Jive Software (NASDAQ:JIVE)
Q3 2012 Earnings Conference Call
November 5, 2012, 5:00 pm ET
Bryan Leblanc – CFO
Tony Zingale - CEO
Jennifer Swanson – Morgan Stanley
Jason Maynard – Wells Fargo
Heather Bellini – Goldman Sachs
Brent Thill – UBS
Michael Nemeroff – Credit Suisse
Walter Pritchard – Citi
Chaitanya Yaramada – Robert W Baird
Karl Keirstead – BMO Capital Markets
Michael Huang – Needham & Company
Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Jive Software third quarter 2012 earnings call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.
I would like to remind everyone that this conference is being recorded and would now like to turn the call over to Mr. Bryan Leblanc, CFO. Please go ahead, sir.
Thank you. Good afternoon and welcome to Jive Software's third quarter 2012 earnings call. We will be discussing the results announced in our press release issued after the close of market today.
As the operator mentioned, I am Bryan Leblanc, Chief Financial Officer of Jive and with me on the call is Tony Zingale, Jive's Chief Executive Officer.
During the call, we will make statements related to our business that are considered forward-looking under federal Securities laws. These statements reflect our views only as of today and should not be reflected upon as representing our views of any subsequent date.
These statements are subject to a variety of risks and uncertainties that could cause our actual results to differ materially from expectations. For a discussion of those material risks and other important factors that could affect our actual results, please refer to those contained in our annual report on Form 10-K and quarterly reports on Form 10-Q, both of which are on file with the SEC.
Also, during the course of today's call, we will refer to certain non-GAAP financial measures. There is a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued after the close of market today, which is located on our website at www.jivesoftware.com.
With that, let me turn the call over to Tony and then I will come back at the end to discuss the details regarding our third quarter results as well as our guidance for 2012. Tony?
Thanks, Bryan, and thanks to everyone for joining us today to review our third quarter results, which were at the high end or better than our guidance ranges for both revenue and profitability.
During the third quarter, we continued to make important advances in further establishing Jive as the clear leader in the social business market. We added a record number of net new customers. We also closed a record number of million dollar transactions, including customers that multiyear, multimillion dollar commitments to Jive as their social business standard and we continued to close business across a range of new and existing blue chip customers that spanned a wide range of vertical markets.
All of this success is being fueled by our highly differentiated track record of delivering tangible business value with hundreds of the largest global organizations. In addition, we continued to enhance our industry leading social business platform and ecosystem, including the release of Jive 6, our partnership with Box and today's announced acquisitions of the real-time communications platform Meetings.io and the cloud-based social task management system, Producteev.
As global organizations continue to turn to social business to change how they get work done and drive improved business performance, Jive is continually being recognized as the de facto standard with industry leaders.
Let's take a look at our financial results for the quarter. Revenue was $28.9 million, up 395 year-over-year and at the high end of our guidance range. Product revenue was even faster at 48% year-over-year.
Total billings, which we define as our revenue plus the change in deferred revenue, we're at $39.9 million and grew 47% year-over-year.
Gross margin continued to improve for the sixth consecutive quarter. Non-GAAP loss from operations of $5.5 million was $500,000 better than the favorable end of our guidance and cash flow from operations was a positive $1.6 million. In the face of what is a challenging economic environment, it was a strong performance.
2012 is going to be remembered as the year the market awareness increased by a step function with respect to the benefits of social business and there is good reason for this. There is tremendous value through the deployment of a social business platform.
(McKenzie) published research that states social technologies have the potential to improve knowledge worker productivity by 20% to 25%. To put that in perspective, that is essentially adding a full day of productivity per week for each employee. That's huge and it's why (McKenzie) estimates the annual value that can be unlocked by social technologies is over $1 trillion.
This is very exciting for Jive and we continue to be very encouraged by the market demand. As we find more companies doing their homework on social business offerings, Jive is recognized as the clear hands down winner from a technology, functionality, scalability, security and breadth of experience perspective.
We have dramatically pulled away from the pack with respect to our proven ability to deliver real business value to our customers. In fact, our record attendance of approximately 14 other participants at Jive World heard first hand the growing number of powerful business value results delivered by our customers.
This is the real reason that social business adoption is being recognized as a necessity and a top strategic priority.
Let me share just a couple of noteworthy examples. EMC, one of the largest technology venders in the world, presented at Jive World and discussed the fact that they have seen a 48% revenue increase per customer that is engaged on their social business platform powered by Jive versus those customers who are not. In a word, that's extraordinary.
EMC is moving to a consolidated external/internal social business platform, which Jive is uniquely positioned to deliver. During the third quarter, EMC was one of the multiyear, multimillion dollar commitments that I referred to a moment ago.
Customers such as EMC only make this type of commitment when applications are mission critical, when they are viewed as a must have and when they are delivering real business value.
We are also pleased to present Verizon Wireless with an award for engaging customers through its use of Jive social business platform. In addition to realizing cost savings that provided a full ROI within the first year of deployment, Verizon Wireless has seen a significant increase in customer satisfaction, aging productivity and brand loyalty as a result of its social business community.
Another powerful ROI story is (Damco) International, a division of (Marice) Group that specializes in ocean and air freight network logistics in more than 300 offices around the world.
They shared how they are deploying an internal social business platform across multiple and expect to receive a positive impact of 1% on revenue and gross margin that will ultimately lead to over $40 million in annual value.
This shows how social business is already reaching the more pragmatic business buyer, again, because of the ability to generate real business value.
Another tremendous success story at Jive World was the presentation from PWC, a strategic customer and an advocate of Jive. Within six months, over 90,000 PWC professionals have been connected via Jive and using our social business platform to collaborate and create value for both PWC as well as their clients.
Adoption of Jive is expected to double, spanning PWC's network of firms across 154 countries. This is the definition of viral expansion. It is the type of rapid global adoption not seen before in any enterprise software application and it only happens if real, tangible business value is being realized.
In less than a year, Jive has become the standard for how PWC engages employees, locates experts around the globe and holds powerful conversations on strategic issues with their clients.
In fact, PWC is already delivering business proposals to their clients and prospects in half the time. This is huge when you consider that this is the lifeblood of growing their services platform.
PWC has also already begun to apply what it has learned from deploying Jive to drive real business transformation out to its clients. During the third quarter, we closed a new $1 million agreement with AIA as a result of PWC's introduction and a try Jive trial that accelerated the sales process.
AIA was previously a part of AIG and they are now a standalone public company based in Asia and it represented our first $1 million customer in this strategic new market that Jive launched only months ago.
During the third quarter, we had another healthy mix of new customer wins and upsell activity for both internal and external communities that spanned a number of different verticals and industries.
These included insurance, financial services, technology, engineering, business services, airlines, automotive and, my personal favorite, professional sports.
The breadth of companies we are selling to has never been greater and it reflects the fact that companies in all industries can drive business value through the use of a robust social business platform.
In addition to previously mentioned customers, we signed deals with blue chip customers such as Citigroup, Credit Suisse, Chub Insurance, (Alliance), Detroit Diesel, Good Technology, F5 Networks, Life Lock, Nascar, Jacobs Engineering, Thompson Writers and SAIC, among others.
During the quarter, we added a record 54 net new customers which is up from 31 last quarter and nine during the first quarter of this year. So in addition to winning the largest true social business platform engagements, we are also accelerating the pace at which we are planting seeds in the marketplace to drive future sales.
The third quarter was also the first full quarter of being in the market with Try Jive, our quick start, fully functional cloud-based platform that introduces customers to the power of Jive and how social business can be applied to address real business challenges.
We continue to be very pleased with the market's response and the positive impact it is having on our business. As a reminder, when we include a company as a customer of Try Jive, they are actually paying for use of our cloud-based social business platform at the end of the free trial because they have already seen the business value of Jive in just a 30-day time period.
This is very different from venders taking an email address, providing a premium solution and gaining no real user adoption.
The foundation of Jive's ability to deliver unique business value is the fact that we are the clear market leader from a product and innovation perspective. Jive pioneered the social business market and we continue to set the agenda.
During the third quarter, we had another quarterly release of the Jive cloud offering as well as the successful release of Jive 6, which included over 100 advancements – enhancements to our platform such as external groups, user-defined activity streams, social search based on our industry leading big data expertise, native IOS mobile experiences and improved automated onboarding based on the key learnings from our Try Jive experience.
Another new offering announced at Jive World and part of our Jive 6 launch is Jive Present, a new tablet application for mobile workers such as sales reps or anyone in the field that need to leverage social tools to interact with the right content and people in real time.
This will unlock massive business value in the enterprise with a focus on increasing revenue and creating more productive, higher performing sales teams. In addition to organic development, it is also important that we expand Jive's value proposition and ecosystem through partnerships and acquisitions.
During October, we announced a strategic partnership with Box that will deliver unprecedented integration between our two social platforms. The entire Box experience will be accessible in Jive cloud.
The integration will enable directly from Jive access to files stored on Box, the ability to upload content to Box, synchronization of documents across the Box and Jive platforms and searchability of content across both systems.
In addition, our respective sale sand marketing teams are also working closer together to share business opportunities and generate increased market awareness for our integrated offering.
Today, we also announced new innovative capabilities that will be integrated into Jive's social business platform via two technology focused acquisitions. First, Meetings.io, a next generation real-time communication platform that allows people to seamlessly and simply create video and chat connections to get work done via a web browser. With Meetings.io, work interactions are simple, productive, effective and personal.
Second, we have added leading cloud-based social task management capabilities through our acquisition of Producteev. Producteev makes it simple for teams to execute more effectively by collaborating on tasks, projects and manage work across any platform, the desktop, email, instant messenger and any mobile device.
While early in bringing their technology to market, Producteev quickly captured over 2000 customers and we believe many of our customers and prospects will view the capabilities as a compelling addition to Jive's platform.
The enhancements to our platform organically through M&A and also through partnerships continue to expand Jive's technology leadership position in addition to being recognized by customers. As having the most robust social business platform in the market, we also continue to be recognized as a leader by industry analysts.
During the third quarter, Gartner recognized Jive as the leader in their magic quadrant for social software in the work place and we were again recognized as a leader in their magic quadrant for social CRM.
When we look at the competitive landscape, we continue to feel very good about our market position which is as strong today as it has ever been. We are the only vendor delivering a complete social business platform. We are the only vendor with case study after case study of delivering significant business value and we are winning the blue chip opportunities where industries leaders are pushing forward with social business initiatives and paying for the value that they have seen early adopters achieve.
One thing that is for sure from our perspective, tremendous business value is being created as a result of global adoption of social business platforms.
We continue to believe that Jive has the products, the vision and the management team and the market leadership position to become one of the primary beneficiaries of this significant market opportunity.
With that, let me turn the call over to Bryan.
Thanks, Tony. Jive delivered a solid performance for the third quarter, which, as mentioned earlier, was at the upper end or better than our guidance range from a revenue and profitability perspective.
Total revenue was $28.9 million, up 39% year-over-year. Breaking this down further, product revenue, which is, again, the fastest growing segment of our revenue, was $25.9 million, an increase of 48% while professional services revenue was $3 million, a decrease of 9%.
As we discussed last quarter, services revenue continues to be impacted by the mix shift towards public cloud deployment and the increased out of box functionality that we have built into our platform.
Our total billings were $38.9 million for the third quarter, which represented year-over-year growth of 47%. Let me turn to the supplemental metrics that we share on a quarterly basis.
We entered the third quarter with 761 customers compared to 707 at the end of last quarter and 657 in the year-ago period. The acceleration of customer additions is largely due to the successful launch of our Try Jive initiative.
In addition, we are starting to realize a diminishing impact relative to the previously discussed turn among our smaller customers who utilize legacy products we no longer market or support and who collectively represent a tiny fraction of our overall revenue.
Our dollar renewal rates for customers that spend over $50,000 annually was, again, over 90% when excluding upsells and over 110% when including upsells. This is at a best-in-class level for a SaaS company and the fact that companies not only renew but continue to expand their deployments at the time of renewal is evidence of the value they are receiving from the Jive deployments.
In terms of the mix of our business, internally focused communities represented 66% of our product revenue for the quarter and externally focused communities represented the remaining 34%. This compares to a 57%, 43% mix respectively in the third quarter of last year.
With respect to how customers are deploying our central business platform, 62% of our product revenue for the quarter related to public cloud deployment and the remaining 38% related to private cloud deployments.
This (inaudible) change compared to our 63%, 37% mix last quarter is due to the fact that we had more large deals with customers in the financial services vertical during the quarter and they require generally private cloud deployments.
There is no change to our view that over the long term our mix of business will continue to be more heavily weighted towards cloud deployments as Try Jive continues to gain more momentum.
From a geographic perspective, the US generated $22.5 million of revenue for the third quarter, representing 78% of our total revenue and international generated the remaining $6.4 million of total revenue.
Moving down the P&L, our non-GAAP gross profit was $18.9 million representing year-over-year growth of 52% and a non-GAAP gross margin of 65%, another percentage point increase from last quarter and up approximately 600 basis points from the year-ago period.
We continue to make progress in migrating our US customer base to our new data center and we are approximately 60% of the way through that process. We continue to target completion of this process during the first half of 2013.
In addition, it's worth noting that our new datacenter in Amsterdam is now up and running and serving customers throughout the European region.
Non-GAAP operating loss was $5.5 million for the quarter, which was better than our $6 million to $7 million guidance range. It's also an improvement from the non-GAAP operating loss of $7.4 million in the year-ago period.
Non-GAAP net loss per share was $0.09 for the quarter based on 62.9 million shares. This was ahead of our guidance for a loss of $0.10 to $0.12 per share and compared to a non-GAAP net loss per share of $0.32 based on 24.8 million shares in the year-ago period.
On a GAAP basis for the third quarter of 2012; gross profit was $17.6 million, operating loss was $11.2 million; and net loss per share was $0.18 based on 62.9 million shares.
Headcount ended the quarter at 485 regular employees, up from 462 at the end of Q2. The growth in headcount was concentrated in product development and sales and marketing roles.
Moving over to the balance sheet, we ended the quarter with cash and cash equivalents and marketable securities of $176.9 million, up sequentially from $176.5 million at the end of last quarter.
From a cash flow perspective, we generated $1.6 million in cash from operations during the third quarter. We invested $3.5 million in capital expenditures leading to a negative $1.9 million in free cash flow, which is a significant improvement from a negative $8.7 million of free cash flow in the third quarter of 2011.
For the first nine months of 2012, free cash flow was a negative $4.6 million, an improvement from negative $12.9 million for the comparable period of 2011. Total deferred revenue was $97.6 million at the end of Q3, up 52% from Q3 2011.
Breaking this down further, short-term deferred revenue of $74.4 million was up 51% from the end of the third quarter of 2011 while long-term deferred revenue of $23.1 million was up 55% on a year-over-year basis.
Our deferred revenue continues to be positively impacted by new customer wins, expanded engagements with existing customers and subscription rules offset by a reduction in professional services billings.
The increase in our long-term deferred revenue reflects the fact that some customers chose to sign prepaid multiyear contracts. Ultimately, we believe these multiyear deals validate the strategic importance of social business and demonstrate that customers are willing to make a long-term commitment to Jive.
We continue to expect that the number of prepaid multiyear arrangements will fluctuate on a quarterly basis.
Before I move to guidance, I'd like to discuss the consideration paid for the acquisitions of Meetings.io and Producteev as well as their expected financial impact on Jive.
On an aggregated basis, we are paying $7.6 million in cash and issuing approximately 460,000 shares for the two companies. As these were both technology acquisitions, we do not expect them to have a material impact on our revenue for the fourth quarter or full year 2012.
We will pick up some additional R&D headcount in addition to Jive adding resources to the Meetings.io and Producteev offerings as we integrate them within our platform. And as such, we expect the acquisitions to collectively have a diluted impact of approximately $0.03 to $0.04 per share in the fourth quarter.
As we look ahead, we expect Meetings.io and Producteev offerings to begin to contribute to revenue in 2013 after they are integrated into Jive's platform and brought to market. We will provide more color on our overall 2013 guidance on our next conference call.
With that, let me close with Jive's outlook for 2012 which takes into consideration the dilution from the Meetings.io and Producteev acquisitions that I just described.
Starting with the fourth quarter, we are targeting total revenue of $30 million to $31.5 million, non-GAAP loss from operations of $9 million to $10 million and non-GAAP loss per share of $0.15 to $0.17 based on 64 million shares.
For the full year, we are reiterating the midpoint of our previously issued guidance range and tightening our guidance to $111.1 million to $112.6 million or growth of 44% to 46%.
From a profitability standpoint, we are updating our guidance for non-GAAP loss from operations of $26.3 million to $27.3 million and non-GAAP net loss per share between $0.44 and $0.46 per share based on 62.6 million shares outstanding.
The updated guidance reflects the additional costs that will be incurred in relation to the Meetings.io and Producteev acquisitions as well as the additional expenses to integrate and build out that technology.
In addition, we plan to make incremental investments in engineering and as well as sales and marketing as we position Jive for continued growth in 2013 and beyond. We now expect free cash flow of negative $7 million to negative $9 million for the full year 2012 which is a meaningful improvement from the negative $19 million for 2011.
In closing, Jive delivered solid results for the third quarter and we are well positioned to deliver for the full-year 2012 revenue growth in the mid 40% range, which is one of the more attractive growth profiles in the entire SaaS industry.
We are also pleased to have accelerated the number of net new customer additions during the fourth quarter in addition to closing a record number of million dollar and multimillion dollar transactions.
Jive is driving real business value for our customers and we continue to see a tremendous opportunity for Jive to become the pure play winner in the $26 billion social business market opportunity.
With that, we'd be happy to take your questions. Operator?
(Operator Instructions) Your first quest comes from the line of Jennifer Swanson – Morgan Stanley.
Jennifer Swanson – Morgan Stanley
Maybe just to start off, a lot of companies this earnings season have been talking about a more difficult selling environment and some of the weakness we've been seeing from a macroeconomic perspective.
Some of the commentary that you gave around a record level of multimillion dollar deals and such suggest that maybe it's been a little bit less severe for you but just curious what you've been hearing from your customers in terms of deal closures and that sort of thing and if you're seeing any change from an economic environment.
Like we've consistently said, we remain very optimistic about the amounts of market opportunity for the offering that we have. As we talked about on the call, the innovation that we've announced in our platform, organic, inorganic through partnerships, the stories you heard from our customer base about real business value being delivered.
And like we said back in August on the Q2 call, all of this in the face of that challenging economic environment that we discussed – and like you said, the business performance that we delivered was substantial as measured by almost 40% revenue growth, almost 50% product revenue growth, as Bryan mentioned, and a record number of new customers, a record number of multimillion dollar deals going deeper into our customer base.
And so with all of that said, I think the economic environment remained just as we said it was back in August.
Jennifer Swanson – Morgan Stanley
And just to drill on the Try Jive pipeline and the uptick you've seen in new customers, I guess two questions there. One, is there any way to break out how much of that uptick in the 54 net new customer adds is Try Jive versus customers committing to a big deal upfront?
And then related to that, you mentioned earlier in the prepared remarks there was one customer that was a Try Jive customer that then became a million dollar plus customer. What are you seeing more broadly in terms of conversion rates of Try Jive customers and how should we reconcile the acceleration in customer ads this quarter to what we should expect in terms of large customer deal momentum going forward over the next six to nine months?
So remember back to why we said and what our stated objectives were behind Try Jive. And we haven't broken out and it's not clear that we ever will break out any of the very specific quantitative metrics around Try Jive.
The reason we did it was, one, to plant more seeds in the market and allow a broader market opportunity experience for customers that our direct channels didn't have to touch build a larger pipeline of activities of all kinds.
The AIA example is an example where we're able to use Try Jive to do that, yes, as leverage by an additional source of partner and PWC. The second – and so we're very pleased with the Try Jive results as it relates to pipeline development and pipeline activity.
Number two, the second reason we did Try Jive was to accelerate sales cycles. Most sales calls, whether they're direct or indirect, end with I'd like to try the product. I'd like to see it. I'd like to pilot it. I'd like to see how my users can embrace it, what kind of adoption I'll see in use of the platforms.
Try Jive is a great cloud-based, turnkey, 30 seconds, you're up and running and using it inviting other people into the offering collaborating on content and the like. Again, as it relates to that objective, we, again, are very satisfied.
And so we are not at this time breaking out how many of the net new customer additions were Try Jive versus others because they're all very interrelated. And the reasons we did Try Jive were those two objectives and we're very satisfied with the performance to date.
Your next question comes from the line of Jason Maynard – Wells Fargo.
Jason Maynard – Wells Fargo
I had two questions. First, Toney, I'd love to get a little bit more color around some of the large deal activity you're seeing and maybe a little more specifically about some of the use cases that are driving the big tickets. And then I've got a follow-up for Bryan on the balance sheet.
The larger deals I think are related to two things. First, the more straightforward one is that the Jive application is sticky. When it's deployed and used by tens of thousands of people in the PWC case or the EMC case, which is an external maybe page view oriented case, which speaks to the two great strengths of the Jive platform both internal communities as well as external, you see that it's very sticky.
And in PWC's case, one, there's business value. Their ability to produce proposals in half the time across all those different countries and in the tens of thousands of consultants, you see the commitment from the company to go deeper and we see that at a variety of our customers that we experience in the third quarter.
You go deeper, the beauty of the SaaS model is the renewal comes up, it's an opportunity to have the larger discussion about addressing a larger community of knowledge workers inside the company, more page views externally, add more products to the mix, so that's always been a hallmark of the Jive business model, the ability to do that.
And I think we're seeing that now with real business value being derived from the use of the platform which makes that economic discussion that much more straightforward.
For new customers, like was the case with AIA, as I mentioned to you, the former AIG entity in Asia, again, through leveraging a partner activity and Try Jive, they'll expose them to the technology in a very arms length fashion.
You can see that that kind of transaction goes very fast. Certainly PWC's endorsement of the Jive platform and the ability to use Try Jive and see the merits of the collaboration benefits coming to light in just 30 days was something substantial.
I like that mode of operation for our business. But I think those are two different dimensions of million dollar deals with an existing client base as well as a new client opportunity that was leveraged both through a partner and the use of the Try Jive platform as a way to accelerate the selling profits as was asked in the previous question.
The used cases, as you asked me about, range from everything from the social intranet where tens of thousands of employees are using it, as the communication platform and collaboration platform and the company.
In EMC's case it was customer service both externally facing to their client base as well as with their customer service agents serving those customers that are accessing the Jive community externally.
And I think you were there at Jive World. 48% increase in revenue from those customers that participate in the Jive power community than by those customers that do not, that's a substantial business value metric that anybody would like to have.
Jason Maynard – Wells Fargo
Bryan, one of the challenges for us in terms of forecasting deferred revenue is trying to get the mix right between short term and long term deferred, which basically means we've got to guess big deals and how you're invoicing them on payment terms.
And so any color or guidance you can maybe give us in terms of how to think about Q4 dynamics from that standpoint. Should we expect a similar trend Q3, Q4 in terms of deferred revenue? How should we handicap the big deal piece that would obviously hit in the longer term deferred?
Well, it is very big deal specific and certainly that does fluctuate quarter-to-quarter, so it's hard to give you good guidance there on top of the fact that we generally don't guide on deferred revenue growth with billings.
But with that said, this is the time of the year, Q3, Q4, when generally the larger deals happen. And to the extent that customers want to pay those upfront or to the extent that that's part of the arrangement – and like Tony mentioned, the key here is that when you are a big, substantial supplier now of a mission critical system, you generally wind up in that kind of a discussion with some clients, not all clients and it just depends.
So I know it's probably not the answer that you're looking for but it is hard. I wouldn't want to get out there with a specific prediction. I would say that the second half of the year tends to favor these kind of transactions more so than the first half of the year because that's when customers are wrapping up their buying cycles for the year, so that's probably the best color I could provide for you there.
Your next question comes from the line of Heather Bellini – Goldman Sachs.
Heather Bellini – Goldman Sachs
I guess the first one is, can you share with us, Tony or Bryan, how ASPs trended this quarter from last quarter just qualitatively and how we should think about Try Jive impacting those ASPs?
And then the other question – I guess two other questions I had was from a competitive standpoint, do you see yourself running into – who do you see yourself running into today and how have you seen that change over the past year?
And then the last one I guess is just in regards to what Jason was saying about large deals and the payment terms. Are you incentivizing your sales force differently for deals that are paid all upfront?
On the ASPs, we don't provide, as you know, quantitative guidance on the ASPs quarter-to-quarter, but I would remind you that the point of Try Jive is not necessarily to get the same initial sized deal that we typically get out of our traditional field selling model and that's – it's always been baked into our expectations around how Try Jive would work.
The idea is that we plant seeds in departments that grow over time. And we're thrilled when we see something like the AIA example that Tony mentioned where Try Jive immediately leads to a large deal right out of the chute.
But with that said, the real purpose of it is to get more trips to the plate and we're very pleased with the way that's going. It's an integral part of the sales cycle but for the field as well as people hit the website.
So in that regard, obviously the deal size is (inaudible). I've always intended to be and continue to be the bite size with some small exceptions where we wind up landing a really large deal right out of the chute.
We give guidance obviously on an annual basis on ASPs and we'll do that as we wrap up the year here on the next conference call. We have a chance to look back over the ASPs on a four quarter basis which I think is a much more meaningful indicator in general just given the way our business comes together.
Tony, jump in on the next couple.
Yes, on the competitive landscape, Heather, it's largely unchanged. It is the same that we've experienced for the balance of the year and you might be referring to the big acquisition announcement that was made I guess during the third quarter.
It would appear that those two companies are very focused on integration activities and while we're innovating a way here as we just described both organically on the platform, inorganically with the acquisitions and, thirdly – the third dimension being the strategic partnership with Box.
We continue to accelerate and build a further gap between what is being integrated, which was clearly a couple years behind where we were and where Jive is at today. So the landscape is largely unchanged. We continue to compete very effectively and we continue to innovate at a much more significant way as was evidenced by my comments from the product section of the commentary we gave.
Heather Bellini – Goldman Sachs
The last one is about incentivizing the sales force.
So we don't – the sales force is incented around closing deals hasn't changed essentially in the last couple of years. These guys are obviously after new business and that's what we pay them to go do.
Your next question comes from the line of Brent Thill – UBS.
Brent Thill – UBS
Bryan, just on the backlog – I know you don't really talk about it but obviously we can see the billings number. Can you just any sense of how the backlog's trending relative to billings? And I had a quick follow up.
Sure, yes, we don't give backlog color on the quarters. Again, that's an annual disclosure that we'll do, so you're coming up. On the next release, we'll actual have that out like we did in last year's K. So unfortunately I can't give you any color there until we publish it but we'll do that coming up on the next call.
Brent Thill - UBS
And Tony, the rest of the world business has been, as a percent of revenue, pretty flat for the last couple years. I'm curious if you think there is some barriers that are in the way that you need to remove to have that improve. Obviously the US business has been good but what from your perspective – what are the steps you need to take before that becomes more material for some of your revenue?
So we – on the heels of going public, we talked about one of the investment aspect that we were going to make was begin down that rest of world geography investment. That was going to take us into this year and into next year.
As we just disclosed, we did our first seven-figure deal in that geography in the best way possible with a partner. We have invested with an individual that, in fact, led the market development aspect in EMEA for us starting back about two or three years ago and we're pleased with how EMEA has made progress and has contributed to the overall Jive performance in 2011 and here in 2012.
And we hope to repeat that in Asia but as we all know, Asia is a bit different, a little more fragmented between the English speaking countries and the rest. And so we continue to learn and investigate where we can make progress in the shortest amount of time and where we need to leverage partners as we just described and where we need to invest further both in headcount or maybe even in the platform itself beyond the obvious language support that's necessary.
Now, remember, we have a number of global clients that have deployed the Jive platform in those Asia Pacific territories and use the Jive platform in the local language. And so the difference being generating the business from that geography going forward, which is why we made some of the investments we did in 2012.
Your next question comes from the line of Michael Nemeroff – Credit Suisse.
Michael Nemeroff – Credit Suisse
For Tony, I'd like to just assess what the impact of (Yamar) being acquired by Microsoft and what that's done for the business over the last three months. And also, I get this question a lot or actually I get the statement a lot that you guys are selling against free. So how would you answer that question selling against a free product these days?
So as I think I was asked early on, the competitive landscape has largely remained unchanged. And while Microsoft did the acquisition, they did in the quarter, what we have heard and seen from clients in conferences is that they're very focused on integration, integration of the existing platform into the existing platform and that's all we've seen and heard.
And so largely unchanged from a competitive point of view. We continue to build a significant gap between that and our platform as we just announced shipment of Jive 6, the acquisitions that we made today in the area of unified communications and social task management, the partnership with Box. These are all substantial technology innovations in and of themselves individually, not to mention in the collective.
To you second question, competing against free, it's all about business value and that's why when we, in fact, yield the stage at Jive World to our customers to allow them to talk about the business value that they've realized through their massive deployments of the Jive platform, that has become the battleground.
In our estimation, that's what's most important, through the use of these platforms, what has changed in your business? Increased revenue, lower cost to deliver to the knowledge worker force and, ultimately, a more straightforward conversation when we have to, in fact, renew the software agreement or, in fact, do the initial purchase for the software.
So that is, in fact, the area that we've moved to and that we believe is the most substantial together with our innovative platform, the real delivery of business value, which makes that conversation, in fact, go away.
Michael Nemeroff – Credit Suisse
You've mentioned the bleed off of some lower revenue customers. I was just wondering what the status of that and how far along that is going and whether that’s the impact of such a large net new customer add number this quarter?
Yes, we get – certainly that's part of it. We talked about the fact that that impact was going to bleed off towards the back half of the year. I think it's going as we expected, which is – it's tailing off now as we roll through Q3 and I think we're not going to give explicit guidance as to when it goes away at the zero level.
But it's clearly much less of an impact here in the third quarter than it was earlier in the year or the end of last year and that’s as we expected. So it's playing out exactly like we thought.
Your next question comes from the line of Walter Pritchard – Citi.
Walter Pritchard – Citi
Just wanted to follow up on one of your earlier questions on the billings and I'm wondering we see I think overall billings growing in the high 40s but current billings growing in the low 30s.
And I'm wondering how we should think about the current billings growth rate as a predictor of revenue growth. I know you've got it for Q4 but just thinking about this as a driver for the run rate over the next 12 months or so.
Sure, we don't give billings guidance and we certainly – we bake everything into the revenue guidance that we put out there, which is still in the mid 40s. And as you correctly hit on, we're not going to do 2013 guidance until we get to the year-end call, so in the first part of next year is when we'll address that, so I don't want to do anything that would preempt that discussion.
But we said in the past we're focused on obviously growing our book of business and it's a combination of renewal customers, new customers that we add and the relationships that we bring both in terms of some of these larger multiyear deals as well as ones that we are booking just in the 12-month period.
I don’t think that short-term deferred revenue is a perfect metric. But at the same time, it's one that people focus on. We're sticking with and focusing people on the revenue guidance that we provide because I think that's the way that we can bake in everything that we know about the business.
And I'd steer you there. And in terms of 2013, we'll definitely have you stay tuned until we do that for our call early next year.
Walter Pritchard - Citi
And then just on the – I didn't hear you give a headcount number. Maybe if you could update us on headcount and then also on just sales capacity growth, where are you year-over-year in terms of productive capacity say exiting the third quarter?
So we did give the headcount number. It was 485 people and that's up I believe from 457 in the prior quarter. I'm being corrected here, 462, sorry, from the prior quarter, so up obviously sequentially. The growth there is both in sales and marketing and in engineering folks.
We're making investments in both. We don't break out the number of sales people that we hire but we are obviously building capacity as we always are and, as you saw last year, one of the things that we tend to focus on in the fourth quarter is building capacity in advance of our annual sales kickoff for 2013, which we do in the first part of January.
So certainly Q4 is an important quarter for us to be building capacity as well.
Walter Pritchard - Citi
And any final point on sales capacity growth year-over-year, where that's tracking right now as you exited the third quarter, not the absolute number but the growth and capacity?
We said this I think quarter-in, quarter-out. We continue to grow the sales force on a pretty systemic basis, quarter-in, quarter-out. We do that to build capacity and no real change to that.
Your next question comes from the line of Steve Ashley – Robert W Baird.
Chaitanya Yaramada – Robert W Baird
Do your customer conversations indicate we might see a normal budget flush this quarter? Are you seeing any caution there and what are your expectations that you've embedded in guidance for budget flush in the fourth quarter?
So we don't explicitly break out all the components of our guidance. I would note that Q4 traditionally in the software industry is a quarter where you see more of that. But we obviously bake everything that we know and we can see into the guidance that we've put out there for 4Q.
I think we don't have much more to give you beyond that right now and I think it's as you normally would expect. It's a traditional seasonal Q4.
Chaitanya Yaramada – Robert W Baird
So is it fair to say you're expecting a normal budget flush?
Like I said, we don't provide specific color on it. I would just point out that it's a pretty well known phenomena in the software industry for us, obviously. To give color beyond that would be extra guidance that we just don't give.
Chaitanya Yaramada – Robert W Baird
And in terms of the several add on modules that you have for the platform, could you provide us some color on which modules are seeing the most traction and maybe also if you can share any metrics that can help us understand how much modules are helping drive growth from existing customers relative to feed growth?
So we don't have specific metrics that we give out around those. Our traditionally best selling modules remain mobile. The office connectors, analytics, video module, those are all in the top.
One of the things that we saw in this quarter for the first time because the product has now gotten some traction is our gamification module with (inaudible) which is an OEM that we do with one of our partners.
I think the concept of gamification and getting status and badges is driving engagement, has been very big and it's certainly something that we've been excited to see building as we announce that partnership in the early part of the year as we roll through here to the fall.
Your next question come from the line of Karl Keirstead – BMO Capital Markets.
Karl Keirstead – BMO Capital Markets
Tony, bringing on (Jay Larson) was a big announcement on the last earnings call. I know two to three months is not a lot of time to tinker with things but I'm wondering if you could even just directionally give us any color on what changes might have been made to the organization or to the sales structure upon (Jay)'s arrival.
(Jay) continues to dig into our business, meet with clients, spend time internally and externally. And I think as you said, a couple months into the process I think (Jay) has become, if I could pick one thing, very riveted on the fact that business value really matters.
And we've talked a lot about that on this call. It was center stage at Jive World where you were present. It speaks to the adoption and engagement of the Jive platform. And as companies ante up and do multiyear, multimillion dollar purchases, I think that's the evidence of real business value being delivered via the Jive platform.
So I think (Jay) has found his magnetic north if you will in business value and it certainly is very focused on executing the balance of the year here as we sit here on November 5th and as we launch next year on going to the sales kickoff meeting and all of the prior questions around building capacity for next year and the guidance that we'll give in the February call about 2013 I think you'll see more of (Jay)'s fingerprints maybe on that.
But as far as it relates to his getting up to speed and getting focused, he's really learning our business. He's making a big impact with respect to his engagement with clients he's met with and the focus on business value is a huge, huge aspect of Jive today and what will be going forward.
Your next question comes from the line of Michael Huang – Needham & Company.
Michael Huang – Needham & Company
First of all, in terms of Jive 6, I think you had mentioned that there's 100 new features that are included in this release. If I have you try to single out what you thought was the most important capability and perhaps assess what impact this could have on cross sale activity, what would that be? And is there anything that there is pent up demand for?
Yes, it would be hard to pick one. But if I had to pick one and maybe a second one, I would say it's the improved and automated onboarding. What we find with these platforms is while people understand how to fill out a profile and engage in an activity stream, there is so much more.
How do I join a group? How do I collaborate on content if it's in the Jive platform or coming via the Box platform and what have you?
So I would tell you that it's a faster way to bring more people onto the platform and seeing the business value embedded in the system sooner. And this is what we've learned. We've learned it with Try Jive in spades that that's the way you get people onboard and in 30 days they're starting to see value so much so that they buy the product right then and there.
But also going through the years of Jive 3 and Jive 4 and Jive 5 and now on to Jive 6 and now we're in development on Jive 7, really embracing the way that not only users experience the platform but what do they do when the first show up?
We've moved past adoption and now we're into engagement in the platform and business value. So if I could pick one out, that would be the one that I would pick out that’s more holistic, if you will.
And then the very specific things around search because that's what everybody does and leveraging the social graph in the system, the ability to invite someone in from an external group, user defined activity streams and obviously it's got to scream on an IOS device. That's iPads and iPhones, that's it.
So those are the three or four big ones but the biggest one would be the automated onboarding.
Michael Huang – Needham & Company
And in terms of the two acquisitions that you announced are there any shared customers that you can highlight just out of the gate? I guess as you think about or as we think about what the cross sell opportunity could be within the install base, should we be thinking about that?
And I guess in terms of the two, is there one that just is one more near-term important to your existing customers now?
I think a lot of questions in there but I would tell you that both are super strategic. We think social task management is the essence of the day-to-day nature of a knowledge worker. They fill our – we all fill out lists of to dos and we want them electronically, we want them attached to our social system, we want other people to see them, we want to collaborate around the social task list.
Obviously Producteev already had a product in the market, 2000 customers. Yes, there were some overlaps and we're digging into that and, yes, of course, as we integrate that product deeper into the Jive platform there should be a robust setup cross sell opportunities.
On the Meetings.io side, even probably more strategic in the sense of unified communications will play a larger and larger role as social software becomes more and more and more mission critical and must have, the use of video and online chat as a form of conducting a meeting while their conversation is going on in the social system will become a must have aspect of the overall solution.
And of course, there'll be an opportunity to sell that capability to our close to 800 customers that we have already when that time comes.
Michael Huang – Needham & Company
Last question for you, just in terms of the drilling into the record number of new customer added; is there – as you look at the cross section of those customers, is there anything notable there? Are you seeing increasingly larger customers, smaller customers? And I know across verticals but is there any trend around that as well?
Tony mentioned that we sold across a tremendous number of verticals. That continues to be the theme and we've seen that quarter-in and quarter-out. I think that speaks to the fact that social business is ubiquitous in terms of the way they can create value across any vertical or any type of business, so I don't think there's any one area that you could point to.
In terms of customer size, I'd say it's relatively consistent with past quarters and that is a mixture of large deals, which we talked about. We had a record number of large transactions, which we felt obviously very good about and then a broader distribution across all the various deal sizes.
It depends on how much people are buying as a starting point and in terms of upsell how much they're adding on. And I think there is a tremendous variant in all of those deal sizes and again in the third quarter, just like we did in earlier parts of the year, we saw that same distribution play out.
That was the last question. I would like to turn the conference back over to you for any additional or concluding remarks.
Thanks, everyone, for joining us on the call. We look forward to talk to you again at the first part of the New Year when we announce our Q4 and FY2012 results. Thanks, everyone.
Ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.
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