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Jive Software Inc. (NASDAQ:JIVE)

2012 Citi Technology Conference Call

September 6, 2012 2:45 pm ET

Executives

Tony Zingale – Chairman and Chief Executive Officer

Analysts

Walter H. Pritchard – Citigroup Global Markets Inc.

Walter H. Pritchard – Citigroup Global Markets Inc.

All right, we’re going to go ahead and get started. I am Walter Pritchard, the Software Analyst. We’re happy to have with us Jive Software. we’ve got Tony Zingale, the CEO here representing the company and we’re going to ask him as we did with a couple of the companies that have been newly public in the last 12 months to give a short presentation just making sure everybody is on the same page in terms of the market, the company and so forth.

and then I’ll open it down, do some Q&A and leave the last 10 minutes or so of the 40 minutes for your questions.

So Tony, go ahead.

Tony Zingale

That’s great, thank you and thanks for being here at the end of the day, on the last day of the conference. I’ll try to go quickly. our belief is that the new way is here and what we need by the new way is the new way to get work done, the new way to business, obviously there has been a massive trend in the consumer market like the paradigm of social networking software and collaboration as we’d like to call it is not just for consumers.

Jive’s mission is to change the way work gets done, leveraging that paradigm shift that we’ve seen so dramatically, take hold in the consumer market. We should look at as the collaboration software company, one that leverages the social networking paradigm. we build and deliver community software that faces both employees as well as customers and partners, serving all those different audiences.

The product has built in social media monitoring, but we bring all of that to the enterprise, in an enterprise readied fashion with all of the requirements around security, commissioning, compliance particularly in regulated industries like U.S. The screenshots on the right are examples of how customers theme our products as they deploy it internally and externally to make it look like their brand, the last screen being the generic Jive screen as it would appear to an employee facing system.

You might ask why we use it since we’re all consumed with social networking as a place to go to get anything, but work done. I can assure you that everyone at Jive, 710 paying customers, pays us to get work done with our system; it’s all about collaborating more effectively. this is a set of surveyed data from over 500 Jive customers that we did about 18 months ago, we’re in the process of re-doing it on the heals of the McKinsey’s survey that was just done here in the last months or so where employees were found to waste about 28 hours out of the 40 work week, doing things like e-mail and attending meetings and doing anything, but moving innovation along, sales pursuits and marketing projects and the like.

Customer satisfaction goes up the way that which people interact with one another and a very productive way goes up, win rates go up, when it’s deployed inside sales and service organizations, you do less of searching for information if Google has taught us anything as that people get inside applications and they start searching.

They search for the person, the topic, the presentation, the answer, the expert to the question they might have, support calls go way down, when you deploy an external community, where you can reflect the first call to consumers and peers of one another answering those questions and ideally e-mail goes way down. We have surveyed our customers to the tune of almost 30% or less e-mail that’s consumed inside the enterprise.

So I’d say in summary, and then we can get on with the questions and answers. It’s a massive market opportunity. We’d talk about a $26 billion market and the part of that that’s collaboration proper was about $8.4 billion. There are lots of dusty old enterprise portals and corporate intranets that are lying around, not being used by employees, trying to become more collaborative and become more productive in the workforce.

Jive is the clear market leader anyway you want to cut it, a number of paying customers, Gartner Magic Quadrant Leader, Forrester Wave leader. The clear choice from a technology breadth and depth in our platform, the ability to deliver it on mobile platform, the ability to deliver it out of the cloud as well as on a private premise cloud for our regulated industry customers.

It’s disruptive; the ability to deliver this kind of social software into the enterprise is new. It is different. It represents a massive opportunity for all enterprise software companies, but Jive as the market leader is holistically focused on just this aspect, it’s high growth, we reported in the second quarter greater than 50% revenue growth and greater than 40% billings growth.

And we have a very strong and experienced management team, which is the third public software company that I’ve led. I’ve been on Jive’s Board for the last five years. I became CEO at the beginning of 2010. We’ve recently added Jay Larson to our management team. Jay was the former Head of Worldwide Field Operations at SuccessFactors having worked for me prior to that at Mercury Interactive for a number of years.

Our board of directors is seasoned with representatives from both Facebook and Google as well as our initial investors from Sequoia and Kleiner Perkins, not to mention Dave DeWalt and Chuck Robel from McAfee most recently. So I think that ends the summary, I know Walter is going to ask me some other questions about competitive landscape in the like and we get right to it.

Walter H. Pritchard – Citigroup Global Markets Inc.

Great. so I guess it would be helpful to, you had your slide there showing the survey result and just as it relates to bringing the solution to market and solving customer problems and showing the return on investment and so forth. What are the three or four areas that you’ve seen the most success in terms of problems you solve and end customers getting the return to, it is a fairly horizontal product, a lot of thing...

Tony Zingale

That’s correct. the good news of this market is there are many buyers, if done correctly you touch everybody in the enterprise, I don’t think there has ever been an enterprise application that’s done that other than maybe Microsoft offers productivity tools or e-mail tools certainly sales automation doesn’t do, ERP doesn’t touch everybody et cetera.

So we have many different buyers, which is good news as well as sometimes bad news because there’s lots of decision makers in a process. but we typically, we are holistically focused on business value and customer service might be one of the early entry points into the service department as a whole like we have the T-Mobile, 36,000 customer service agents use Jive everyday as they’re mission critical, problem resolution system.

They’ve been able to retire other corporate intranets, a knowledge management systems. They’ve also constructed an external community where they deflect first call, to the community. So they don’t have to answer the phone and spend money and time precious time of the customer service agents to answer those calls, that’s one place.

The other place is really in marketing and sales, high cost center in most companies where marketing is consumed with projects and programs that stand multiple lines of business, they stand multiple geographies, Nike is a great example where they deployed us in their BNX community where they in fact market on a global basis to all the different Nike Town stores that they shared knowledge and marketing programs success or failure accordingly.

Right, sales enabling the sales channels, the ability to provide up-to-date information how to sell, who to sell to the most recent presentation and pricing model? How many times that we all read the e-mails? There’s anybody have the most recent version of the thing networks does. when you’re in a Jive system, you’ll quickly find the materials, the expertise that matters to you.

The last point that makes a lost of sense is in overall corporate communications and some of the HR related activities, I know it feels softer, it doesn’t have as hard core and ROI as marketing productively or sales, win rates or customer service costs, they reduce. but connecting to a corporate culture and as CEOs around the world are grappling with how to make their workforce 10% to 15% more productive.

One of the major agenda items that I’d really recognize over the last two and a half years that I’ve been the CEO of Jive is, CEOs are grappling with how do they get closer to their workforce. How do they make them more productive? It’s not so much building another gymnasium or provide more healthcare benefits, it’s providing them a better connection to the top. Where are we going? Why are we going there? What’s important to us? How do they connect, what they’re working for the corporate agenda?

CEO is blogging, I know it sounds a little comical sometimes, because they typically never write the blog themselves. But we have found and we have proven that if they do, things change culturally inside the organization. So there is a number of hard metric ROIs that we have and there’s some softer ones that are transformational to many of the companies that are grappling with overall workforce productivity.

Walter H. Pritchard – Citigroup Global Markets Inc.

Got it, I think we cover Microsoft, we cover SalesForce. I think I can’t open up any materials made companies there is not the social as part of the sort of the lead message and I’m wondering, what is the argument that you may have with your customers, I guess mostly with the customer for a independent social platform versus leveraging features in SharePoint.

Tony Zingale

Sure.

Walter H. Pritchard – Citigroup Global Markets Inc.

Chatter with SalesForce, so whatever maybe.

Tony Zingale

Sure, the short answer is because we’re the best at it, because that’s all we do and architect it get only do that. We’re not trying to take an ancient file management system or content management system, which is great at that in SharePoint and try to put a little bit lipstick on it and turn it into a social platform. Microsoft has been a little disingenuous to the marketplace for the last five or six years, telling everyone that SharePoint is a social collaboration system, it’s not other wise why would you spend $1.2 billion for a free activity stream, called Yammer to layer on top of it. It’s absolutely not viable as a social collaboration system.

we typically went into it, when we encountered corporate IT. The lines of business, those hard ROIs I talked about earlier, we’re very clear that SharePoint failed on delivering the type of value that they were seeking.

so the way we navigate around it is typically with the strength of our platform, the ability to deliver in a lot of different versions into the various departments, the ability to go external, the ability to connect with Jive anywhere to all the different web properties and bring content into the Jive stream, the ability to connect to any other enterprise application in the enterprise be it sales automation be it, another content system you name it and be application agnostic and bring that knowledge into the activity stream when work is being done.

That’s how we overcome the SharePoint argument typically and Chatter is a little different. Chatter is a very, also light weight and noisy activity stream or almost Twitter like feed inside the sales automation application from SalesForce. If you are a sales person and you live in SalesForce.com all day long and you’re chatting back and forth or having a discussion about a particular sales opportunity.

There is some utility for the Chatter capabilities. The moment you move offset, and you want to go to another application or another discipline, inside the company. Let’s go all the way to the right too, say engineering who has no idea what SalesForce.com is or the HR department or to some extent until recently with service cost the service organization.

So again Chatter is not application agnostic, quite the contrary. It’s bolted on to the architecture of SalesForce.com and provides some utility for sales people who reside very heavily in that application. Jive point of view is very different. We operate at a corporate enterprise layer point of view. We connect to the whole Microsoft desktop. We connect to any in all applications. We delivered on premise out of the cloud, mobile externally facing communities as well as employee facing communities. It’s a holistically different approach to the enterprise and again, it’s a large market opportunity.

I believe that overtime every enterprise application will move to a user experience that’s probably more stream like in terms of it’s user interaction rather than fields and records based enterprise app oriented like we are today with Siebel and SalesForce and every ERP application that was developed 10 or 15 years ago.

Walter H. Pritchard – Citigroup Global Markets Inc.

Got it. And I wouldn’t have asked you this question a week ago, but I saw the headline, I think it was lastly said that IBM buy social software company Kenexa, which I thought was brilliant positioning, but I guess a big question around IBM and their sort of a peer of Microsoft in the messaging and collaboration space kind of the 1.0 version. I’m wondering what do you see out of IBM from the competitor perspective?

Tony Zingale

Yeah, I think everybody wants to be in the cluster of the big IT trends right now and clearly social is one of them, so with cloud, so with mobility, so with big data analytics and the ability to navigate a social graph inside a social system. I thought it was few more that connects us all of a sudden, our social commodity never heard of them, so I want next sort of Jay Larson who competed against them for five years at SuccessFactors, I said this is social software company, he just can’t believe it, he said I know, they are an ancient HR automation company, that they sometimes competed with at SuccessFactors, but largely not a social company. I think everybody is trying to go online to social positioning, because it brings them into the conversation.

IBM has made some strides, they took Lotus Notes, believe it or not it’s still around they took Lotus Notes and migrated it for Lotus Connections, and again much like the SharePoint approach, based on an older architectural construct, in fact recast that system as a social collaboration system.

The problem with all of these approaches, be that Chatter, be that SharePoint, be that IBM’s move is the architecture of these systems are built on older generation approaches to that application they were trying to automate, sales automation or e-mail or in Microsoft’s case content management.

Jive just like LinkedIn, just like Facebook, just like Twitter, we’re architected on the concept or the object called a person, and from a person you’re able to make a set of network connections, and people live in groups and get work done, and they’re able to collaborate on content. And it’s from there they you build the social graph or relationships or form, and we can recommend content and people and places and we can trend people and content in places.

We’re not trending a file, we’re not trending our sales opportunity, but we’re trending what matters most, which is the people in the organization, and how they interact with the automation systems that are already in place.

Walter H. Pritchard – Citigroup Global Markets Inc.

That new business has been fairly balanced, I think a little bit more on the internal side, little bit less on the external side, but the balance, how do you look at those two opportunities, and are you at this point investing more in one than the other, is there some like sales and we come together, but how do you look at those two as a relative priority?

Tony Zingale

Yeah, it’s a great point. Jive is 12 year old, they were founded by two University of Iowa students back in 2001, on the strength of a purchase order to build a discussion forum for Sun Microsystems.

So the roots of the company are on building a discussion forum for external communities as we now, call it today, in 2007 Matt and Bill took money from the Sequoia Capital guys, and that’s when they pivoted the company to take advantage of the collaboration software capabilities and build the internal or employee facing technologies.

Today, we are the only company that delivers internal and external communities, because we believe that business processes run internally and externally and customers interact with the selling organization and those service organization, and the marketing organization, and that you need to bridge those two walls together. About 25% of our customers buy both communities types almost.

In any given quarter, about 65% of our business is what you said, Walter, which is a more lucrative employee facing set of communities, 35% is external communities. We see that continuing to trend probably more towards internal community facing software, the market opportunity is larger for that versus external communities, but we will forever invest in both, we forever believe that both are required to satisfy all of the needs of the enterprise for employee-facing communities as well as customer and partner-facing ones as well.

Walter H. Pritchard – Citigroup Global Markets Inc.

Got it, but one thing I think probably pretty important to the story here given your size 700 plus customers is scaling the SalesForce, you alluded to, it’s hiring Jay Larson just recently. could you talk about sort of where you are, what scaling of the SalesForce and what sort of milestone should we look at over the next six months or so in terms of gauging your ability to drive growth in that manner?

Tony Zingale

Right. You should look at Jive as a traditional enterprise software company despite we’re social and we’re collaboration and we’re in this very cool large market opportunity competing against the iMIS in the space that want to be social companies. we are still a traditional enterprise SaaS company. Therefore we go to market in that fashion, we have a direct selling force that order is organized in various tiers that we’re always building capacity into and any given quarter. we add capacity to our territory sales people that operate with a named account base, our telesales organization that operate with a larger named account base in that particular territory.

And then more recently with our Try Jive 30 day free trial offering, we have a group of sales people that we call account reps that look at those trials and try to convert them at the end of the 30-day period, so we have this tiered structure where everybody is working together on a particular set of the accounts and a particular geographic region in the world.

We do most of our business in the United States in any given quarter about 80% of it, it’s euro versus 20% in EMEA. If you ask about Jay Larson coming to Jive, it’s for a couple of very strategic reasons. That’s to take us from our $100 million plus run rate for this year and scale us to the several $100 million run rate. When we went to SuccessFactors back in 2007, they were exactly to size on their way to several hundred million dollars prior to their acquisition by SAP at the end of last year.

So we’re working to grow further internationally, investing further in EMEA for example, investing for the first time in Asia-Pacific and being smart about the way we go to that geography, they attack New Zealand, Australia, Singapore first, because they’re English speaking, and then go on to India and China and Korea and Japan after that, in what order and in what approach do you go there? Jason, an expert at that, and it is in the same as true for South Africa.

Lastly, leveraging indirect partners. Today about 25% of our business is partner-influenced. Nobody resells the software yet, but they influence it and who were very focused on, are the global system integrators that we’ve been working with for sometime that are starting to bear fruit. Accenture most recently is bringing deals to Jive, because they’re interested in this business transformation. We’ve talked about in all these employee bases; PricewaterhouseCoopers is the large user of Jive internally, more than a 100,000 PwC consultants use Jive everyday as the means by which they pump out statements of work.

And you’ll see us working with the global systems integrators very deeply in a way to increase the size of our indirect channel leverage, and then we work for the whole set of boutique regional systems integrators in the various regions around the world. But as far as our sales model goes, you’ll continue to see the tiers, you’ll see us expand internationally further, and you’ll see us start to leverage indirect channels even more so, as we grow further.

Walter H. Pritchard – Citigroup Global Markets Inc.

And you referenced Try Jive, which is going to the next area is going to talk to you about, does that offer, there’s lots of free stuff out there, I think that premium model is in the consumer space and the small business space has been very successful. Do you look at this as a customer acquisition tools to get the customers of the size you have today or will this become sort of a tier of customers that are lower cost of the acquisition, lower revenue, but equally profitable?

Tony Zingale

Yeah. It’s actually both. I mean the reason just for everyone’s benefit. Try Jive is a, as I said earlier a free 30-day trial of the full Jive product. But it’s not just we give it to you on your own. we actually built what we call in, we called quest, there are four particular pass that we have to try, as the means by which to discover all of the capability inside the system.

We allow you to experience building a network of people inside your work group. We allow you to form a space for a work and go on. We allow you to, and guide you through collaborating on specific content. And at the end of all the different quests, you are actually in full Jive product, all of the capabilities and features are present once you’re done, and then we try to sell it to you.

Now it is absolutely a tool to expand the size of our pipeline for our direct selling channels to attack once they’ve tried Jive and there are a number of users inside a target enterprise customer. but at the same time, we have seen that there has been some up tick in medium-sized companies as well. 500, 2000, 3000 employee companies that maybe our large enterprise selling force, we’d not spend time on, but with Try Jive, we can quickly convert them like you said in a much lighter way for some of this fashion without any customization work at our pure cloud delivery, and use Try Jive as well in our heavier accounts where they want to experience the full capabilities of the product, but they can do without our system.

So, so far it’s relatively only, we launched Try Jive in May of this year. So only a few months in, we haven’t reported any of the metrics that everybody wants to know about. We’ll see as more time runs off the clock, because we continue to adjust and adapt, how much media spend to get this many impressions, to get this many networks, to get this many conversions more on the consumer model that you referenced, Walter. So we’re turning the model and we want to be really sure about what’s the steady state going to be before we articulate that. but make no mistake, they increase the size of our pipeline and shrink down to some extent, our sales cycle, particularly in medium-sized companies. we’ve seen the benefit of that already.

Walter H. Pritchard – Citigroup Global Markets Inc.

Got it, got it. Could you talk about, I think you alluded to on your Q2 call, some of the macro challenges that I think everybody sees in the world, given what’s going on especially out of EMEA. Could you talk about what you’re seeing in the microenvironment now? Could you talk about also how you think about this category of software and your sort of sales process being impacted by our customers seeing the budget under pressure or some result of macro-climate?

Tony Zingale

Right, a part of challenge that we’d have is that it’s new. and therefore and although we’re at the sweet spot of all those big trends that I talked about, we still have to impress upon a series of buyers, in many cases, the CIO and sometimes even the CEO has to sign up on this. there are a larger number of requests for proposals appearing every quarter. I’m not going to tell how many work or what percentage of our overall business comes through the RFP process, but we would love to see RFPs and the reason we do is because we typically will win technically when an RFP is issued, because of the breadth and depth of the our platform and the technical superiority that we have and the referenceability in our platform. More importantly to your question about sales cycles, when there’s an RFP, there’s almost always a business owner for the RFP and if there is a business owner in an RFP, there’s typically always a budget associated with that.

So we can attack that, and we’re very good at that. when there is not an RFP and there’s not a budget assigned to it, the process can elongate, because you have to find budget dollars somewhere and sometimes in a larger enterprise like purchase, there is a typical pass to have, let’s go and get some money for marketing from sales and customer service and go along that. and if you don’t get them all lined up, there is not a loss, but there is a delay in the process. we saw a little of that headwind for the first time ever in your price, for all the reasons that have been probably stated at the conference for the last three days. we were not different, if I remember, we’re a small, our billings in the quarters $34 million I think it’s the most recent one we reported $34.1 million or something like that. So this takes a few large deals for us to be impacted.

Walter H. Pritchard – Citigroup Global Markets Inc.

Yeah.

Tony Zingale

…in terms of our overall growth rate. In the U.S., we saw less sound.

Walter H. Pritchard – Citigroup Global Markets Inc.

Yeah.

Tony Zingale

But in a few larger deals, there was an additional iteration or there was no budget in place. let’s go back to the CEO and let’s redo the business case one more time. net-net, it was a handful of deals, right, but there were some headwinds for the first time.

Walter H. Pritchard – Citigroup Global Markets Inc.

And what have you done, I know Jay has just come on Board to maybe, this is a TBD, but what has the company done with the sales process in terms of trying to factor that in and both of you worked at your pipeline as well as sort of the sales methodology in place to try to get through that?

Tony Zingale

Right. Well, first of all, increase the size of the pipeline. so the probability or the percentage of coverage to make the quarter isn’t as exposed, that’s for a second. We’re a pretty seasoned enterprise sales organization. we know how to ask questions early on in the sales process. Who is the owner? What’s the process? We actually have our customers sign an agreement with us during the last month of the quarter that we jointly are going to execute on a closed process.

Sometimes they’re not able to live up to it. but we experience in that regard. This is in our first time closing large enterprise wide transactions. Jay, it is a little bit of TBDs on the job three weeks. It’s going to inspect our approach and particularly here in and sometimes seasonally challenging quarter because of EMEA again, July and August being tough. even a lot of people in the United States take a vacation in July and August. But he is going to scrutinize the process, we’re going to ask all of those questions, we’re going to increase our coverage of our pipeline, but we’re working through it to the best of our ability, but sometimes things are outside our control.

Walter H. Pritchard – Citigroup Global Markets Inc.

Got it. I’m going to pause a second, go to the audience, see if anybody has any questions out there, if you do, go ahead and raise your hand, we’ll bring a microphone around, if not all, I’ll continue on with the questions I have here for Tony. None. Okay, so you alluded to international expansion and I think actually Jay’s experience is pretty relevant, because in that area of software, we saw some of the international countries around talent management embracing that type of software and others sort of saying that it’s not culturally the way we do things. In this area in social, what are you seeing in that regard, is this a sort of worldwide market or are there [bigger] countries internationally where it maybe it’s too early or culturally this is an awkward type of a product?

Tony Zingale

Well, I think it is now, I mean as we end 2012 and go into 2013, I think it’s pretty clear, particularly with the evolution that we’re going to see in the workforces, the hardware business review was published, story after story that I said that have the workforce over the next two to three years becomes, made up of millennials, people born after 1980 under the age of 30. They’re not used to do an e-mail while they’re long and attaching PowerPoint presentations and sending them to 25% earlier. They’re used to getting on the community and collaborating.

So the workforce is changing quite before people buy. as I mentioned that TWC example, 180,000 people inside the company of which 100,000 are using Jive today. of the 180,000 people, 75% of that workforce is under the age of 29, right. So our young workforce that is going to demand a different kind of work product. I think as you move into the Asia-Pacific region, it depends maybe very challenging in Japan and Korea, but maybe not so in India and China, but different parameters come into play in those regions, be then pricing issues, be then the software security issues and what have you.

I think as we head into 2013, I think the full global market is in place, and it’s just a matter of how we go after it with say for example, at Try Jive since where we maybe don’t have to invest a direct selling resource or a set of resources or a partnering resource with resident in those geographies. it’s awaited to play our cost number one, number two to prove out that the market is ready for this kind of collaborative solution. we have seen a tremendous up tick in Germany and France; we’re starting to see some accounts in Brazil. you people would say that the French culture and that the South American culture, Brazil in particular are pretty social cultures in that regard. and we certainly have seen that with the deployment of Jive software in a couple of those accounts in those regions. but time will tell we’re still early in the game here at social collaboration moving to the enterprise. And I think international expansion in a larger sense next year it’s going to play out.

Walter H. Pritchard – Citigroup Global Markets Inc.

Got it, there’s a question there in the back.

Question-and-Answer Session

Unidentified Analyst

I have a quick question. instead of waiting for RFPs, what steps are you taking to socialize the idea of having such jobs in the enterprise, because RFPs usually are issued for a relatively matured products of the services, which are required by the customers capable of even articulating or defining what they’re looking for whereas this is something related to new. Yes, there’s a big potential market, and yes, this will be for leaders first to begin with, what steps are you taking to socialize the concept of using your tool or something similar to that tool for a collaboration?

Tony Zingale

Right, it has everything to deal with the business value that we deliver. So as much as we possibly can, when we host for example, we’ll host JiveWorld in about a month. we’ll have more than 1,200 customers participate there and present what they’ve done with the product and the platform inside their enterprise. the media will be there to report on what’s going on there as we’ll be a number of industry analysts.

from the traditional firms like Gartner and Forrester, but more recently, as I referenced the McKinsey report earlier, pretty evidenced that large corporations and large enterprises are asking their trusted advisors, how they’re embraced this type of paradigm. And so while I’d love them to call Jive and ask that, they’re typically turning to the [essential] partner that’s been inside the enterprise there for 10 years or the trusted McKinsey advisors that they’ve stayed million to tell them most of the time what they already know. but write it all down and deliver to them in a binder. so they can take action on it, so it becomes actionable.

So there’s a bunch of industry analysts work. there’s a bunch of trusted advisor or as I mentioned earlier, the global system integrated partnerships that we’re doing. training them up, because they have a massive global workforce that they go to market to where they’re looking for the next new $100 billion, $200 billion services opportunity in and around business transformation, which is exactly that.

this is not replaced your SAP, ERP system with the one from that suite or the one that’s coming from workday. this is all about transforming your culture, and the way you’ve get work done inside your enterprise. so the trusted advisor aspect, it’s a great perspective, is really important to us and we invest a lot of time and energy, training them or teaching them or exposing them more importantly, to what customers like Thomson Reuters or the PwC or T-Mobile or any of these examples I’ve mentioned here today have done with the software.

other companies want to know that actually first. it’s not so much about a social network as much as it’s about what’s the value that is derived from the use of the social network inside the enterprise. And that’s what we’ve learned over the last five years in particular, and that’s why those partners that I mentioned are still important, as are the media, as are the industry analyst, because as we mentioned earlier, there’s a lot of, I’m a social vendor, I bought Connects, and I’m a social vendor really, I’m not for sure that that’s transformative in your enterprise.

Walter H. Pritchard – Citigroup Global Markets Inc.

Any other questions out there. but Tony, I’ll continue on here, and just want to ask you about, I think we have Jive 6.0 coming out.

Tony Zingale

Yeah.

Walter H. Pritchard – Citigroup Global Markets Inc.

This fall, I would assume probably JiveWorld is not going to...

Tony Zingale

You got it.

Walter H. Pritchard – Citigroup Global Markets Inc.

Can you talk about, I think from meeting with some of your technical folks, it sounds like that there’s a lot of sort of architecture working down there...

Tony Zingale

That’s right.

Walter H. Pritchard – Citigroup Global Markets Inc.

To really scale the product and so forth, could you talk about what are the details there, and then what impact that may have or may not have on the numbers as we look at them?

Tony Zingale

Right, so Jive 6.0 as you know, both the cloud-based version of Jive. it’s what’s Try Jive is based on drop off. We also and then we’ll bring it to market in the October timeframe and ship it, we also shipped the on-premise version of the software as well. We shipped on-premise version of our software on an annual basis, and we shipped the cloud-based versions of our software quarterly, because we can move that, right.

So what’s inherently new in the platform, our things like Jive Anywhere, as I mentioned earlier, the ability to go out to any web-based, or browser-based application like SalesForce or LinkedIn or Facebook or whatever it may be and provide context for the content that you bring back into the Jive discussion. if you want to search on the LinkedIn profile from some one you’re trying to sell too and bring that profile into the Jive discussion, you can absolutely do that with contacts, and everybody can participate in that thing there.

So Jive Anywhere is a big deal, deeper integrations with Office, Outlook and SharePoint, obviously connecting to the Microsoft stack is something that is fundamentally important to the nature of our business and then more of enhancements to Try Jive. We have learned that four generic quests that we have build are very tough to them, but we’re going to build an additional quest and deliver them in this timeframe that is not just Try Jive, but Try Jive for marketing team. Try Jive for sales teams. Try Jive for customer service agents. Try Jive for the HR department. so you’ll see that template building capability come out on that timeframe. Also the ability to invite an external party into a private blood group, right.

so if I’m PwC again, a consulting firm. I’m usually working with the client and I want the client of participate in that discussion in that private space inside my Jive instance, but just that’s space, not the full-blown nature of the platform. this capability for inviting partners and customers into Jive instances is in the Jive 6.0 platform and is going to be a huge, not only capability, but also provides there’s another way to see the market. so if I’m the Coca-Cola account that PwC is servicing, I get to experience the collaboration platform by participating into the conversation about my project that PwC is delivering to me, what I’m going to, if I have a great experience, I’m going to turn it around to Coca-Cola and say, we should probably get this platform inside our company. so it’s yet another way to see that market in that regard. So where is the some of the bigger highlights in Jive 6.0? There is a bunch more that are deepened the technology platform, but we’re very excited about it.

Walter H. Pritchard – Citigroup Global Markets Inc.

Okay, got it. We got a question here, go ahead.

Unidentified Analyst

Tony, just as far as last quarter, it seemed like there were some moving parts on the characteristics of your business between the customers hosting on-premise, off-premise in the cloud, the service components you got with that, the margin impact even some of the size of the deals, maybe some bigger ones coming in from lower tickets rolling off. Can you spend a minute, can you…

Tony Zingale

Sure.

Unidentified Analyst

(Inaudible) the characteristics of the business...

Tony Zingale

Sure.

Unidentified Analyst

How it’s moving, what...

Tony Zingale

Yeah. So the first big one is that there is more movement towards the cloud, right. even though from a revenue perspective, it was still about 65% out of the cloud and 35% on-premise. but from a deal number point of view, we added more than 60 gross new customers. of those 60 new gross customers, only less than 5 took it on their premise. that’s a big shift, right. And that’s a trend that we’re seeing more and more, now less than five that added it – added a lot of it, right.

hence 35% of the revenue itself, there’s still – the on-promise customers are still dominated by companies in financial services, insurance, healthcare, any company in Germany that has a worker council issue inside. So, but even saying that for the first time we’re seeing a conversation around even in those industries movement towards the cloud. PwC is insurance, Thomson Reuters, three deals that we did at the end of last year, and then we did a follow-up deal with PwC, a roll out of the cloud surprisingly, right.

So you’re seeing that trend in that direction. there are some moving parts with respect to the mix of our business. Because it’s more cloud-based, there are less professional services involved. when you take Jive out of the cloud and certainly when you take Try Jive for purchase after the trial period, there is no customization possible.

therefore that revenue we actually don’t want. it’s a lower margin revenue and it’s revenue that would rather see from the customer in the form of license revenue, which is much higher margin. You’ve also seen us move more towards having our own co-located data centers. This is something that we signaled when we went public as a way to expand our margins from where they were at the end of last year at 59% to what we reported at the end of June at 64%, and you’re going to continue to see that margin expansion as we migrate off to very costly, fun guard hosting environment to our own co-located data center where we can not only do it better for lower costs, but we can instrument the versions of the Jive Cloud instances on a much more productive fashion and provide much more visibility into what’s going on in our customer base.

We’ve got the Phoenix data center up and running, and we’ve been migrating customers over to it like crazy since we opened it in the beginning of this year, we’re going to bring online our EMEA data center co-located as well and Amsterdam here in October. but we’re going to begin to host Try Jive instances in EMEA from that data center or as well as migrate hosted customers in that region of the world on our own data center.

You’re going to continue to see margin expansion towards our target model, just as we described and committed to in our roadshow towards the end point that we’d like to get to here as we become a several hundred million dollar company. but we’re very pleased with the margin expansion. I know there were some unhappy people with respect to services revenue going down, because it didn’t expand the billings, some of that that’s good news as we’re able to grow the net new license business, which we saw as a result of that.

Walter H. Pritchard – Citigroup Global Markets Inc.

Great. Well Tony, I think (inaudible) I think that was about perfect. Thanks a lot for coming and having me one-on-one.

Tony Zingale

Thank you all for the whole week here in this room, it’s been great. Thanks for that.

Walter H. Pritchard – Citigroup Global Markets Inc.

Thank you.

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