Qlik Technologies Management Discusses Q3 2012 Results - Earnings Call Transcript

Oct.25.12 | About: Qlik Technologies (QLIK)

Qlik Technologies (NASDAQ:QLIK)

Q3 2012 Earnings Call

October 25, 2012 5:00 pm ET

Executives

Staci Mortenson - Senior Vice President

Lars Björk - Chief Executive Officer, President and Director

William G. Sorenson - Chief Financial Officer, Treasurer and Secretary

Analysts

Adam H. Holt - Morgan Stanley, Research Division

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

Brent Thill - UBS Investment Bank, Research Division

Karl Keirstead - BMO Capital Markets U.S.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Tom Roderick - Stifel, Nicolaus & Co., Inc., Research Division

Robert Chen - Citigroup Inc, Research Division

Ross MacMillan - Jefferies & Company, Inc., Research Division

Greg McDowell - JMP Securities LLC, Research Division

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

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

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

Edward Maguire - Credit Agricole Securities (NYSE:USA) Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Qlik Technologies Third Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Staci Mortenson. Please go ahead.

Staci Mortenson

Thank you, operator. Good afternoon, and thank you for joining us today to review Qlik Technologies' third quarter 2012 financial results. With me on the call today are Lars Björk, Chief Executive Officer; and Bill Sorenson, Chief Financial Officer. After prepared remarks, we will open up the call to a question-and-answer session.

During this call, we may make statements related to our business that will be considered forward-looking statements under federal securities laws. Words such as, but not limited to, predicts, plans, expects, anticipates, believes, goal, target, estimate, potential, may, will, might, momentum, could, seek and similar words will identify forward-looking statements. These statements reflect our views only as of today and should not be relied upon as representing our views as of any subsequent date. These statements reflecting our current views regarding the future are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's EDGAR system and our website. We encourage all investors to read our SEC filings.

Qlik Technologies expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements made herein, except as required by law. Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation to the most directly comparable GAAP financial measures can be found in our press release, which is available at our website, www.qlicktech.com, under the Investor Relations tab. Also, please note that a webcast of today's call will be available on our website in the Investor Relations section.

With that, I'd like to turn the call over to our Chief Executive Officer, Lars Björk. Lars?

Lars Björk

Thanks, Staci, and I'd like to start by thanking all of you for joining us today.

Before we begin the call, we wanted to express our sadness that one of our board members, John Burris, lost his battle with cancer last Friday. Personally, I wanted to call him a friend. Professionally, he brought great experience and wisdom to QlikTech.

For the third quarter of 2012, we reported total revenue of $86.1 million, representing an increase of 14% over the prior year period. On a constant currency basis, total revenue grew 20% over the prior year period.

Despite the ongoing challenging business conditions, we were able to show strong year-over-year growth. Our non-GAAP operating income for the quarter was $4.3 million, and non-GAAP net income per diluted common share was $0.02.

Our partner channel delivered strong results within our small and midsized customers. The challenging business environment within enterprise companies elongated sales cycles impacting our results overall.

During our second quarter conference call, we outlined some of the measures we were implementing to adapt to these tougher conditions. However, these tougher conditions had a greater impact than we anticipated towards the end of the third quarter, and we have more work to do.

We improved our sales rigor during the quarter, improved ROI and value proposition earlier in the sales cycle. We still have additional steps to take that are not only related to our sales processes but also to achieving our goal of being even more enterprise-ready from a product and service perspective. I will spend some more time on this in a moment.

Europe performed, as expected, with pockets of strength, as well as territories that continue to be impacted by the challenging economic environment. Overall, European revenue for the third quarter was $46.1 million, an increase of 10% year-over-year or 19% on a constant currency basis.

The Americas reported revenue of $30.5 million, an increase of 14% year-over-year or 16% on a constant currency basis. This quarter, the Americas felt a greater impact from the challenging business environment, particularly at the enterprise level.

Rest of world revenue for the third quarter was strong at $9.5 million, an increase of 43% year-over-year and 48% in constant currency. 51% of license and first year maintenance came through our partner channel, indicating we have a solid value proposition and distribution model for the small and medium business markets. Our partner community is a large, diverse and growing piece of our business, with no one partner driving a meaningful percentage of our overall revenue.

While our results were not as strong as we had hoped, we are positive on the steps we are taking to deliver against the opportunity of simplifying decisions for everyone, everywhere. Whether you call it Big Data, Business Discovery or Business Intelligence, the overarching need is to make the exploring array of data being collected actionable. It doesn't matter where the data comes from, the size of the data set you need to analyze or what device you use to generate or analyze the data. This market is large and growing, and we believe it can support several players. We believe we are not opportunity-constrained, and our competitive win rates remain strong. In addition, we announced several new offerings that further differentiate our product and improve our position in the market.

As we continue to target the enterprise market and work with them on their Big Data initiatives, we have invested to expand our solutions. One of these key elements is the ability to perform direct query into multiple data sources or, as we call it, QlikView Direct Discovery. QlikView Direct Discovery is designed to deliver analysis from various data sources with a hybrid approach, combining a direct query into big data with data loaded in memory. This opens up massive amounts of Big Data to be used with QlikView's intuitive, associative analysis experience. And even allows for write-back capabilitites to the enterprise data warehouse when used with the QlikView Expressor.

Standard data visualization tools and traditional query capabilities allow users to either create extracts to an in-memory engine or run queries on the database, but not to do both within the same application persistently. The Direct Discovery hybrid approach, combining a direct query into Big Data, with data loaded in memory offers the best of both worlds.

The speed and openness of QlikView, combined with a significant scale of an enterprise data warehouse. Direct Discovery improves the value proposition for the enterprise customer by expanding the data universe available to QlikView.

Now working directly with big data sources, QlikView has the potential to become a solution that helps enterprises better leverage their existing Big Data investments or maximize returns on new investments. To the end, we are partnering with key players in the Big Data arena, including Teradata and Cloudera.

Teradata was the first Big Data or data warehouse in vendor to have announced the integration with QlikView using Direct Discovery. With this partnership, customers can combine a direct query into Teradata data warehouse with data preloaded in memory in QlikView. This allows certain data elements not loaded into the QlikView data model to be accessed through QlikView objects in the application.

Customers of both companies will have the best of both worlds, rapid analytical app creation and in-memory performance combined with a dynamic big data set access, leveraging an active enterprise data warehouse.

We're also pleased to partner with Cloudera's Impala real-time data query engine. Cloudera is the standard for Apache Hadoop in the enterprise, and the category leader in Apache Hadoop software, services and training.

QlikTech has validated their solution with Cloudera's enterprise real-time query powered by Impala. This is another example of the partnerships and opportunities that are open to us because of their Direct Discovery capabilities, that can pull from many big data sources, including Hadoop.

Another piece of our product advancement is the availability of the QlikView Governance Dashboard. Developed from our recent acquisition of Expressor, this free product, available on QlikMarket, provides QlikTech customers with visibility into their QlikView deployments, enabling them to maximize data governance practices and further optimize their QlikView investments. The QlikView Governance Dashboard is designed to allow IT organizations to save time and resources by deploying quickly across the enterprise, with a repeatable and consistent view of common business and data definitions.

A single location provides a 360-degree view of their entire QlikView deployment, instilling confidence and trust in the day-to-day use and reuse because there is a secure data governance framework in place.

As QlikView deployments grow across an organization, the need to apply best practices becomes increasingly important. This is key to the expand piece of our land and expand strategy. In addition, the Governance Dashboard provides enterprises with the added approval from IT, as well as the business user.

Along with our product enhancements, we're also improving our services organization. As we scale, we will remain true to our core belief that QlikView should be easy to deploy and in the hands of the business user. To better serve our enterprise customers, we're increasing investments in consulting, post-sale consulting and education to further meet their needs.

To that end, we have hired Mark From-Poulsen as Senior Vice President in Global Services. Mark joins us with 28 years of experience in the IT industry. Most recently, he was head of EMEA field services at SAP. Prior to SAP, he worked at HP as the Vice President of Worldwide Consulting Sales.

One of the things Mark and his team will be working on is to create blueprints that will help larger enterprises more quickly realize benefits from broad QlikView deployments and their existing Big Data infrastructure. He will also continue to improve our self-service and partner capabilities, which we believe are important for our mid-market and small business customers.

We will continue to invest in our enterprise sales capabilities to make our customers even more successful in the enterprise, and accelerate the investment in QlikView.next to allow us to further differentiate our products from competition. We believe that this, combined with the strength across small and midsized businesses in our channel, positions us well to capture our long-term growth opportunity.

Before I turn the call over to Bill, I wanted to leave you with a few thoughts on QlikTech from a leading independent third-party organization. What is exciting and gratifying to us is how we have evolved over time in the Business Applications Research Center, or BARC survey. BARC considers us a leading vigilant analysis and data discovery vendor, as well as a leading BI giant. This year, QlikView ranked first in visual analysis, innovation, agility and shortest project length. We're extremely pleased with this results, particularly because they are directly from our users and emphasize the quality usability and value that our products provide, as well as the strength from the brand we are creating.

With that, let me turn the call over to our CFO, Bill Sorenson. Bill?

William G. Sorenson

Thanks, Lars. I'd like to provide further details on our financial performance during the third quarter 2012, followed by our guidance for the fourth quarter and full year 2012.

Total revenue was $86.1 million, up 14% over the same period last year. On a constant currency basis, total revenue increased 20% year-over-year. Within total revenue, license revenue increased 7% over the same period last year to $48.8 million. But on a constant currency basis, license increased 13% year-over-year.

Maintenance revenue was $30.6 million for the third quarter, increasing 33% over the same period last year. On a constant currency basis, maintenance increased 41% year-over-year, indicative of our increased focus on maintenance renewals and the ongoing value our products provide.

Professional service revenues was $6.7 million, decreasing 4% over the same period last year and increasing 1% in constant currency year-over-year.

In the Americas, revenue was $30.5 million or 35% of total revenue, increasing 14% year-over-year and 16% year-over-year on a constant currency basis. As we increased our focus in the enterprise market, the extended sales cycle for larger deals, as well as the challenging business environment impacted results.

Revenue from Europe was $46.1 million or 54% of total revenue, increasing 10% year-over-year or 19% year-over-year on a constant currency basis. In light of the broad economic pressures, our European territories performed very well overall.

Rest of world continues to experience healthy growth with revenue of $9.5 million, increasing 43% year-over-year or 48% year-over-year on a constant currency basis. We are seeing improvement in this region as a result of the investments we have been making and the efforts of new management that took over earlier this year.

During the quarter, 61% of license and first year maintenance was generated from our indirect partner channel, which focuses primarily on small and medium-size businesses. This was a strong result, and our partners continue to be an important part of our overall growth strategy. We ended the quarter with more than 26,000 customers and generated 57% of our license and first year maintenance from existing customers.

During the quarter, we completed 86 deals over 100,000, compared to 105 in the same period last year. Included in this, we also closed 18 deals over 250,000, compared to 15 in the same period last year. These deals include license revenue plus first year maintenance. Consistent with last quarter, our larger deals were more impacted by the current challenging business environment.

Our headcount ending the quarter was 1,378, a 32% increase from the year-ago period and a sequential increase of approximately 72 net new people.

Gross profit for the third quarter of 2012 was $76 million and represented gross margin of 88.2% compared to an 88.8% gross margin in the third quarter of 2011.

Operating expenses totaled $77.7 million in the third quarter, an increase of 20% compared to $65 million in the prior year, which reflects a meaningful increase in R&D spending as we prepare for QlikView.next, as well as the continued investment in our enterprise sales and service capabilities.

Now let's touch on operating and net income and EPS. The press release we issued this afternoon shows these figures in both GAAP and non-GAAP form and explains the nature of the items excluded from the non-GAAP results. I want to call out some of the non-GAAP figures that we believe are meaningful indicators of trends in our business. Our non-GAAP operating income was $4.3 million for the third quarter compared to a non-GAAP operating income of $5.2 million in the prior-year period. Q3 2012 non-GAAP operating income excludes $5.5 million of stock-based compensation expense, $119,000 in employer payroll taxes on stock transactions and $401,000 in amortization of intangible assets.

During the quarter, we had a foreign exchange loss of approximately $1.7 million, which was included in other expenses, compared to a gain of $800,000 in the same period last year. Foreign exchange gains and losses can fluctuate, and our guidance does not consider any additional potential impact to other income expense associated with foreign exchange gains or losses, as we do not estimate movement in FX rates.

On a non-GAAP basis, our non-GAAP net income was $1.8 million for the third quarter of 2012 or $0.02 per diluted common share, compared to a non-GAAP net income of $4.1 million or $0.05 per diluted common share for the third quarter of 2011.

Moving to the balance sheet. Cash and cash equivalents totaled $193.1 million compared to $177.4 million as of December 31, 2011. During the 9 months ended September 30, 2012, we generated $25.4 million in cash flow from operations as compared to $11 million for the 9 months ended September 30, 2011.

Now let me turn to our thoughts on the fourth quarter and full year 2012. Our guidance assumes that the current economic conditions continue, and that foreign exchange rates for the fourth quarter will approximate current exchange rates. For the fourth quarter, we expect total revenue to be in the range of $125 million to $130 million; non-GAAP operating income to be in the range of $28 million to $31 million; and non-GAAP net income per diluted common share of $0.22 to $0.24.

Our expectation of non-GAAP net income per diluted common share for the fourth quarter excludes stock-based compensation expense, employer payroll taxes on stock transactions and amortization of intangible assets. It also assumes an estimated long-term effective tax rate of 32% and weighted average shares outstanding of approximately 88 million.

For the full year 2012, we expect total revenue to be in the range of $376 million to $381 million, an increase of approximately 18% over 2011 at the midpoint of the range. Non-GAAP operating income is expected to be in the range of $32 million to $35 million. Non-GAAP net income per diluted common share is expected to be in the range of $0.23 to $0.25.

Our expectation of non-GAAP net income per diluted common share for the full year excludes stock-based compensation, employer payroll taxes on stock transactions and amortization of intangible assets. It also assumes an estimated long-term effective tax rate of 32% and weighted average shares outstanding of approximately 88 million.

As we will look ahead to the fourth quarter, we have a strong pipeline of opportunities, and continued to target strong top line growth. We also plan to increase investments in the business, as we believe the challenging economic environment provides us with an attractive opportunity to further strengthen our market leadership position and gain market share. In particular, we're accelerating investments in R&D in support of QlikView.next. We're also adding senior consultants to help us with pre- and post-sales service, as we continue to expand our presence with enterprise organization in addition to continued investments and expanding our overall sales and marketing resources.

So with that, operator, I think we're ready to begin Q&A. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Adam Holt from Morgan Stanley.

Adam H. Holt - Morgan Stanley, Research Division

I guess my first question is about just thinking through the operational changes that you talked about on the enterprise front. Can you maybe drill down and talk about some of the changes that you're making to deal with longer sales cycles to accommodate some of the changes in the macro? And how you expect those to unfold as you look into Q4 and into calendar '13?

Lars Björk

So Adam, Lars here. So we spoke about the investments we are doing on the service side. We also made some management changes on the sales side in the Nordics, we recently hired a new lead in Asia Pac. And on the layer below that, we've also made a few changes. The actions that we put in place already in Q3 after Q2 are underway, well underway, but they can -- we need them to continue to improve, and they are doing. So working into an environment that's getting tighter with longer sales cycles needs a different level of rigor, a different level of qualification and I think we have those pieces in place now. And they're falling more and more into place as we move into this quarter.

Adam H. Holt - Morgan Stanley, Research Division

If I could just sort of continue on that, looking into the fourth quarter, if you look at the -- these are the application for license revenue, it looks like it's a little above seasonal. However, it looks it like if you adjust for currency, maybe it's actually below seasonal. So if you could just kind of walk us through some of the puts and takes on the Q4 number, Bill, and how are you getting comfortable with the Q4 build?

William G. Sorenson

I look at the number on Q4, Adam, being pretty consistent with what we've seen historically from both a seasonal basis as well as a sequential basis. I think the sequential was one that we looked at very closely to make sure that we weren't biting off more than we can chew. I think we have had a number of deals that have extended sales cycles continuing into this quarter. And obviously, we're looking to try to move them to a closure before year end, which I think on both the buyer and the seller side is very -- is more realistic in this environment. But we've also taken into consideration what we've seen from a macro perspective. So as Lars said, I think we are much closer to the enterprise deals. I think we've looked at them with very close scrutiny relative to what's in there and factored in the potential further extension of that sales cycle, but in expectation, they'll come in before the end of the year.

Lars Björk

I just wanted to add to that, Adam. While it might pan out to be a seasonal pattern here, the way that we view this is deal by deal that builds up to what's in the pipeline. That's the only way you can do it in this market, particularly in the enterprise space.

Operator

[Operator Instructions] Our next question comes from John DiFucci from JPMorgan.

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

I'd like to follow up to Adam's question because that's going to be the question that people are going to be talking about tomorrow. It sounds like you're saying that macro is not going to get better, but you've been doing lower than normal seasonality the last couple of quarters. So I guess it sounds, Lars, like your last comment, that's just based on the pipeline that is better than normal seasonality. Is that the right way for us to be looking at it?

Lars Björk

If it comes out that way, you could certainly conclude that. But again, I cannot be more clear about it. We have to look at what's in there as deals, and we certainly have a strong demand out there. We have to put a different type of scrutiny and qualification on it, and this is the number that we came to.

William G. Sorenson

Just to say, John, that I think if you take the range and you look at what we have in there, you're right. The Q4 amount for the year would be lower than sort of the high 30s. Is that sort of your question, high 30%?

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

Yes. I mean, with -- it's just when you look at -- I'm looking at the license revenue and typically, you do see a big ramp, I know, in the third quarter, and it looks like you've seen it in the last couple of years, and that's what's implied in this quarter. It's just that the last 2 quarters, you didn't do what was called -- we'll call normal seasonality. And it's kind of like why would you see it this quarter if the environment's going to be the same? And I guess the only thing that really -- when I listen to what you guys say, it sounds anyway that, like Lars is saying, you're looking at the deals and maybe that there's more deals. I'm not sure what it is.

William G. Sorenson

Well, I guess I'm not certain why you say it's not the same type of seasonality. I mean, if I look at Q3, Q3 would be sort of in the low 20% relative to the year, which is consistent when you ...

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

Okay. I'm sorry, Bill. When I look at -- so Q2 -- from Q1 to Q2, license revenue sequentially grew 8%; last year, grew 20%; the year before, grew 24%. When I look at Q -- I guess Q2 to Q3, it was minus 2%. And I know this isn't foreign exchange affected, but last year it was 0%, so I guess it is about the same last quarter as far seasonality. And then -- so I guess, maybe it was just the Q2, and now we're back to normal seasonality, sort of a new normal. Maybe that helps. That helps. Okay. A little slow sometimes. I guess, one other follow-up. Lars, you said the enterprise is where the issue this quarter. At the same time, you've also said you're making Qlik more enterprise-ready, including from a sales and other perspectives. I guess, can you just explain what that means from a sales perspective?

Lars Björk

Well, I think what we've learned in this market is that elongated sales cycle, specifically in the enterprise, is pretty clear. And therefore, the work behind closing a deal has to have a lot more rigor and discipline and a work behind it. But you also -- we also recognize that for being successful in the enterprise, we can't continue and will continue to invest in the surrounding services that supports that deal, and that's why we put that focus. We also think that the release of Direct Discovery here is an interesting and intriguing part for enterprises that have a lot of legacy data warehouse, data bases out there that we, in a much easier way, can connect to and bring into QlikView.

Operator

Our next question comes from Brent Thill from UBS.

Brent Thill - UBS Investment Bank, Research Division

Bill, just a follow-up on the question just around the Q4 methodology. Can you just help us understand your close rate assumption? Are you assuming similar close rates as you saw in Q3? Because I think the primary concern going into Q3 was, was the bar low enough, and clearly, even your guidance range missed a little bit in Q3. So are you thinking the same close rate or slightly more conservative close rate going into Q4?

William G. Sorenson

Brent, everybody tells us that we set the bar too high in Q3, so it's interesting to hear you say we set it too low, because what we got a lot on the road was, why are we being so ambitious after Q3.

Brent Thill - UBS Investment Bank, Research Division

I didn't say you set it too low. I think just trying to understand how you're thinking about it relative to -- we don't know your close rate, but just curious in terms of how you're approaching the pipeline for Q4.

William G. Sorenson

Right. Absolutely, no. I was just saying we've been asked that question in a few different ways, and the presumption had been that we were being aggressive. In any event, it doesn't matter. Again, we don't apply -- we don't take a broad pipeline and apply a broad close rate as a way to look at this. We do work this up deal by deal. Obviously, there is a cutoff from where we look at it individually by deal. And we look at what the likelihood of closing of each of the individual transactions are. Where are we with thought process? Where are we with the decision makers? Where are we in competitive environments or not? So we look at that, we look at the individual deals, we look at the individual territories therein. And if there are macro concerns that inform our judgment, we'll take those into account. So I think, in general, we are trying to be conservative to ensure that we can meet the targets we put in front of us, and we really do try to look at this in a very, very detailed way.

Brent Thill - UBS Investment Bank, Research Division

Okay. And I appreciate the color. Obviously, this is the question that we're all gaining. I guess, as it relates to the indirect side, Bill, your assumptions here in terms of working with your partners is a little bit harder when you're going through a partner. How have you changed that methodology, if there's been any change at all?

William G. Sorenson

I don't think there's much of a change, Brent, because if you look at the numbers this quarter, the partner channel is very, very well for us. So it is very much a volume business. It's one that we have been working in terms of trying to expand the quality side of that. Certainly, the SIs have played a role in that. We've seen an increased contribution from that, although a number of those deals will be in the higher end, but certainly, in certain territories, down the lower end. We continue to sign up quality partners, and that is a real volume business for us, and it's continuing to do really well. We also saw nice increase in the deals side within the direct side. So I think you're right, you don't have as much necessarily visibility deal by deal but you certainly have the volume, and the volume is very, very broad-based in terms of the territories.

Operator

Our next question comes from Karl Keirstead from BMO Capital Markets.

Karl Keirstead - BMO Capital Markets U.S.

I'd just like to dig a little deeper into the elongated sales cycle comment. It seems to me that there could be 2 factors going on. One would be a broader customer budget tightness that everybody would be seeing. And secondly, it might be a bit little more Qlik-specific in the sense that the improvements you're making to the product sales and service just need time to get traction. I'm wondering if you could discuss what's the bigger of those 2 factors?

Lars Björk

I think the biggest factor that we see, Carl, is that people are holding onto their money a little bit harder. They are evaluating before making decisions. They're reevaluating more frequently, and that pushes out the decision.

Karl Keirstead - BMO Capital Markets U.S.

Okay. So it's mostly a broader macro budget issue. You don't think mostly Qlik-specific?

Lars Björk

I would say so, yes.

Karl Keirstead - BMO Capital Markets U.S.

Okay. And then my second question is, you've mentioned a few times about the need to make the product a little bit more enterprise-ready, and obviously, in your fourth quarter guidance, you flagged R&D as being a big investment area. Could you give us any guidance as to what the R&D line might rise to as you invest more in the product? That's been running about 9% at least through the first half of 2012. Where should we model that to go to, given the investments you're making?

William G. Sorenson

Well, what we look at, Karl, as you can see in this quarter, 11%, obviously, we'll have a big jump in revenues, so the percentage will be impacted by that. But we're also, as we've said, accelerating the investment there. So I would be thinking you're going to see that line around 10%, maybe a bit more.

Operator

Our next question comes from Steve Ashley from Robert W. Baird.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

You talked about stepping up the investment, looking for QlikView.next, and I'm just wondering, are you trying to, with this QlikView.next, improve the visualization? Is more of the improvement coming on the front end visualization, or is it back end? And if you could comment on that. And then, second maybe on timing on when we might see the release?

Lars Björk

Steve, we haven't spoken about timing, when that will be. We are in the midst of doing this. And we haven't been explicit whether it's on the front end or the back end yet. So stay put and there will be announcements.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Great. You talked about beefing up the consulting. Does that suggest that the margin structure of your gross margins might change and be tempered a little bit going forward?

William G. Sorenson

Well, I think on a gross margin side where we're being impacted is really on -- relative to professional services. We continue to make investments in the quality of that and in terms of how they're interfacing with the larger enterprises increasingly. So I would hope that we're going to see improvements in those margins from where we are, so I would expect that to be moving us back towards 89% to 90%. With that said, we are making investments in our overall support. We're working on some internal initiatives to basically make the support element vis-à-vis any customer very easy and very responsive. So you may see some more investments relative to what's going in that line. But our expectation is the gross margin should be 89% to 90%.

Operator

Our next question comes from Tom Roderick from Stifel, Nicolaus.

Tom Roderick - Stifel, Nicolaus & Co., Inc., Research Division

So maybe I can follow up on the questions earlier from John and Adam, regarding the -- just the enterprise push here. And I think their questions were more on sort of the sales force structure and how you get a deal across the goal line. I wanted to ask a little bit more about the product and the product evolution as you're pushing upstream. Historically, this has been embraced by the departmental level at large enterprises. What have you had to do to the product to move that up to an enterprise grade sale? And maybe if you could specifically talk a little about the Expressor acquisition from a couple of quarters ago, how that's going and how customers are receiving this at the enterprise versus departmental level.

Lars Björk

So I don't think -- Lars here. So I do think it's us pushing up. I think there's a combination of us moving in because there's a strong interest and demand. We are being pulled more than pushing into this space. And we have, for quite sometime, done enterprise deals with larger clients where deployment looks different from a midsize customer, of course, and it is being embraced by IT. And center of excellence are being built. A product like Expressor is going to help that side of managing the environment, and the recent announcement is going to help them leverage other investments they've done in the past, which typically is customers of size.

Tom Roderick - Stifel, Nicolaus & Co., Inc., Research Division

And Lars, as a follow-up to that, as you get into this enterprise account negotiations, can you talk about which competitors you're seeing most frequently, and how much pricing pressure you're feeling at the high end of the market?

Lars Björk

So I think the pricing pressure is no different now than it has been. It is certainly more apparent in the enterprise than anywhere else. And we are seeing just the same competitors that we've done for a number of years. It's mostly the incumbents that, given their size, that are already in a lot of accounts or trying to get into some accounts.

Operator

Our next question comes from Walter Pritchard from Citi.

Robert Chen - Citigroup Inc, Research Division

This is Robert Chen in for Walter. A question about the QlikView Direct Discovery product. Can you talk about the initial customer [indiscernible] and how do you expect to monetize that?

Lars Björk

Well, the -- first of all, it's going to be free and included with the product 11.2. So -- and the release is in December. We just went out with the release now. We released it at the Teradata Conference this week, and it's been very, very well received. So it does open up an ability in the product. We're not going to charge anything extra for that.

Robert Chen - Citigroup Inc, Research Division

And then just a follow-up on questions around the enterprise, it seems like in the last 1.5 years or so, you guys have really transitioned from more traditional land and expand and deals to broader enterprise-wide deals that you're trying to land. I'm just curious if some of the weakness that you saw this quarter was more related to the shifting nature of deals that are more replacement deals? Or are the nature of deals that you're seeing sort of consistent with the last couple of quarters in the enterprise?

Lars Björk

Yes. The first correction I would make is that we are not necessarily seeing that more enterprises are wanting to land an enterprise deal upfront. It's still land and expand. We do see land deals being bigger, and we're certainly seeing expand deals, whether it's a second, third or fourth and so on, being larger. And -- but we don't see any different patterns from previous quarters. It mostly looks the same.

William G. Sorenson

We've seen 1 or 2 places where there has been a replacement. But as we talked about, Robert, that isn't -- even as we're moving up into bigger enterprise deployments, it's not really a rip-and-replace type scenario.

Operator

Our next question comes from Ross Macmillan from Jefferies.

Ross MacMillan - Jefferies & Company, Inc., Research Division

Lars or Bill, your Americas revenue growth was actually lower than Europe this quarter on a constant currency basis, and I know the comp was tougher. But the Americas piece was -- Americas segment was meant to be the higher growth part of your business. It's where you are making a lot of the investments. Do you have any thoughts as to why that business is growing more slowly than Europe? I mean, x comp, it's still 50% smaller than the European business. And do you have any thoughts on kind of why that business, that you in particular is growing at the rate that it's growing at?

Lars Björk

Ross, Lars here. So what we -- clearly, where we see most of our enterprise opportunities is in the Americas. And with what we have spoken about before, the tightness being more clear in that market and the elongated sales cycles, it impacted us here more than anywhere else. That's mainly the reason why we ended up what we did. We still see strong demand, we still see a lot of these deals being in place for this quarter and we are certainly going after them.

Ross MacMillan - Jefferies & Company, Inc., Research Division

And the reason there's more enterprise opportunity in the U.S. than Europe, is that just a function of market maturity, or why is that?

Lars Björk

I think it's a function of us making stronger investments, as we've spoken about in the past quarters, in the U.S. and making specifically a stronger investment into the enterprise space and named account reps.

Ross MacMillan - Jefferies & Company, Inc., Research Division

And then just if can ask one on the Direct query. Now that you've got that product, I'm curious, was that being demanded by customers? Was that coming up a lot in discussions? Was that a gating factor toll [ph] before that now you solved? Could you just talk to that?

Lars Björk

Well, let's put it this way. We've certainly been asked before, and I've been asked a few times by analysts as well. I think the key thing that we want to take away from this is that we don't want to move away from what's so great about QlikView, that you can get the fastest answer on any question you have because you hold the data in memory. The openness of the architecture we can start and stop anywhere. But what if you could connect to an enterprise data warehouse and get almost the infinite data finds as well, and combine the 2 where one doesn't restrict the other one or constrain the other one? That's been the driver behind this from our perspective.

Ross MacMillan - Jefferies & Company, Inc., Research Division

And then very last one for Bill. I think foreign exchange -- you mentioned that the guidance is based on prevailing rates, and I'm pretty sure by my math that the FX impact will be less severe year-over-year. I just wonder, do you know, at prevailing rates, what the FX impact would be approximately on revenue for Q4?

William G. Sorenson

Against last year?

Ross MacMillan - Jefferies & Company, Inc., Research Division

Yes, exactly.

William G. Sorenson

I can estimate right now, but I hate to do that. I would think it's going to be a couple of percentage points.

Ross MacMillan - Jefferies & Company, Inc., Research Division

Okay. I think that's in the ballpark of what I was thinking.

William G. Sorenson

And it depends on where you're starting, where you're going to end. I mean, again, last year, looking at the euro at 1.35, 1.36, and we're at 1.29. The pound was pretty flat and the kroner was in the low 6 and now, it's in the high 6. And so, I mean, maybe a couple points at this moment right now. Not as much as it was earlier in the year though, Ross.

Operator

Our next question comes from Greg McDowell from JMP Securities.

Greg McDowell - JMP Securities LLC, Research Division

I noticed your active customer count of 26,000 remained relatively flat quarter-over-quarter. So I was just wondering if you could comment on this number, and maybe comment on churn rates or maintenance renewal rates, and whether you've seen any recent change?

William G. Sorenson

Well, for us, Greg, this quarter, we got up towards 1,000 new customers. And within that group, because of the waiting at the -- or because of the increase in the average deal size, you basically didn't get as many new customers as you might have gotten in the prior quarter. But at the same time, we continued to see our maintenance rates improving. So I would say, there isn't really churn. Our maintenance renewal rates are pushed up pretty close to 90%. We're still catching up on a lot of folks in a number of different geographies. So I would say we're bringing on bigger customers, we're doing bigger deals and you may not see as pronounced a growth rate in that number. But as you correctly asked, the maintenance renewal rates continue to improve, so we're not losing folks.

Lars Björk

And also, we put out a rounded number to the close of 1,000, so that's why, at this quarter, it happens to be the same.

Greg McDowell - JMP Securities LLC, Research Division

Yes, that's fair. Quick follow-up, and maybe this one is for Lars. I know someone asked about QlikView.next already, but I'm going to push a little harder. I guess I want to ask, I know you don't want to comment on timing of the release, but what excites you the most about QlikView.next? And do you consider this a transformational release for Qlik? And if yes, why?

Lars Björk

I think it's going to be a very interesting release for Qlik. I think the way that we've gone about it and given the team a pretty open and free starting point for what we wanted to get out of it based on 5 key themes that we will speak to once we get to the point that we release this. It's going to be very, very compelling with all the effort that we're putting into it. I can't be more explicit at this point.

Operator

Our next question comes from Jesse Hulsing from Pacific Crest.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

This one's probably for Bill. Have you seen a push from customers as you move into these larger deals with an enterprise to pursue ELA-type pricing strategies? And if so, internally, are you finding challenges adapting to new pricing structures and changing your processes away from the way you traditionally license?

Lars Björk

So I can take that one. We don't see more of that than we've done in the past. Certainly, you see people negotiate when it gets to be an enterprise type of deal. But to speak about ELA explicitly is not anything that has picked up. The second part of the question, are we considering other pricing structures? Yes, we are considering other things and we will make a decision whether it makes its way into the new product.

Jesse Hulsing - Pacific Crest Securities, Inc., Research Division

And next question, when you move to a direct connect type of format and you can leverage existing ITS [ph] that's like a Teradata, do you think the mix of new business will start to ship more to replacing existing system like Cognos or BusinessObjects rather than just augmenting them?

Lars Björk

I think it's too early to draw any conclusions from that. I think what it opens up is an opportunity for our customers to choose to do either way. And that's what -- we don't want to have a customer being forced into replacing. But if there is benefit to it, it could be very well be. And that clear benefit is there. I think the strength for what we have done is that you can connect to an underlying data warehouse, and at the same time have many other data sources loaded into the QlikView, and the only performance difference you will see is when you send the query down. Everything else in the application will remain as fast and agile as Qlik has always been.

Operator

Our next question comes from Derrick Wood from Susquehanna Financial Group.

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

Given the changes in some of the leadership and some of the challenges you're seeing in close rates, are you making any notable changes to the field sales force? And -- or any changes in your forward hiring plans?

William G. Sorenson

I think in terms of the leadership, no. I think the leadership is in place. In terms of the hiring plans, I mean, the reality right now is we're in Q4, which tends to be a slower hiring time for us in any event, and we'll be looking at our hiring plans into 2013 as we progress through the quarter and see how the year plays out. Obviously, we are beginning to plan for '13, and we are going to be focusing on things that are important like R&D, like services. But beyond that, we're going to wait and see how the balance of the year plays out.

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

Okay. But given the change in leadership, you don't expect them to make any changes to the field server, the field force or go-to-market or comp plans or anything like that?

Lars Björk

I think those are things that we continually make assessments off and upgrade the theme and/or make changes to. So yes, I would expect that they do, but that's just normal business.

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

Okay. And in terms of the -- looks like the R&D spend ramped up pretty materially in Q3 and you're expecting that to go forward. Is that in part a response to what competitor moves are doing? Or if you could just give us any color why you are deciding to really ramp up R&D at this point in time, and then what your targets would be as a percentage of revenue in the longer-term?

Lars Björk

I'll leave the last piece to Bill. I'll just start. We see an enormous opportunity to come out with a product, and that's where we make these investments into the R&D over this year and we have accelerated them now. And the 5 themes that we have focused on, like I mentioned for you guys that goes into the next product immersion is, we want to make the product very, very gorgeous but also genius; we talked about mobility but with agility being a key theme; we've talked about compulsive collaboration; and we want to make QlikView the premier platform; and we want to continue to enable the enterprise. So here's some -- just to give you some themes and thoughts about what goes into the next version of QlikView.

William G. Sorenson

So in terms, Derrick, of the spend, I think we have been saying that we anticipated that you'd be seeing R&D increasing as a percentage of revenue. I think it's our goal to continue to develop resources there to continue to maintain, if not increase, our competitive position and our leadership in this space. So I think it is -- we want to get there, and we're spending the money to get there as soon as we can.

Operator

Our next question comes from Nathan Schneiderman from Roth Capital.

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

On the stepped-up and accelerated investments, and R&D and senior consulting for pre- and post-sales, I was curious if these were initiatives that you had originally planned for 2013 and just brought them forward? Of course, there is the brand new stuff going on here that you haven't previously anticipated you would need to do. And if so, could you speak to that?

William G. Sorenson

No, I think this is right where we expect it, Nathan. The service element -- Mark From-Poulsen is somebody we had -- we were targeting a senior level person in that area, so I don't think it was anything we pulled forward. I would say in terms of R&D, we may be just putting more wood on the fire to get us there, but I don't think it's anything we're necessary pulling forward into this year for any reasons of what's going on now, no.

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

Okay. And then just a follow up with a quick question on this issue of increasing enterprise readiness. I was just curious, was the pushback that you feel you're responding to more related to product changes that you needed to make it more enterprise worthy? Or it was it more related to just the process of how you sell to enterprises in a tough macro environment?

Lars Björk

I wouldn't call it a pushback. I would call it that we see that with these investments, we will increase our ability to close deals in this space.

William G. Sorenson

And they demand more as customers. As we -- as you continue to push out, they demand quite a bit from us in terms of not so much the product, but more in terms of how we work with them , how we service them and how we help them expand.

Nathan Schneiderman - Roth Capital Partners, LLC, Research Division

Okay. And any final comments on changing positioning versus Tableau?

William G. Sorenson

No. I mean, Tableau is one of a number of competitors we face. I mean, the biggest competition we face is the stack vendors. And we do not see Tableau in a large number of our deals, but they are one of a number of folks. I mean, we are looking at competition from probably 8 different players, but again, dominated by the traditional stack folks who are the ones we see most of the time.

Operator

Our next question comes from Ed Maguire from CLSA.

Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division

I was wondering if you could discuss the progress you've made with the QlikMarket, and specifically how applications are playing the role in your departmental selling. And as you -- certainly, as you move up into the enterprise, now whether the business sale is becoming increasingly an IT sale.

Lars Björk

So you certainly saw our announcement on QlikMarket, it's tracking very well. It's still early days. I don't think we can draw too much conclusion from it yet. It is decided to be a marketplace at this point. It's not something we have any intention of monetizing. And what we see is that this type of applications or blueprints or templates are a good way of leading into a discussion, whether as an enterprise or with any customer.

Operator

This ends our Q&A session. I will turn it back to Lars Björk for closing remarks.

Lars Björk

Before we end the call, I'd like to thank you for joining us today. I would also like to thank our employees and partners for their efforts during this past quarter.

We will be hosting an Analyst Day in New York City in the morning on November 15 and hope you can join us either in person or via webcast. If interested in attending, please reach out to our Investor Relations team for more information. Thank you.

Operator

Ladies and gentlemen, thanks for participating in today's program. This concludes the program. You may all disconnect.

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