, LexisNexis, Mahindra and Mahindra, Nielsen Media, SERPRO and the State of California, to name a few.

Once again, existing customers represented over two-thirds of total revenue.

Now I would like to share some thoughts on some of the changes we have made in our field organization and how that impacted our results. Since the end of 2004 to today, we have focused on improving our sales productivity and getting more leverage out of our field organization. So while quota headcount has held steady at roughly 115 reps for each of the past three years, our total revenue has grown nearly 50%.

We took an already high average attainment number and have been pushing it higher. Although productivity over the past few years has helped us grow to over $500 million in revenue, I think we've reached the practical limits of what we can count on for attainment. This reliance on increasing productivity also increases the risk of revenue in any given quarter as we simply become too dependent on too few as the numbers rise.

You may ask then, why we haven't hired faster. In one sense not hiring faster earlier in the year was a mistake. However, we have also made some very important changes in our sales leadership which I believe were essential to our long-term success and these changes exacerbated already slow hiring by causing some turnover and delaying some hires while the new management settled in.

Some other execution issues in several key parts of our business like the financial vertical also made the performance in Q3 worse, as did some very deal specific issues that caused some key deals to slip late in the quarter. Overall a combination of too much dependence on too few, certain execution issues and some key deal slippages of around $10 million created the Q3 shortfall. That's the bad news.

The good news is we believe we fundamentally have a good platform in place for sales as evidenced by the average sales attainment we have seen in the last couple of years. We have also settled some management changes such that we are better positioned to start growing our quota headcount significantly over the next year. So we are targeting adding about 40 quota reps by the end of fiscal 2008.

In addition, I believe the demand environment is positive and having more feet on the street will help drive revenue growth in the future. We feel we are very competitive in the deals we're active in but we need more coverage.

I also believe that as we mature, we will need to focus more energy on other indirect channels, particularly OEM type sales of our software. I recognize we had a goal in fiscal 2007 to increase quota headcount significantly and have fallen far short of our target. But I do think we are in a better position to achieve this goal in fiscal '08.

Before I turn the call over to Murray, I will conclude with some thoughts as we head into Q4.

Although I am not happy about the results here to date, I don't believe any thing has changed in our market opportunity. We just need to make sure we are doing the right things to execute it effectively. We continue to focus on annual performance and based on historical trends, we feel optimistic about the upside in Q4. But I think we need to be pragmatic in what we can expect to achieve in terms of quarter-to-quarter growth and you'll hear that in our guidance.

And finally, I was pleased with the performance of Spotfire which came in ahead of expectations. We remain enthusiastic about the long-term potential of this business. I believe that is a tribute to the strong team at Spotfire.

With that, I will now turn the call over to Murray for more details on the financials.

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Thank you, Vivek. I will first provide some additional details on our financial performance in Q3, and then provide an updated forward-looking guidance for Q4. I am going to touch on a variety of non-GAAP financial highlights for the quarter. We've attached a full financial schedule to the earnings release as well as the reconciliation of GAAP to non-GAAP, and I encourage you to review the full financial schedule carefully.

Some key data on our second quarter results are as follows. Total revenues were $135.1 million, up 12% year-over-year. License revenues were $52.6 million, approximately 39% of overall revenue. Non-GAAP earnings per share was $0.06 in Q3. Non-GAAP gross margin was 73% in Q3. The non-GAAP operating income was $16.3 million resulting in an operating margin of about 12%.

Deferred revenue, both short and long-term together, was $125 million, up 35% from Q3 a year ago. Approximately half of this increase was due to the acquisition of Spotfire and represents the fair value adjusted amount of maintenance we will carry forward and realize as revenue over time.

We also have about $34 million in additional pre-acquisition receivables related to Spotfire that will provide a benefit to cash flow at only cash flow as they are collected. These amounts relate to future year payments on Spotfire term licenses which should result in $4 million to $6 million of cash flow per quarter for the next four to six quarters.

DSOs came in at 76 days, down three days from Q2. We had cash flow from operations of approximately $19 million. Year-to-date cash flow was $72 million, down on a year-over-year basis from last year. We had several million in prepaid expenses and several million in Spotfire-related payments that decreased the cash flow this quarter and year-to-date. In addition, I think it's important to note that the cash collections in the quarter were very strong at over $140 million and maintenance renewals remained in the mid 90% range.

We ended the quarter with approximately $224 million in cash and short-term investments. The reduction in cash quarter-to-quarter is due to the acquisition of Spotfire and our stock buyback.

The geographic breakdown of total revenue was as follows: North America, 55%; Europe, 35%; Asia-Pacific, 10%. Looking across the geographies, there were pockets of strength and weakness, which suggests that there was not a macro-economic problem or a broad demand problem, but regional execution gaps.

Total revenue by vertical was as follows: financial services, 24%; telco, 11%; government, 5%; energy, 7%; insurance, 6%; manufacturing, 5%; media, 5%; and no other industry represented more than 5% of revenue. Although financial services as a percentage doesn't stand out in the overall results, this vertical's performance in North America was unusually weak at less than half of what we expected.

Similarly, government in North America is also tracking well behind our expectations coming into the year. Our top 10 customers represented approximately 23% of total revenue and we have 12 deals over $1 million in license revenue. We had 89 deals over $100,000 in license revenue, up approximately 30% from Q3 a year ago. For deals over $100,000, the average deal size was approximately $540,000 versus $680,000 in Q2 and $690,000 in Q3 a year ago. This is within our typical range of $500,000 to $800,000.

The average deal size trended a little lower in the range largely due to Spotfire which tends to have more smaller sized deals. Going forward, we see this as a benefit as the nature of Spotfire's business should help over time to smooth out our traditional license business, which is more large deal focused.

In terms of product families, SOA was approximately 64% of license revenue. BPM was about 11% and business optimization and analytics about 25%. Please note that we have included Spotfire within the third category which skews these results from what we have reported historically but we believe is the right categorization.

Going forward, we are unlikely to continue to break out the Spotfire license revenue but in Q3, it contributed over $7 million in license revenue which was well ahead of what we expected for the quarter. However, this quarter's performance from Spotfire does not reflect changes to expectations on the year as they had several deals that closed earlier than expected.

On the expense side, operating costs increased overall by about $4.5 million. It's important to note that Spotfire added about $11 million in expense to the quarter, which was offset by an approximately $6.5 million decrease in expenses elsewhere.

One other item of note is that our pro forma tax rate has dropped by 2% to 35% for both Q3, Q4 and we expect so for fiscal '08 also. In addition, during Q3 we brought approximately 10 million shares at an average price of $8.39. We have about 115 million left in our buyback program. Year-to-date we've purchased over 25 million shares at an average price of $8.87.

I will now shift my comments to our forward-looking guidance for Q4. As Vivek said, we continue to be optimistic about our market opportunity and about our revenue upside potential in both the short and long term. However, it's only pragmatic that we consider how large a jump quarter-to-quarter is really supportable and be conservative in our outlook.

With that said, we expect total revenues to be in the range of $170 million to $180 million with license revenues in the range of $85 million to $95 million.

Non-GAAP EPS should range from $0.13 to $0.16 and GAAP EPS should range from $0.08 to $0.11. Implied in this guidance is an approximately $10 million to $11 million increase in operating expense mostly related to commission and bonus costs.

With that Vivek and I will be happy to take your questions.

Question And Answer

Operator

[Operator Instructions]. We'll go first to John Walsh with Citi.

John Walsh - Citigroup

Good afternoon. Have a... first, a margin question and the operating expenses that you just mentioned that went down on the core business by I think about $6.5 million. What was that related to?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

That was in a variety of areas John, but mostly sales and marketing.

John Walsh - Citigroup

So was it mostly in the marketing end, or were there sales programs that were pulled back on or just commissions to I assume would flow through, because of the slightly lower revenue?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

That's right. It was programs. It was... there was some decrease in non-quota headcount in sales as well as reduction in commissions. And then there was about a net decrease in G&A expense... sorry on the non-Spotfire side there was about $500,000 decrease in G&A expense.

John Walsh - Citigroup

Okay. And then given your hiring plans on the sales and marketing side that you talked about earlier in the call to add those quota-carrying reps. How should we think about margins for next year up, down, flat?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Well, I think we will give specific guidance on margins as we exit the year John because I think we'll also have a much better sense of how fast we are hiring those people as we finish Q4.

John Walsh - Citigroup

Okay. And then just a question on the Active Metrics side. Just I guess an update beta customers rollouts just any color that you can share with us on how that product is progressing and what milestones maybe we should look for going forward.

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Well I think the... so far we're fairly pleased with the way the early customer rollout has gone. I think as we have been saying all along we see the real opportunity being in '08 for the product once the version 2 releases out. So I think we continue to remain on track but there will be a pretty big push on our part to accelerate Active Metrics as we go into '08.

John Walsh - Citigroup

Okay, great. Thanks.

Vivek Ranadivé - Chairman and Chief Executive Officer

Thank you.

Operator

And we'll take our next question from Tim Klasell at Thomas Weisel.

Tim Klasell - Thomas Weisel Partners

Yes hi good afternoon everybody. First question is sort of on the large deal that slipped, I think Vivek you mentioned about $10 million worth of licenses slipped at the end of the quarter. Have you had a chance to close any of those so far in this quarter?

Vivek Ranadivé - Chairman and Chief Executive Officer

Yes we have closed about a third of that.

Tim Klasell - Thomas Weisel Partners

Okay, good. And then if I sort of do the math, if all those $10 million had closed and I take off $11 million in license, I come up with roughly speaking, just a little bit better than flat on the license line on the core TIBCO business. Can you give us an idea... I would think that growth in this market would be a little bit better than that. What are you thinking sort of longer term, what should be the growth in the core TIBCO business if you will?

Vivek Ranadivé - Chairman and Chief Executive Officer

The thing that we feel we have not done a good job of is expanding our sales organization. So if you look at the last few years, our revenues have grown 50% and our sales organization has remained largely flat. And we're already hitting the upper ends of... we're already at a higher quota level than just about any software company. So we really need to expand that sales organization. So, when we entered '07, we had 100 and change in sales guys. With additional hires, we hope to make over the next 15 months and also the addition of Spotfire sales people, we will have almost twice that many sales people when we exit '08. So we feel that the market opportunity is there and it's really going to be hard for us to grow without hiring sales people.

Tim Klasell - Thomas Weisel Partners

Okay. Fair enough. And then one of the reasons I have heard from management in the past of not hiring as quickly as that it was hard to find good sales people who would... and what are you going to do as you ramp up the sales force to make sure that the quality stays high and what changes do you plan on making?

C: Vivek Ranadivé: Well, a bunch of things. The first thing is we feel we have the right platform in place right now in terms of the leadership across the board and that leadership will obviously attract the right kind of sales people. But we'll also have a more tiered sales organization where right now our quotas at... are at $3 million, much of the industry is at half of that. So we'll kind of adjust and we won't need quite as many of the big game hunters. We'll need a smaller number than a larger number of the lower quota sales people. So those are the kinds of adjustments you are going to see. We are going to be very aggressive. As I said we hope to exit the year '08 that is with almost twice the number of sales people as we started this year with.

Tim Klasell - Thomas Weisel Partners

I got it. Thank you

Vivek Ranadivé - Chairman and Chief Executive Officer

Thank you.

Operator

And we'll take our next question from Bryan McGrath at Credit Suisse.

Bryan McGrath - Credit Suisse

Hey guys. With just over three months left in the year have you been able to get any kind of early read on what overall IT budgets are starting to kind of look like for next year?

Vivek Ranadivé - Chairman and Chief Executive Officer

Yes we... it's a very non-scientific read but we think it will be little bit higher than it was in '07.

Bryan McGrath - Credit Suisse

And then a couple of quick... I had trouble hearing you, did you say you're going to have 30 reps by the start of fiscal 2008?

Vivek Ranadivé - Chairman and Chief Executive Officer

No, what we said is that by the end of 2008 we hope to have added about 40 reps.

Bryan McGrath - Credit Suisse

Okay.

Vivek Ranadivé - Chairman and Chief Executive Officer

But then we also now have Spotfire sales people. So when we exit 2008 we hope to have almost 200 quota-carrying sales people. And when we started 2007 we just had... just over a 100.

Bryan McGrath - Credit Suisse

Okay, great. Thanks for the clarification.

Operator

We'll take our next question from Sterling Auty at JP Morgan.

Sterling Auty - JP Morgan

Hi, a couple of questions. In terms of margin side I am not looking for a specific margin range but as you think about the hiring in sales, is there going to be some sort of offset somewhere else so that you don't have the margin impact? Or do you expect to make the investment and have to wait until those sales reps ramp up before you feel the return on the margin side?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Well I think Sterling, our objective would be to not... if I can put it this way, at this point our hope would be to not have a big margin hit to hire. So in other words, you kind of offset with your investments elsewhere. I also think that you would expect that if you look out into '08 and that our business grows, you would expect there would be some hiring anyways. So the question is where are you focused your hiring? And I think on a relative basis, we are probably better staffed when it comes to the sales support side of the organization as opposed to the quota carrying. So you end up focusing more of the hiring budget exclusively on quota carrying. So you can... you can absorb some of it there just by shifting how you... the composition of your hiring within the sales organization.

Sterling Auty - JP Morgan

Okay. And then at this point where do you see the biggest opportunity to hire sales reps into either from a geographic or vertical industry perspective?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Well I mean, I don't know if we would necessarily say there is big variances geographically. I mean I think it's... it's kind of much the same in the geographies we are active in around the globe. I think that, that certainly we've got... in all of our core verticals we have also got opportunities to hire people there and I don't know if we have seen the hiring dynamics to be a whole lot different. I mean I think good people in any vertical or any geography are equally available and equally hard to find.

Sterling Auty - JP Morgan

Okay. And last question is, you mentioned government as one of the verticals that's weak. How much of that is possibly macro versus competitive? I think IBM had announced one SOA deal after the pre-announcement. Is there something that's changing in what the government is looking for either from a product or bundled product and service offering?

Vivek Ranadivé - Chairman and Chief Executive Officer

We don't see that. We just have... had a slow start in government, deals take longer. We've had some good successes there but we're not... it's not that we think are competitive today. It's more just our ability to get things done in a timely basis.

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

And I think Sterling I think there is a little bit of a macro issue with government depending on where you are selling because there is obviously... the government funding is obviously being concentrated more on kind of the material spend on the defense side. I think the intelligence side is still pretty strong but budgets aren't free flowing certainly.

Sterling Auty - JP Morgan

Okay. Thank you, guys.

Vivek Ranadivé - Chairman and Chief Executive Officer

Thank you.

Operator

We'll take our next question from John Difucci at Bear Stearns.

John Difucci - Bear Stearns

Thanks, thank you. Lots of question, I think of lot of people might be thinking about, given your exposure to financial services I mean, and you noted that you did have some weakness this quarter. Just curious maybe even both... actually two questions, for this quarter do you think it had more to do with as you say some execution issues? Or do you think you are starting to see some because we all know that there are some issues with financial services vertical? And then secondarily, when you talk to your customers because they are... it is the most important vertical to you, I am sure that you talk to them about their future. And at this point they are putting together their budgets for next year. Vivek, you said generally you expect IT budgets to be up, but for that particular vertical what's your sense going forward into '08?

Vivek Ranadivé - Chairman and Chief Executive Officer

Yes, firstly in terms of our poor performance it had to do with execution. I can't really point to an area that if that was more macro, it was more our own execution. In fact, some of the deals had slipped, one of them closed since that time. We are actually seeing quite a bit of strength in insurance and also in retail and private banking. So we don't expect that it will impact us that much. We are not seeing that kind of slowness.

John Difucci - Bear Stearns

Okay. And you are not seeing that slowness going forward either when you are talking to them?

Vivek Ranadivé - Chairman and Chief Executive Officer

No, we are not. Today I was on the phone with a couple of clients, and we shook hands on deals that were directly in financial services, would be the kind of firms that would have been impacted by this. And so again we are not seeing it. Murray, do you want to add anything?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

No I mean... you know again John, it could be that something else comes up by the end of the year in certain parts of financial services that we don't see today. But at this point, and particularly for us, because now we are kind of sufficiently diversified in financial services. As Vivek mentioned, it's not just the investment banking side, which I think conceivably you could think they are going to have more issues with budgets than other parts of the financial services sector. But so far we haven't had the indication of things are going to change.

John Difucci - Bear Stearns

Okay great. And just quick follow up to Sterling on the federal government anyway which I believe is where the weakness was for you last quarter. It's going to finish up its fiscal year in the next couple of days, and typically they try to close deals on their side in the next couple of days, or over the last couple of weeks. Have you seen a noticeable pick up at all there, or have deals just been pushed out even further?

Vivek Ranadivé - Chairman and Chief Executive Officer

So we saw deals that actually were pushed out. Have we seen...

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

I don't think yes for us in... no, I think the answer is no to your question. We did see some things pushed out and I don't think for us we have seen a particular pickup here right at the end.

John Difucci - Bear Stearns

Okay. Thank you.

Vivek Ranadivé - Chairman and Chief Executive Officer

Thank you.

Operator

And we'll take our next question from Alan Cooke with Merrill Lynch.

Alan Cooke - Merrill Lynch

reat thank you. Vivek you mentioned that of the deals that slipped from Q3 that you closed about a third so far. What's your confidence in closing the other two-thirds of the deal in Q4?

Vivek Ranadivé - Chairman and Chief Executive Officer

Well we think some of them will close in Q4, will all of them close... we think by Q1 90% plus will close.

Alan Cooke - Merrill Lynch

Okay.

Vivek Ranadivé - Chairman and Chief Executive Officer

Murray, do you have any further comments on that?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Well, yes, no...

Vivek Ranadivé - Chairman and Chief Executive Officer

We were shaking hands on the other deal that gets us pretty close to that number already. So I guess one could argue that we have closed... close to 100% of it if that happens.

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Yes, I think the big variability with closing slipped deals and we have seen this in the past. It is just that once a deal slips, I think there is a always new kind of issues that can creep into the timing. So as Vivek said, in over a kind of maybe more two quarter period we feel pretty confident about closing... getting those deals closed but less certain about 100% of those deals closing in Q4.

Alan Cooke - Merrill Lynch

Right, okay. Thanks. And with regards to the hiring of sales reps, are you looking to hire any of those additional sales reps in Q4? Are you going to wait until start of the fiscal year?

Vivek Ranadivé - Chairman and Chief Executive Officer

No, we will start it... we're going to hire some of them in Q4 as well.

Alan Cooke - Merrill Lynch

All right. And with regards to the Spotfire reps, of the 115 reps that you closed the quarter with how many of those were Spotfire?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

No, and that 115 number was just the... just for the kind of the infrastructure side of the business. So if you add in the 35 Spotfire reps, we're at 150 total reps closing out the quarter.

Alan Cooke - Merrill Lynch

Okay. And then you are looking to end '08 with 200 right? About 200, how many of those will be Spotfire?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

There will be... there will certainly be some mix in there. Vivek said about 40, that's… most of that is targeted at the core business but there is room again when we say exiting the year at 200, they have a 150 today, you add 40, you're at 90 so there is still room to kind of add 10 plus Spotfire reps.

Vivek Ranadivé - Chairman and Chief Executive Officer

So it's about 150 and 50 in our number.

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Yes.

Alan Cooke - Merrill Lynch

Okay, all right. Great. Thank you very much.

Vivek Ranadivé - Chairman and Chief Executive Officer

Thanks.

Operator

And we'll take our next question from Katherine Egbert with Jefferies.

Katherine Egbert - Jefferies & Co.

Hi good afternoon. I do have a question on back to the sales quotas. I probably heard you say that you weren't... didn't want to rely as much on the big elephant hunters and the quotas were $3 million each. Are you saying that you're going to eliminate some of those people? Or you're saying is in like start splitting sales coverage and reducing their quota. That was unclear to me.

Vivek Ranadivé - Chairman and Chief Executive Officer

We have had like $3 million quota for our sales people. We don't really have a two tiered organization. So what we are going to do is we are still going to have the big game hunters, but then we are going to have many more people with the lower quota. And we are going to hire more people to that as well. So no, we're not going to get rid of anyone, we're going to expand. And we're going to include the expansion to be at more of $1.5 million quota.

Katherine Egbert - Jefferies & Co.

And when do you expect your reps to carry Spotfire quota?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

I am sorry.

Katherine Egbert - Jefferies & Co.

Are you going to put a Spotfire quota on any of the reps, meaning on all the reps concerned [ph]?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Katherine, our plan is to still have reps really quota separately for Spotfire and the infrastructure side of the business. That's the current plan today.

Vivek Ranadivé - Chairman and Chief Executive Officer

And the lower quota reps are more... they will have more of a limited product orientation. So that it would include the Spotfire reps who will sell primarily Spotfire products.

Katherine Egbert - Jefferies & Co.

Okay, and then one more general question. The lightness of the August quarter and if you remember back, when you started to integrate staff where you also had had some execution snafus. I mean have you re-visited sort of your methodology for integrating acquisitions, you think would cause you to continue to focus on the core business maybe a little better?

Vivek Ranadivé - Chairman and Chief Executive Officer

Yes, Katherine, it is true that anytime you buy a company then there is some potential for distraction. And there are obviously increased costs for some period of time, but we don't think... we did do a lot this year. We changed our wholesale's leadership structure and that probably was responsible for execution more than anything else. And so, even before we can start hiring rapidly new sales people we need to have the long-term leadership in place which we do.

Katherine Egbert - Jefferies & Co.

Okay, thank you.

Vivek Ranadivé - Chairman and Chief Executive Officer

Thank you.

Operator

I'll take your next question from Terry Tillman at SunTrust Robinson Humphrey.

Terry Tillman - SunTrust Robinson Humphrey

Yes, thanks for taking my questions. Vivek first question just relates to I think the long-term growth profile that you guys were targeting was 10% to 15%. So that's clearly not happening this year. The way you are talking about is the idea of adding more sales reps. You just need more feet on the street and going after OEM channels those are not new term events or even intermediate term events probably they are going to drive improved license growth. So as we look in there FY '08, it's not a guidance question. But I mean, couldn't that still be a transition year then, in terms of kind of jump starting that license growth?

Vivek Ranadivé - Chairman and Chief Executive Officer

Well, we think that we already have Spotfire in and it's already out there performing. So some of that is coming through that, and we think... we continue to maintain that over time the 10% to 15% growth that we have been advocating we'll achieve that. So that's achievable from our perspective. So we don't see that. What we are saying is look, we are going to be doubling our sales force when we enter 2009 versus what we had when we entered 2007. So... but it's being done over a 15 month period. So it's still fairly gradual in that sense.

Terry Tillman - SunTrust Robinson Humphrey

Okay. I guess thought as it relates to Spotfire, though I had a series of small questions. Was there any kind of large deal benefit million dollar plus deals any thing that stood out on that front? And then maybe are you starting to get any benefit from that sales force to having doors open to them so to speak by the TIBCO sales reps within these 2000 plus customers install base at TIBCO?

Vivek Ranadivé - Chairman and Chief Executive Officer

Yes I think the answer is yes to both. I think it's... we did have a deal over a $1million.

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

We had a deal over $1 million.

Vivek Ranadivé - Chairman and Chief Executive Officer

One deal over a $1million and absolutely we'd see great synergies from the reach of the TIBCO organization.

Terry Tillman - SunTrust Robinson Humphrey

Okay. And just my final question relates to I mean you are highlighting... I mean Spotfire being really increasingly important to growth, but I guess Murray was saying that you are not going to provide any kind of breakups. I mean how are we going to discern what's going on with the Spotfire business? Is there any other metrics you are going to give us or we are just going to have to make guesses in terms of the traditional TIBCO businesses versus the Spotfire business?

Vivek Ranadivé - Chairman and Chief Executive Officer

Well from our perspective it's extension of our business optimization, which is actually a rapidly growing area for us, and yes Murray had...

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Yes well now, I mean again it seemed... business optimization is a very small category for us today. And so you lump Spotfire into that, and we'll continue to report obviously and track on that segment. And that seems as we said seems to be the natural categorization you put the higher growth Spotfire together with the higher growth, complementary elements that we have there today.

Terry Tillman - SunTrust Robinson Humphrey

But into '08 your... the theme is you will continue with that breakout with the three businesses there?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Yes.

Terry Tillman - SunTrust Robinson Humphrey

Okay. Thank you.

Vivek Ranadivé - Chairman and Chief Executive Officer

Thank you.

Operator

Take our next question from Yun Kim at Pacific Growth.

Yun Kim - Pacific Growth Equities

You mentioned that just weakness in government vertical and then also financial services vertical in Q3 but it also looks like telco vertical came in somewhat weaker than usual. Was that what you were expecting in the quarter? And how's the telco vertical looking in Q4?

Vivek Ranadivé - Chairman and Chief Executive Officer

Well there was a deal that slipped... there was a telco deal that we had hoped to close in Q3, that slipped. So that is some truth to what you say.

Yun Kim - Pacific Growth Equities

Has that deal closed since the quarter ended or is that?

Vivek Ranadivé - Chairman and Chief Executive Officer

It has not. It has not.

Yun Kim - Pacific Growth Equities

Okay. And can you just overall just that we haven't talked about this in a few quarters but just qualitatively talk about the relationship with the larger system integrators, whether that's been improving or kind of steady and whether or not the launch of Active Metrics, helps you improve your relationship with them and any update in terms of by any plans to train some integrators on Active Metrics or are it going to be largely your consulting organization leaving the charge initially?

Vivek Ranadivé - Chairman and Chief Executive Officer

No we continue to expand on our relationship with both the domestic guys like EDS as well as with the offshore guys particularly people like Infosys. They continue to train larger numbers of people on our software. They continue to bring us increasing amounts of business. So that's a... from our perspective that's going well.

Yun Kim - Pacific Growth Equities

So are you so far happy with the progress that you are making with the system integrator channel so far?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

So far yes. I mean we continue to be... we continue to believe we can do more with those channels but we are happy with progress so far yes.

Yun Kim - Pacific Growth Equities

Okay, great, thank you very much.

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Thank you.

Operator

And we'll take our final question from Derek Bingham at Goldman Sachs.

Derek Bingham - Goldman Sachs

Hi gentlemen. Question on buybacks and M&A. Do you pause in the near term on both those fronts given where you cash is now?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

I think it is natural to assume we are going to be more cautious on both fronts just given how impressive we have been in the last couple of quarters.

Derek Bingham - Goldman Sachs

Okay. And I know when you talked about making capital structure changes in the past, no interest in taking on debt at this point or is that on the table?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Well I think that's certainly possible as we... particularly as we get larger and we look at financing say acquisitions, that could be possible.

Derek Bingham - Goldman Sachs

Okay. Of the 65 new customer adds you cited, was Spotfire included in there?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Yes.

Derek Bingham - Goldman Sachs

And could you give a sense for what they contributed to that amount?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

They contributed quite a lot, because there was a lot of Spotfire customers. I actually Derek I am sorry at the top of my head I forget the exact breakdown, but it was I think at least half of that number.

Derek Bingham - Goldman Sachs

Okay. And then just my last one on the BPM business, you have given the breakdown you gave it looked like that was an area that had some trouble in the quarter. Is there anything new going on in that market?

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

No I think that was a bit peculiar to the quarter. It was not entirely unexpected that the BPM core... Q3 was going to be little lighter for BPM. So I don't think from our perspective it doesn't appear that there was anything really fundamental going on, the general outlook is still good.

Derek Bingham - Goldman Sachs

Okay. Thanks very much for taking my questions.

Murray Rode - Chief Financial Officer and Executive Vice President, Strategic Operations

Sure.

Vivek Ranadivé - Chairman and Chief Executive Officer

Okay. Well thank you. We will conclude this call. Thanks to all of you and good bye.

Operator

Thanks for joining us. We will now conclude TIBCO's Q3 2007 earnings call. You may now disconnect.

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