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Jive Software (NASDAQ:JIVE)

Q2 2012 Earnings Call

August 07, 2012 5:00 pm ET

Executives

Bryan J. Leblanc - Chief Financial Officer and Principal Accounting Officer

Anthony Zingale - Chairman and Chief Executive Officer

Analysts

Adam H. Holt - Morgan Stanley, Research Division

Heather Bellini - Goldman Sachs Group Inc., Research Division

Karl Keirstead - BMO Capital Markets U.S.

Walter H. Pritchard - Citigroup Inc, Research Division

Brent Thill - UBS Investment Bank, Research Division

Michael B. Nemeroff - Crédit Suisse AG, Research Division

Jason Maynard - Wells Fargo Securities, LLC, Research Division

Chaitanya Yaramada - Robert W. Baird & Co. Incorporated, Research Division

Michael Huang - Needham & Company, LLC, Research Division

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Jive Software Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Bryan Leblanc, Chief Financial Officer. Please go ahead, sir.

Bryan J. Leblanc

Thank you. Good afternoon, and welcome to Jive Software Second Quarter 2012 Earnings Call. We will be discussing the results announced in our press release issued after the close of market today. As the operator mentioned, I am Bryan Leblanc, Chief Financial Officer of Jive; and with me on the call today is Tony Zingale, Jive's Chief Executive Officer.

During the call, we will make statements related to our business that are considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be reflected upon as representing our views of any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our Forms 10-Q and 10-K, which are on file with the SEC.

Also during the course of today's call, we will refer to certain non-GAAP financial measures. This is -- there's a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued after the close of market today, which is located on our website at www.jivesoftware.com. With that, let me turn the call over to Tony, and I'll come back at the end to provide some details regarding our second quarter results as well as our guidance for 2012. Tony?

Anthony Zingale

Thanks, Bryan, and thanks to everyone for joining us today to review our second quarter results, which were at the high end of the range for both revenue and profitability. The second quarter was an important one in further establishing Jive as the clear leader in the social business market. We closed million dollar deals with new customers as well as 7-figure expansions with existing customers. We accelerated new customer additions with the launch of Try Jive, and we extended what we believe is a multi-year technology lead with the delivery of our next generation platform and a series of game-changing technologies.

We see that enterprises are looking for finely tuned social business solutions to address their business challenges, and they want a comprehensive platform. This is a natural part of the market's evolution, and Jive is leading the way in change in both regards. It is also abundantly clear that overall awareness is growing dramatically relative to the strategic importance of social business and how it is transforming the way work gets done. This is very exciting from our perspective, as Jive is the company setting the agenda of the social business market. And as such, we believe that we are better positioned than any vendor to benefit from increased market awareness.

Let's take a look at our financial results for the quarter. Revenue was $27 million, up 51% year-over-year and at the high end of our guidance range. Total billings, which we define as our revenue plus the change in deferred revenue, were $33.7 million and grew 41% year-over-year. Gross margin continued to improve for the fifth consecutive quarter. Cash flow from operations was a positive $1.1 million, and non-GAAP loss per share of $0.11 was at the favorable end of our guidance.

In the face of an economic environment that grew more challenging compared to recent quarters, it was a solid performance. Social business is a top strategic priority for enterprises, and Jive continues to provide the most comprehensive social business platform, leveraging our decade of experience in this market. As enterprises continue to retool their IT environments to better support their business needs, we believe that Jive offers the only solution, which enables customers to take advantage of the 4 technology mega trends driving social business adoption today: social, cloud, mobile and big data. We aren't the only ones that feel this way. Customers continue to vote with their wallets each quarter based on the value they see when they use Jive to dramatically change their business.

During the second quarter, we add another healthy mix of new customer wins and up-sell activity for both internal and external communities that spanned a number of different verticals and industries, including insurance, financial services, technology and health care, as well as government organizations. We signed deals with blue-chip customers, including Comcast, Cameron International, Australia Department of Defense, Eli Lilly, Freescale Semiconductor, Groupon, Savills, Shutterfly, one of the global big 4 independent accounting firms and one of the largest federal agencies, among others.

Companies in every vertical market need to have a social business strategy if they don't already have one. This is truly the definition of a horizontal market opportunity. As an example, during the second quarter, our 4 largest deals were each in a different vertical, including insurance, financial services, government and business services. We had an initial order with $1 million or greater in annual contract value, an up-sell order with $1 million or greater in annual contract value and multiyear customer expansions with total contract value in the 7-figure range. Recall that last quarter, we did not have any transactions in this size range. We accomplished this during the second quarter despite the fact that today's economic environment is naturally making closure on some enterprise-wide transactions much more challenging. A great example of expanding customer adoption and rapid time to value is our relationship with one of the global big 4 independent accounting firms. After making a significant upfront purchase in the fourth quarter of 2011, they experienced tremendous viral adoption and came back during the second quarter to make another meaningful multiyear follow-on purchase. They are now moving forward with a deployment that will make Jive the standard way for more than 100,000 employees worldwide to collaborate and get their work done.

Our second quarter launch of Try Jive was focused on making it easier than ever before for the mass market to experience Jive's social business platform. And we've been very pleased with the market response thus far. Within seconds of entering an email address, individuals and small teams of employees can begin to trial the leading social business platform in the market, and do so in a prescriptive way with the benefit of automated online guidance, as well as live Jive coaches to help ensure success with the trial. Try Jive is not a lightweight product with only some of our capabilities. We thought it was important to give any potential customer access to our full platform and its most popular add-ons like mobile, as well as our completely unique Microsoft Outlook and Office connections, as well as Jive Anywhere.

During the first 90 days of Try Jive, we saw strong uptake of Try Jive networks being created. And it was a major contributor to the sequential increase of approximately 50% with respect to the number of gross new customer additions in the quarter, from approximately 40 last quarter to 60-plus in the second quarter. We are seeing customer interest across a wide variety of verticals and customer sizes, including a significant volume of leads coming in from large enterprises. This is important as one of the strategic priorities for Try Jive is to sync the market with departmental level deployments at larger organizations, with the goal of accelerating the sales cycle for larger enterprise opportunities down the road.

Let me give you an example of a Try Jive win in the quarter, which was for over $100,000 annually and, obviously, had a very rapid sales cycle. A division of Trustmark, which is a multibillion dollar health insurer, was looking at how they could move their company forward with social business and wanted a very easy to adopt on-ramp to test the waters. They looked at both Yammer as well as Jive, and after experiencing a Try Jive network in less than 30 days, they concluded that Jive was the clear choice. Interestingly, Jive Anywhere, which is one of the game-changing technologies we launched during the second quarter, was highly differentiated from anything they saw on the market, and it was one of the reasons Jive was selected as their social business platform. Having sat through many customer demos in the last few months, I can tell you firsthand that Jive Anywhere resonates strongly with a major customer pain point, instantly bringing ERP, CRM and other web-based applications into the overall integrated social environment.

While we announced more innovations in social business last quarter compared to what other vendors have announced in their history, we have more high value-add innovations on the horizon. During the third quarter, Jive will launch external groups in the Jive cloud, where we will deliver both the functionality and the robust security features that enable companies to extend their internal Jive instance out to external parties such as customers and partners. In doing so, external contributors will have the ability to benefit from a complete Jive experience, including blogging, discussions, document and idea-sharing, as well as mobile access. This extension of the Jive social business platform will enable companies to take their service levels, customer intimacy and sales channel communications to the next level. At the same time, this has the potential to further accelerate the viral awareness and adoption of Jive as external parties are introduced to the power of Jive and realize the ways they can improve their own business processes by adopting social business.

In addition, I mentioned at the start, customers are looking for finely tuned solutions to meet their needs. We have already released package solutions for customer service and the social intranet. And we have expanded our package solutions to include Jive for Marketing teams, which launched just today, and is designed to optimize key marketing initiatives including sales communications, efficient agency collaboration and tighter connections with distribution channels. Furthermore, we are in the early stages of further enhancing the power of Try Jive by introducing specific departmental experiences that help small teams to not only get started quickly but also have a very tailored experience specific to the business challenges of their department or function.

When combined with our next generation platform, unique big data capabilities, bozol [ph] search and Jive Anywhere, to name just a few. Our latest innovations are further proof points that Jive is driving the technology agenda for the entire social business market. The bottom line is we believe we have a multiyear technology lead over the competition, and this is very important as the competitive landscape continues to evolve, most notably with Microsoft's $1.2 billion acquisition of Yammer, which was a smaller privately held competitor in the social business market.

We think this is a huge validation of the potential size of the social business market, as well as the strategic importance that it is gaining in the enterprise. For the last 5 years, customers have heard claims from Microsoft that SharePoint was a social business platform. This was far from the truth, and many customers spent millions of dollars finding this out the hard way. Their acquisition of Yammer is further proof that SharePoint is not a social business platform. Unfortunately, for Microsoft, Yammer is essentially a lightweight activity stream with micro-blogging capabilities. It is not a comprehensive social business platform. They were years away from delivering what we had in Jive 5, and even further away from the significant advancements we made in our next-generation cloud platform launched during the second quarter of this year.

When customers truly get serious about changing the way they get work done, they know they need to move to a more complete social business platform. For example, Parsons Corporation is a 12,000-person engineering and construction company that had previously attempted to use Yammer for their social business needs. After quickly seeing adoption and usage plateau with Yammer, Parsons turned to Jive to take their social business collaboration efforts to the next level. The ability to quickly collaborate across the enterprise and various file types, cut through the noise of social and bring content that is relevant to the user led to significant increases in user adoption and activity. As the Parsons CIO commented publicly, "There's a wild factor with Jive. You can see everything better than with Yammer." Microsoft is not the first, and they will not be the last legacy enterprise software vendor looking to enter the social business market. As these vendors take years to figure out their strategy and try to deliver improved products, customers will continue to move fast, retooling their businesses around social, mobile, big data and cloud, and we will continue to do what we've always done, push the pace of innovation and remain the trendsetter for the social business market. In order to achieve our long-term goals, it is important that Jive continues to attract seasoned technology executives, and I am very excited to announce that we have done just that with the addition of Jay Larson in a newly created role of President of Worldwide Field Operations. In this new role, Jay will be responsible for all Jive's customer-facing functions globally. Having personally worked with Jay in the past, I can safely say that with his background and expertise, he is the perfect fit to help us scale from the $100 million-plus annual revenue run rate to our longer-term goal of becoming the first social business company to reach $1 billion in revenue. Jay has over 25 years of experience in the software industry, most recently running worldwide field operations for 2 of the most successful companies in the SaaS and software sectors: SuccessFactors and Mercury Interactive. He joins us from SuccessFactors, where revenue grew rapidly from approximately $100 million to over $350 million during his tenure and leading up to its acquisition by SAP late last year. During his leadership at Mercury Interactive, their sales organization grew to more than 1,100 professionals, and revenue grew from $300 million to over $1 billion. We very much look forward to Jay's contributions as he takes Jive's field operations to the next level.

To summarize, we believe that Jive has the products, the vision, the management team and the business momentum to become one of the main beneficiaries of the multibillion dollar social business market opportunity in front of us. With that, let me turn the call back over to Bryan Leblanc.

Bryan J. Leblanc

Thanks, Tony. Jive delivered a solid performance for the second quarter, which was at the high end of both our revenue and profitability guidance. Total revenue was $27 million, up 51% year-over-year. Breaking this down further, Product revenue, which is the fastest-growing segment of our revenue, was $23.9 million, an increase of 59%, while Professional Services revenue was $3 million, up 7%.

Services revenue was down sequentially from $3.6 million due in part to the fact that the continued expansion of our out-of-the-box functionality and the introduction of package solutions is lowering the requirement for Professional Services. In addition, there are less services required as part of our public cloud deployments, which are rapidly growing as a part of our overall mix. As Tony mentioned earlier, our total billings were $33.7 million for the second quarter, which represented growth of 41% on a year-over-year basis.

Let me turn to the supplemental metrics that we share on a quarterly basis. We ended the second quarter with 707 customers compared to 676 customers at the end of last quarter and 635 in the year ago period. The addition of 31 net new customers represents a significant increase from the low double digit range in recent quarters. Our net new customer account continues to be impacted by churn among our smaller customers who are using legacy products we no longer market or support. As a reminder, these customers represent a tiny fraction of our overall revenue. This low-end customer churn is likely to continue for the remainder of 2012, but we do expect net customer additions to continue growing in the second half as Try Jive continues to ramp. Our dollar renewal rates for customers that spend over $50,000 annually remains above 90%, excluding up-sells, and over 110%, including up-sells.

In terms of the mix of our business, internally focused communities represented 64% of our Product revenue for the quarter, and externally focused communities represent the remaining 36%. This compares to a 53%-43% mix, respectively, in the second quarter of last year.

With respect to how customers are deploying our social business platform, 63% of our product revenue for the quarter related to public cloud deployments and the remaining 37% related to private cloud deployments. This compares to a 60%-40% mix, respectively, for the second quarter of last year. It's interesting to note that of the 60-plus gross customer additions in the second quarter, less than 5 chose to deploy Jive in a private cloud environment. We anticipate that our mix of business will continue to shift towards public cloud deployments as Try Jive gains additional momentum. That said, we remain committed to our private cloud offering, and we believe it's a key differentiator for Jive in highly regulated markets, which unique requirements currently do not permit private cloud deployments.

From a geographic perspective, the U.S. generated $20.9 million of revenue for the second quarter, representing 77% of our total revenue and an increase of 48% on a year-over-year basis. International generated $6.1 million of revenue, representing the remaining 23% of our total revenue and an increase of 60% on a year-over-year basis. While overall demand in the second quarter was strong, the business environment in Europe was, in particular, was more challenging, which should not be a surprise based on the economic news coming out of that region.

Moving down the P&L. Our non-GAAP gross profit was $17.2 million, representing year-over-year growth of 67% and a non-GAAP gross margin of 64%. We are making good progress in migrating existing customers to our new data center, and we remain on track to complete this process by the first half of 2013.

As we stated previously, we believe that completing our data center migration will enable gross margin expansion to the 70% range over the next few years. Our gross margin is also being positively impacted by our revenue mix shift towards subscription, as our investments in our solutions have produced much more of an out-of-the-box cloud platform that requires less customization.

Moving to non-GAAP operating expenses for the second quarter. Sales and marketing expenses were $13.7 million or 51% of revenues, which is down from 54% of revenue during the same period last year. Our second quarter sales and marketing spend included incremental sales and marketing investments surrounding our successful launch of Try Jive in the quarter, in addition to our continued investment in the sales organization to capture market share. R&D expenses were $7.6 million or 28% of revenues, which is down from 35% of revenues during the same period last year. We continue to assume -- invest significantly in our products and we expect to leverage those investments as we gain greater economies of scale. G&A expenses were $2.6 million or 10% of revenues compared to 15% of revenue during the same period last year.

Non-GAAP operating loss was $6.7 million for the quarter, which was at the favorable end in of our $6.7 million to $7.5 million guidance range. It was also an improvement from a non-GAAP operating loss of $8.3 million in the year ago period. Non-GAAP net loss per share was $0.11 for the quarter based on 61.9 million shares. This was also at the favorable end of our guidance and a loss of $0.11 to $0.12 a share compared to a non-GAAP net loss of $0.37 based on 23.5 million shares in the year ago period.

On a GAAP basis for the second quarter of 2012, gross profit was $16 million, operating loss was $11.4 million, net loss per share was $0.19 based on 61.9 million shares. Headcount ended the quarter at 462 regular employees, up from 439 at the end of Q1. The growth in headcount was concentrated in development and customer-facing roles.

Moving over to the balance sheet. We ended the quarter with cash and cash equivalents and marketable securities of $176.5 million, a slight decrease from $178.1 million at the end of last quarter. From a cash flow perspective, we generated $1.1 million in cash from operations for the second quarter. We invested $2.5 million in capital expenditures, leading to a negative $1.4 million and free cash flow, which is consistent with the second quarter of 2011.

For the first 6 months of 2012, free cash flow was a negative $2.7 million, an improvement from negative $4.2 million for the comparable period in 2011. Total deferred revenue was $87.5 million at the end of Q2, up 49% from Q2 '11 and 8% sequentially. Short-term deferred revenue was $71.5 million, an increase of 55% from the end of the second quarter of 2011 and up 7% compared to the end of last quarter. Long-term deferred revenue was $16 million at quarter end, an increase compared to $12.7 million at the end of the second quarter of 2011 and an increase of $14.2 million from the end of last quarter -- an increase from $14.2 million. The growth of our deferred revenue was driven by a combination of new customer wins, expansion with existing customers and subscription renewals, including some that occurred prior to the end of the actual renewal date, partially offset by lower Professional Services billings that I referenced earlier. As it relates to our renewals, it's worth pointing out that last week ServiceSource International announced Jive had recently become a customer of theirs. It's been one of our initiatives to continually improve and optimize our customer renewal process, and we believe that ServiceSource is the perfect best-in-class partner to help Jive take its renewals management process to the next level.

Let me finish with some thoughts regarding our financial outlook, starting with the full year. While we are mindful of the increased volatility in the macro environment, we remain comfortable with our previous revenue guidance of $110 million to $113.5 million, or growth of 42% to 47%. In addition, it's worth pointing out that we expect our services revenue will be approximately $1 million to $2 million lower for the full year as compared to our previous assumption. This is due to the positive result of having solutions with greater out-of-the-box capabilities, as well as the increasing mix of public cloud deployments that I referenced earlier. Our full year revenue guidance also implies, therefore, that our subscription revenue is now expected to be higher versus the prior expectation that our total revenue guidance was based on.

From a profitability perspective, we are also reiterating our prior guidance for non-GAAP loss from operations of $22 million to $24 million and our non-GAAP net loss per share between $0.38 and $0.42 based on 62.2 million shares.

We continue to expect free cash flow of negative $5 million to negative $7 million for the full year 2012, which is a meaningful improvement from the negative $19 million in 2011. As it relates to the third quarter, we are targeting total revenue of $28 million to $29 million. From a revenue mix perspective, we expect our 3Q Services revenue to be in the approximate range of the 2Q performance. We expect a non-GAAP loss from operations of $6 million to $7 million, leading to a third quarter non-GAAP net loss per share of $0.10 to $0.12 based on 62.3 million shares. In closing, Jive delivered strong revenue growth in the first half of 2012, and we are reiterating our expectation for full year revenue growth from the low to high 40% range for the full year. This is significant in light of the current macro environment and speaks to the momentum of social business in the market, and Jive in particular. Having also worked with Jay Larson at Mercury Interactive in the past, I share my enthusiasm in having him on board to help Jive capitalize on its opportunity to become one of the long-term winners in the multibillion-dollar social business market. With that, we'd be happy to take your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question, we'll hear from Adam Holt with Morgan Stanley.

Adam H. Holt - Morgan Stanley, Research Division

You both referenced some softness in Europe in the quarter. I was just hoping to drill into that a little bit. We obviously heard that from a bunch of our companies this quarter. What did you see? Did that imply that Europe was different than your expectations going in, and what are some of the assumptions that you've taken into the guidance for Q3?

Anthony Zingale

Adam, this is Tony. Overall, from a macro perspective, demand remained strong around the world. There's no question about that. And like you referenced, it's probably not a surprise that we saw some softness in the European part of our business, and it's not clear whether or not that continues going forward. But it's just a piece of the overall puzzle. In addition to that, back to the macro, there are certainly situations where there were additional signatures required on the larger transactions that we mentioned and, particularly, for those in Europe as companies further evaluated and scrutinized capital expenditures of any kind. All things considered, though, we did close several 7-figure transactions with new customers, existing customers. We're real happy with the 30-plus net new customers that we added, the Try Jive landscape, although still early, only 90 days in at the end of June, we are very satisfied with how that was performing against the objective that we laid out. And while we look ahead, and we maintained our outlook for 2012, as Bryan referenced several times, the adoption of the cloud-based solutions more and more and the package solutions that are more out-of-the-box from Jive, are certainly having an impact on our services revenues, which overall is a good thing, because it drives more product revenue for the company, but I think you see that represented in our guidance that Bryan articulated. Overall, we feel good about the business momentum, but we certainly had some macro perspective impact us.

Adam H. Holt - Morgan Stanley, Research Division

Perfect. And then just a follow-up on that services fees, it sounds like the services impact hit both revenue as well as deferred revenue. What was the impact on deferred revenue, or what you suggest the impact of the tweak in Services in the second quarter was relative to your expectations?

Bryan J. Leblanc

Yes, Adam, this is Bryan. We don't give specific guidance on kind of the elements of billings, but, obviously, you're right to point out that was a part of it. You can see, obviously, in the Services revenue line quarter-on-quarter, you can see some of the impact of that. And, obviously, the piece that we saw the biggest impact from was both bill and revenue in the quarter itself. So without giving you specific guidance just point you to kind of that level of sequential decline would be the thing to take into account there.

Adam H. Holt - Morgan Stanley, Research Division

And just lastly, what, if any, impact did currency play in the quarter?

Bryan J. Leblanc

Yes, no real material impact from currency.

Operator

And the next, we'll move to Heather Bellini with Goldman Sachs.

Heather Bellini - Goldman Sachs Group Inc., Research Division

I had 2 quick questions. One, if you could just talk a little bit about the ramp in sales headcount so far this year, and kind of what you're seeing from a productivity standpoint, especially given your comments on the macro side. And then secondarily, if you could talk about ASP trends in the quarter for new customers in particular, but also for renewals, if you were to bucket those for us.

Bryan J. Leblanc

Sure. So Heather, this is Bryan. We don't, obviously, comment as we haven't on prior calls around the specific makeup of the sales force. But we do continue to add to that group, and we have, sequentially, in each of the quarters going back. And certainly on the sales productivity side, it's in aggregate. I think it's again that's something that we track, and we're relatively pleased with how these guys are performing. You mentioned the macro kind of headwinds. I think if you were to look at the impact of the Europe macro, obviously, that's an area where that's going to impact to the extent it's impacting billings, it's going to impact productivity. But in general, we're pleased with the way the sales force is ramping up, and we've been on the same plan all year, and we continue to go there. Tony, hit the rest of that.

Anthony Zingale

Yes, and one more point around that. Clearly, back to the macro, with the introduction of Try Jive in the quarter, we now have the ability to not just attack the larger deals, not only 7-figure deals, but deals that are in the mid-6 figures as well, which is something that we've done repeatedly from a up-sell point of view as well as new customer point of view. And as Try Jive has come to market, obviously, the goals of Try Jive were to build additional pipeline and plant seeds departmentally, which we're very good at, then converting from an up-sell point of view. But also to try to provide some balance to our expanded sales force ramp that Bryan talked about during the year to give them more to work with in the field. Not just the large platform sales within the enterprise, but now at Try Jive vehicle, package solutions, cloud-based offerings, as well as the traditional on-premise or private cloud offerings. As far as that relates to average selling prices, we really look at it on the aggregate over the course of the year. And while we have penetrated with Try Jive, some smaller instances to get started, albeit some in larger enterprises, which was the goal, we did see some penetration into some smaller and medium-sized businesses for the first time. And we're not turning any of that business away. We hope that we will continue to ramp up not only inside smaller accounts rather than the large-scale global enterprises as we attack with Try Jive and give our sales force more in their portfolio to work with on a global basis. So we don't comment on average selling prices, and we will certainly do that as we finish up the year in aggregates, because there's ebbs and flows every quarter. And it's been further, if you will, added additional variable with respect to Try Jive, which is certainly a smaller average sales price in our traditional initial sale that we would do inside a large enterprise.

Heather Bellini - Goldman Sachs Group Inc., Research Division

And then I just had one follow-up, if you don't mind. Bryan, you mentioned -- you commented on churn, and obviously, we know that your prior customers are a very small percentage of the revenue base. But is it fair to assume that the term level has stayed relatively stable from that? It has been on par with what you've seen in the prior few quarters for that customer base that kind of were on you a long time ago?

Bryan J. Leblanc

Yes, absolutely. I think the big news in the quarter, obviously, is the record number of gross new customers on the net side, it's pretty consistent with what we've seen in the last couple of quarters.

Operator

And next, we'll move to Karl Keirstead with BMO Capital Markets.

Karl Keirstead - BMO Capital Markets U.S.

I've got 2 questions. The first one, Tony, I'd just like to talk about Jay Larson for a sec. I knew him from my SuccessFactors coverage days, and you're right, he's very well regarded, and I was hoping you could put his hiring in context. Is it that you were being opportunistic, say, he was a free agent, and you got lucky? Or were you looking to, given that sales' cycles on the bigger deals are getting a little elongated, maybe the sales process is changing given the macro environment, you felt like Jive needed a different skill set given the environment? Maybe you could give a little color.

Anthony Zingale

Yes. For those of you on the call I had the opportunity to work with Jay Larson at Mercury Interactive when we doubled the size of the company. And clearly, he did that at SuccessFactors as you witnessed very well, Karl. Jay is a seasoned field operations executive, he is much more than a sales executive. And the rationale behind bringing Jay into the company certainly had to do something with timing, the moons and the stars aligned as he had been acquired by SAP. He was looking at his next opportunity. I was looking at how do we scale Jive from the $100 million-plus revenue run rate that we're currently operating at, how do we take it to the next level? And it's much more than the enterprise sales campaigns. Certainly those, as we just talked about with Adam, have become a little bit more challenging in the face of some of this macro, but that's temporary. Overall, we're looking to leverage his skills as we expand internationally. When we went public at the end of last year, we talked about investing in international expansion in Asia and South America, as well as further in the EMEA region, as well as in the United States. We talked about investing in strategic accounts. We talked about investing in Try Jive and the whole, multiple levels of sales model, and the interaction that takes place between the telesales group and the field sales organization. And then lastly, leveraging the ecosystem of partners on a global basis. So it's all of those aspects, while still running the existing sales machine to the fullest. And it's really additive more than a change, if anything, such that we can scale Jive to the next level. And as we've always said, Karl, it's about taking Jive to be the next great enterprise software company. And if you're going to build a billion dollar business, you need executives like Jay Larson to do it quick.

Karl Keirstead - BMO Capital Markets U.S.

Good, Tony. And maybe my follow-up can be for Bryan. Bryan, one of the metrics that sticks out to me from your comments is that the vast majority of the net customer ads went with the cloud-hosted version. The vast majority. And I'm wondering if you could put a little context around that. Did anything change in terms of the demand backdrop that made the cloud-hosted version more appealing or was it that the Jive guys were just pushing that hosting option a little bit more this quarter, or was it the impact of Try Jive? Maybe some color there.

Bryan J. Leblanc

Right. So I think you're right to point that out. It is absolutely what we intended to say. There's a tremendous value in being able to get up and on and use the product in the cloud environment much quicker. And we obviously -- we've been seeing this now as a shift, with the fact that we now have the full functionality of Jive cloud out along with Try Jive. I think what's happening is sales cycles are moving quickly there. People don't have to wait for a long POC with a sandbox and all the things that go into the heavy enterprise selling model when they can get up on the cloud. The fact that we still sell a few of these on premise speaks to the fact that there are times when data security and data privacy trumps that, but in general, CIOs are getting it. And to the extent that they are, they're moving right in our sweet spot, because that's exactly where we put all the innovations in the last couple of releases.

Operator

And next, we'll move on to Walter Pritchard with Citi.

Walter H. Pritchard - Citigroup Inc, Research Division

Tony, wondering if you could talk a bit about your address from the consolidation, you talked about Microsoft, their prior attempts and so forth in the space. I'm wondering with maybe half a quarter where you have the deal, the Yammer-Microsoft deal announced, what impact did that have on customers who are sort of wane off, moving off of SharePoint versus sticking with it? And how did that impact sales cycles?

Anthony Zingale

Yes, from a positive point of view, it certainly raised the awareness in terms of the strategic nature of requiring a social business platform in the enterprise. But to the point that I referenced in my prepared remarks, SharePoint 2007, SharePoint 2010 and the fact that the beta version of SharePoint 2013 was already in the market, it was pretty clear that, that was not the social platform that businesses were requiring. SharePoint is very well rooted in IT, where it is a comprehensive and fully funded, both from a capital expense point of view as well as a headcount point of view, content management system. It's great for that. It is not a social platform that the business functions inside most large enterprises are running to, to adopt. So when the Yammer acquisition was announced, there was a tremendous amount of media attention. We took full advantage of it in the marketplace. We had a number of Yammer customers. We highlighted 2 of them in the prepared remarks that came our way during the quarter. One of which we're able to close in less than 30 days in excess of $100,000 that had been with Yammer Network for a period of time, that was not meaningful. So I think Forrester Research analysis that comes out that characterizes Yammer as simply an activity stream that's good for micro-blogging will bear out in the marketplace. And knowledgeable social buyers in the enterprise are going to figure out very fast that if they're looking for the comprehensive platform, they need to look at the fully featured capabilities of Jive and not simply slapping an activity stream for free on top of a content management system and hoping that's the answer.

Walter H. Pritchard - Citigroup Inc, Research Division

And then, Bryan, just a question for you on the long-term deferred, you had a pretty strong quarter there. You mentioned early renewals during the quarter. Can you just walk us through which drivers of that metric is on the balance sheet?

Bryan J. Leblanc

Sure. Well, so on the long-term deferred, obviously, the driver there is generally multiyear deals that are build kind of in the quarter. That trend has largely been quarter in and quarter out the same. So not a tremendous shift there. And on the other side, it's been our experience quarter in, quarter out as a SaaS company that you have a kind of a normal level of early renewals and late renewals kind of netting each other out. What we wanted to point out there was there was a slightly stronger trend in the current quarter towards a few of those renewals that came in early, but that's separate from the long-term deferred. Those are 2 different things.

Operator

And we'll move on to Brent Thill with UBS.

Brent Thill - UBS Investment Bank, Research Division

Bryan, just on the guidance for the full year, you left it unchanged. Is there -- is your guidance predicated, basically, just on Europe getting a little more challenging and really unchanged in the U.S., or was there something else that you saw that made you slightly more nervous of what you're seeing in terms of the pipeline?

Bryan J. Leblanc

Well, so I think certainly we build into our guidance everything that we see. One thing to point out, when we brought this up a couple of times in the call, is that the mix shift between product revenue and services revenue is obviously in that as well. And if you think about overall revenue on the product side going up a little more than we had initially planned for the year because of the shift towards less services, you obviously -- you have the effect of that number actually going up, but it's netted out. So it comes out as kind of even guidance. And to the extent that there is a macro impact generally and in Europe, in particular. We're baking all those things into our expectations. And that's kind of how we come up with our kind of forward-looking views each time we do guidance.

Brent Thill - UBS Investment Bank, Research Division

Okay. And then just to clarify, in Jay's arrival, what happens with John McCracken's role?

Anthony Zingale

This is Tony, Brent. John stays on as the Head of Sales. He reports directly to Jay. John's in a spectacular job building out a world-class enterprise selling function, bear a Jive getting us to this level certainly through our IPO. He has worked with Jay in the past at Mercury Interactive. They're looking forward to teaming up once again. As is Bob Brown, who runs our Client Services Organization, has been at Jive for more than 4 years. Bob, too, had a short stint and overlapped with Jay at Mercury. So together, as we go to market and provide a complete comprehensive solution, including products and services, both of those individuals will report directly to Jay.

Brent Thill - UBS Investment Bank, Research Division

Okay. So you see it as more additional senior sales count in the field rather than any disruption to the current field organization space?

Anthony Zingale

Yes, yes, additive. As well as, as I was saying earlier to Karl Keirstead's question, taking full advantage of Jay's skills and expanding internationally, leveraging multiple channels of distribution, both inside our company, as well as indirectly. All of those aspects that Jay can lend himself to, as well as for the last 10 or 12 years, he's in pure SaaS businesses. So as more of our business becomes pure cloud, and we take advantage of that, lending Jay's skills to those larger, more challenging enterprise-wide global sales engagements will be helpful for John and Jay to work on together.

Operator

And we'll move on to Michael Nemeroff with Crédit Suisse.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

So I guess I'd like to trend, go a little deeper on the customer side. If you could just tell us maybe what the yield was on the Try Jive product trial, and how many are currently trying it now and whether that's accelerating.

Anthony Zingale

This is Tony. So we have to go back to the beginning of why we did Try Jive. We had 2 very specific goals, and they were, in order: increase the size of our overall pipeline for our field sales organization to work on without having to have them involved from seeing whatever marketing program they sought to try Try Jive and move through the trial period with all of the attributes of the online coach and all the specific quests that we have built into Try Jive. The second goal of Try Jive was to accelerate the selling cycle, such that when our sales force did arrive, there was already a pocket in a department using the product that had familiarity with the business value it delivers. Hence, therefore, charging for the platform rather than giving it away for free and letting people use it for free forever. So those were the 2 goals. We have a number of internal metrics that we monitor all the time, from impressions to networks to conversions or whatever, and we're not disclosing those. And we might not ever disclose those, because what we want to be measured on is our ability to do the 2 things that Try Jive was intended to do. Does our pipeline go up, does our ability to sell more product go up, does our ability to move through the sales cycles more athletically increase, those are the goals we want to be measured on. And trust me, we are watching very carefully all of the internal metrics. We have it instrumented very detailed. But we're simply not going to disclose those, because those, while important, those aren't the 2 true drivers behind why we did Try Jive.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

That's helpful, Tony, but if we could talk about the pipeline a little bit as you just mentioned. In the past you've talked qualitatively about the number of RFPs increasing. Could you maybe quantitatively discuss what you're seeing on the RFP process? How many more coming in as a percentage, if you don't want to talk absolute numbers?

Anthony Zingale

Well, I'm not going to talk either, either percentages or quantitatively, but I appreciate you asking. As I've continued the language both during our fourth quarter call and then our first quarter call, now again here in our second quarter call, the number of RFPs we see from large enterprises continues to grow. I'm not going to tell you by how many or what percentage. And we think that continues to lend credibility, too, that this market is strategic and large customers are forming their social business strategies. And even more so if they're going to generate a request for proposal and evaluate multiple vendors, there's certainly a budget attached to that. Meaning there's going to be a business problem that's being solved. And if there's a business problem being solved, there's budget associated with it from some department, or ultimately, in many cases, the IT organization. So from that perspective, we see that trend continuing. More RFPs, more significant, from name brand companies that is very representative of the customer base that we're in today. And so back to Try Jive, having Try Jive in hand allows us to attack those RFPs more substantively than we were able to than before Try Jive. But it's a trend that we follow, and it's a trend that is still moving in a positive direction.

Michael B. Nemeroff - Crédit Suisse AG, Research Division

Let me try one more that you're probably not going to answer. How many more smaller customers are there that you potentially expect the churn over the next 6 to 9 months?

Bryan J. Leblanc

So we're not obviously giving out specific numbers. I think we said in the conference call a script in the prepared remarks that we expect that to continue over the next couple of quarters. I think it's certainly baked into all of our expectations. The number we're riveted on is the number of gross new customers, because as Tony said, Try Jive is really about getting more trips to the plate. We feel good about how that came out in Q2, and we certainly feel good about how that's progressing. And that's really the most important part of the story, is not so much the low-level churn with customers that don't actually have a whole lot of dollars to spend, but the option for us to lend and expand, which has been all about Try Jive. And it's how we've thought about the back half of the year.

Operator

And next we'll hear from Jason Maynard with Wells Fargo.

Jason Maynard - Wells Fargo Securities, LLC, Research Division

I had 2 questions, just on distribution and go to market. The first one, with a good shift towards more products and less services required for implementations. How does that have you thinking about indirect channels? Obviously, that could be more appealing to mid-markets, smaller-sized customers, given less services requirements. But what does it also state -- talk about for maybe the opportunity with some of the bigger partners as you go deeper with a broad range of products? And then I have a follow-up.

Bryan J. Leblanc

Certainly, Jason. This is Bryan. Those are all great statements to make, because they're actually right in line with how we're thinking about the market. It's early, we don't have news to give you right now. But I would tell you that those are absolutely things that we're looking at. I think Try Jive makes it phenomenally easier to use a channel that doesn't require a lot of heavy lifting. That's always been our goal. We've got 1 quarter of data now, and certainly, with that 1 quarter of data, it gives us encouragement that we're on the right track. And as we start to bring those things out and are able to talk about all of our efforts that we're working on, we would be happy to tell you about those things. But for right now, that's certainly a huge lever of opportunity that we know is out there, and we're working hard to bring those things to fruition. And I think you're right to point out the fact that Try Jive in lower services is absolutely a key starting point. You can't go there without that.

Jason Maynard - Wells Fargo Securities, LLC, Research Division

Great. And then the follow-up. I'm curious about your -- on the go-to-market sort of focusing, if you will, sales efforts on what I'll call sort of internal collaboration scenarios versus sort of external communities. And with Microsoft buying Yammer, it clearly raises the visibility around a lot of the internal workflow use cases and activity streams meeting files. Do you find yourself maybe targeting those areas perhaps more intently with the direct sales organization, just given that there's a big light on that market now? And then what do you see going on in the external type of folks building support communities and trying to engage with customers, how would you characterize maybe some of the trends that you're seeing in both buckets?

Anthony Zingale

Right. Jason, this is Tony, and thanks for the questions, thoughtful ones. I'll start with the latter question. We don't see Jive backing away from any of the external business. I think -- what was the number during the quarter, Bryan, of our external community business?

Bryan J. Leblanc

36%.

Anthony Zingale

36% of our business was external communities. And as you well know, we do an incredible job in support of external communities with companies that we've talked about in the past that do an incredible job using Jive to do that, so -- while at the same time one of our strengths has been bridging external communities with internal communities. You see that in our customer service solutions. You're going to see that now with our external -- the external announcement that we made in our marketing solution, the ability to bring external customers and agencies and partners into an internal instance. We believe that's a huge move towards establishing a more substantial solution for a department. And while there's a light that's now been shined on internal collaboration generically, like you said, take a filesystem in an activity stream, and we have an internal collaboration for some, not really. I mean, it needs to be so much more deeper than that and solve a specific problem, and many times, that problem does go external, and certainly when -- including someone from an external partner community or the customer themselves into your internal community. We've heard this for a while now, and it's something that we believe is going to be very strategically leveraged by our channel going forward. And then lastly, the shine, the light on the Microsoft-Yammer situation, I think they've got a lot of proving to do to show people that there's value beyond the filesystem and the activity stream and solving a specific collaboration problem that they're having. And we get asked all the time, "How are you guys able to monetize what you do at Jive?" The way we're able to monetize it is we deliver real substantive, measurable business value. And that's the only way you get paid for it.

Operator

And next, we'll move to Steve Ashley with Robert W. Baird.

Chaitanya Yaramada - Robert W. Baird & Co. Incorporated, Research Division

This is Chaitanya Yaramada for Steve Ashley. Could you provide some color around the upgrade path for Try Jive? Is the upgrade to the cloud platform automatic and the customer remains on the same platform, or is there some work that needs to be done on your end to point the customer to a different back-end platform? And then how is the upgrade process different for -- going from Try Jive to an on-premise Jive-engaged platform?

Anthony Zingale

This is Tony. The upgrade path from a Jive-hosted instance to a cloud-based instance is all -- it's all the same code base. So it's all the same capabilities and data and all of that. It really comes down to the amount of customizations that were done for the hosted instance, and the same is true for the on-premise instance of the product. So if there was a particular plug-in that was built by our Professional Services organization or a partner to do a records retention capability or connect to one of our third-party applications that we support, it will all depend on that capability. There are some other aspects of the Jive cloud system that are only available in our Jive cloud instance, which allows us to move faster in the marketplace. Things like leveraging the big data aspects and the recommender and the search capabilities. In general, if our customers are on our 5.0 platform, which we shipped over a year ago and they're moving to our Jive cloud-based platform, it will all be resident in the customizations that they've done. And for the most part, it should be very straightforward, very straightforward for them to move from 1 instance to another. That's the whole idea.

Chaitanya Yaramada - Robert W. Baird & Co. Incorporated, Research Division

And is the work being done by you or a third-party in most instances?

Anthony Zingale

It could be done in either case. We have a whole list of third-party partners, companies like SolutionSet and 7Summits, more recently, Accenture, Logica over in Europe. We have a whole list of very trained and certified partners that are capable of doing that work, as well as the customers themselves. We have many large customers that have developed their own Jive expertise in and around the platforms, so that they can do a lot of the work on their own or, of course, the Jive Professional Services organization can do that work as well. So there's a variety of different options for the customer to utilize to migrate very quickly.

Chaitanya Yaramada - Robert W. Baird & Co. Incorporated, Research Division

And then just for Bryan, you continue to expect to reach breakeven in the second half on a free cash flow basis.

Bryan J. Leblanc

So I think the original guidance that we put out there was free cash flow positive in Q4, not a specific color around the second half. And that's still part of our expectations.

Operator

And our final question will come from Michael Huang with Needham & Company.

Michael Huang - Needham & Company, LLC, Research Division

Just a couple quick ones for you. So first of all, I know it's still early with Jive Anywhere, but how broadly has this been adopted by existing customers, and can you remind us how this impacts pricing or contract value?

Bryan J. Leblanc

This is Bryan. Jive Anywhere is part of the platform, and from a pricing standpoint, it's included in -- if you're buying Jive, you're getting that as part of your roll out. You're right, it is early, but we have great anecdotal evidence and several cases of people using the technology both to do lightweight integrations, as well as, obviously, bring all of the social web inside the company. And it's been very well received, certainly. And since its new, most of that is in anecdotal demo kind of instances, and customers rave about it. And it's very cool technology.

Michael Huang - Needham & Company, LLC, Research Division

Great. And my final question is, so in terms of some of the package solutions that you're rolling out, that are now available on the platform, what impact does that have on sales cycles and on pricing as well?

Anthony Zingale

So on pricing, there's no impact. It's just basically packaging up the capabilities required to solve a problem in a specific department. And the solution that's been most pronounced that we have announced and delivered already is the customer service solution, which includes an external community instance, an internal community instance and the bridge between those 2 worlds, as well as a connection to whatever CRM service solution that you're using, and then a bunch of templates that we built right in there. And it's -- we priced it in a way that packages all those capabilities from Jive that maybe were offered a la carte in the past and put it in a very nice and easy to sell and position and demonstrate and pilot package. So the result of that will be accelerated sales cycles. That's what we hope to accomplish with the marketing Jive for Marketing group solutions that we announced today, and we have a couple more up our sleeves. The Social Intranet Solution is a little more challenging, since that is the one that, in fact, embraces, back to Jason Maynard's question, that embraces the totality of the whole corporation's intranet. So that one is essentially the Jive platform in all its glory. Although, yes, tuned and customized from a packaging and pricing perspective, before its use as a social intranet, that 1 still involves probably the most comprehensive sales cycle we have in the company, because it touches everyone inside the target customer we're trying to address with it. So the Jive for Customer Service and Jive for Marketing ones are absolutely meant to package price and accelerate sales cycles, solving a set of problems for departments inside a company.

Operator

And that will conclude the question-and-answer session. I would like to turn the call back over to the speakers for any additional or closing remarks.

Bryan J. Leblanc

Thanks, everyone. This is Bryan Leblanc. We appreciate you all being on the call this afternoon,, and we look forward to talking with you in the coming weeks. Take care.

Operator

And that will conclude today's call. We thank you for your participation.

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