Jive Software, Inc. (NASDAQ:JIVE) Q4 2015 Earnings Conference Call February 17, 2016 5:00 PM ET
Bryan LeBlanc - Chief Financial Officer
Elisa Steele - President and Chief Executive Officer
Kyle Chen - Credit Suisse
Ian Strgar - UBS
Stan Zlotsky - Morgan Stanley
Walter Pritchard - Citi
Michael Huang - Needham and Company
Good day, and welcome to the Jive Software Fourth Quarter and Full Year 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will an opportunity to ask questions. [Operator Instructions] Please also note this call is being recorded.
I would like to turn the conference over to Bryan LeBlanc, Chief Financial Officer. Mr. LeBlanc, please go ahead.
Thank you. Good afternoon, and welcome to Jive Software's fourth quarter 2015 earnings call. As the operator mentioned, I am Bryan LeBlanc, Chief Financial Officer of Jive; and joining me today is Jive's Chief Executive Officer, Elisa Steele.
We will discuss the results announcing our press release that was issued after the close of market today. This call also includes presentation slides that will accompany our prepared remarks. To access these materials, please visit the Investor section of our website at jivesoftware.com.
Slide 2 in the presentation provides our safe harbor statement. 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 the material risks and other important factors that can affect our actual results, please refer to those contained in our periodic filings on Form 10-K and Form 10-Q, which are on file with the SEC.
Also, during today's call, we will refer to certain non-GAAP financial measures. There's a reconciliation schedule showing GAAP versus non-GAAP results available in both our press release and the appendix section of the slide presentation. All results discussed will be year-over-year comparisons unless otherwise stated.
With that, I'll turn the call over to Elisa, who will walk you through the business details of the quarter. I'll then return to provide details regarding of our fourth quarter results. Elisa?
Thanks, Bryan. Good afternoon, everyone, and thank you for joining us. We're pleased to be here to highlight our progress on the key elements of Jive's strategy.
Let's begin on Slide 3. During my prepared remarks, I'll focus on three topics. First, we delivered fourth quarter and full year results that were in line with our guidance. Second, we made additional progress in the transformation of our business in Q4 and I’ll review the advances we made with our three pillar strategy. Finally, I’ll discuss critical next steps for Jive in 2016 that are designed to generate future growth. This will include a brief review of our recently introduced Jive WorkHub and new product releases.
Slide 4 shows a summary of our financial and operating results. Four quarter revenue of $50.2 million was up 5% year-over-year and full revenue of $195.8 million, increased 10% over last year. In both cases, we performed above the midpoint of our guidance range.
For the quarter, non-GAAP net loss per share was $0.05. And for the year, non-GAAP net loss per share was $0.14. Both metrics came in as a midpoint of our expectations. Short term billings for 2015 grew by 2%, which is within our guidance range for the year.
We ended Q4 with 993 customers compared to 989 customers sequentially and 950 customers one year ago. While we are striving to increase the number of new logos, we are also targeting longer term customers best suited for our products.
Throughout 2015, we aggressively laid the ground work for the transformation of Jive’s products and go-to-market strategy and we are taking the right steps to execute more consistently into grow the business longer term. Our guidance ranges for 2015 did take into account a certain level of disruptions and the anticipated challenges of the transitions we are making. We were not satisfied with our Q4 results and there is more work to do, but the steps we have taken in 2015 are positioning us for improved performance overtime.
Slide 5 gives an overview of the progress we’ve made during the quarter on our three pillars, simplify, attract and expand strategy to transform the business. The first pillar of our strategy is to simply Jive’s products and solutions. This covers a range of initiatives designed to streamline our go-to-market strategy and accelerate the development of innovative easy to use Jive products.
A key milestone in Q4 was the successful introduction of our Interactive Internet, which supports the modern digital workplace with the responsive flexible solution. We did this by bringing together the enterprise social capabilities within Jive-n and our purpose built Jive-w mobile app, Jive Daily, Jive Chime and Jive Circle into a single cloud based solutions.
Last year, we committed to driving more customers to the cloud. By emphasizing our innovative cloud based products in our marketing and selling motions, we successfully delivered on this goal, as a greater number of new and existing customers chose cloud deployment. In fact in Q4, almost half of new and upsell sales activity and more than 90% of new logo business related to cloud deployments. And in 2015, we saw an increase in existing customers migrating to the cloud from our hosted and on-premise solutions.
Pushing for cloud adoption represents a major transition for Jive to increase efficiency and target customers of all sizes, not just medium and small companies but also some for our biggest customers. Many companies are drawn to the benefits of modern cloud architecture and it makes it much easier to stay up to date with our latest innovations, while providing a simplified cost structure.
For Jive, the cloud streamlines customer upgrades to the latest product versions, processes to maintain and has more profitable structure overtime.
During 2015, we’ve seen our customers redefine the boundaries of the digital workplace. With the focus on making connection both inside and outside the organization, as a result we work to evolve Jive as a central collaboration hub in order to lay the foundation for future innovative solution.
In total for our simply initiative, we’ve made good progress against our objective and see additional room for improvements in 2016.
Our second pillar is to attract new business and solve customer specific pain points with our simplified offerings. In Q4 to speed adoption of the Interactive Internet, we introduced our Quick Start promotion for our Jive and cloud products that removed pricing complexity and offered out of the box prepackaged configurations to solve business needs. The Quick Start promotion increased win rates and drove faster conversions. This early success gives us confidence to expand the offering.
Also during the quarter, we prepared to introduce solution selling targeted to lines of business and verticals. In an environment with an increasing number of collaboration options to choose from, we are confident that companies will appreciate our simpler preconfigured solutions that will provide Jive’s business value faster.
Finally, we have continued to fine tune our Jive-x offering by creating specific solutions critical for CMOs marketing departments and customer support team. For example, we introduced a Customer Engagement solution that delivers a holistic view of the customer and prospect experience to support the sales lifecycle.
In addition, we are boosting Thought Leadership to educate markets on how Jive-x can drive valuable business outcome and we continue to introduce robust Jive-x enhancements. Several attract pillars initiatives are now in place but there are still in their early stages and will take some time to show significant results.
The third pillar is to expand our reach and drive higher sales velocity. In Q4, we made strategic changes to the sales organization to solidify our multi-segment sales strategy and diversify our customer base. When our Head of Worldwide Field Operations, Jeff Lautenbach joined Jive in August. He is thoroughly evaluated the sales force structure and implemented his organizational strategy. This included the identification of leadership gaps that needed to filled across territories. We also continued to scale our inside sales team.
Change can bring unpredictable results in the short term and our execution in the quarter was impacted by these changes. We believe performance will improve as the new sales structure matures.
We are also focused on generating more consistent growth by ramping our velocity model and achieving greater customer diversification. As the first step of this process, we purposely disconnected our dependency on enterprise only transactions while increasing our selling motion to focus on repeatable prospects. Implementing this shift towards multi-segment selling has involved tradeoffs and is expected to take some time.
To be clear, we are still investing in appropriate size enterprise where we believe we can win and ultimately we will target opportunities that best reflect the value of our solutions. While this more scalable multi-segment model has not fully taken hold, we saw sings in Q4 that our new approach should reach benefit over the longer term.
Our expand pillar is just beginning to take shape and making meaningful progress in this area is a key strategic objective in 2016.
On Slide 6, you’ll see some of our new logo wins and expansions in the fourth quarter. New Jive-n customers this quarter included Adeptus Health, Alerus Financial, MasTec, Prospect Mortgage, Quest Diagnostics, SFO Airport, The Vitamin Shoppe and Western Union. We also secured Jive-n renewals and upsells with customers like Cox Enterprises, Tim Hortons, which is owned by Restaurants Brands International and Unica Group.
New Jive-x customers this quarter included Ciena Corporation, Dell Boomi, MedAmerica, Oregon Health & Science University, Zebra Technologies and ZTE USA. Drive upsells ended on a stronger note to the year including key wins with Hitachi Data Systems, Instructure and Virgin Media Limited.
Slide 7 features some of our most recent customer success stories. Cox Enterprises is the nation’s largest private communication, media and automotive services company based in Atlanta. Two years ago, Cox wanted to improve the way it’s communicated with its Atlanta based employees. The Corporate Communications team brought Jive in to create to Cox’s campus life using internal Jive-n solution. The initial project was so successful that Cox expanded the campus life community to include 45,000 employees across the country. In addition they are further ramping Cox’s campus life to include collaboration use cases.
For example, there’ll be a private space for all executive to collaborate a cross business unites to share knowledge and best practices. We are on the path to their complete enterprise engagement solution which will allow them to sense that legacy systems and amplify employee communication and collaboration across business units and brands.
Next, Spectrum Health is one of the nation’s 15 top health systems by Truven Health Analytics for 2015 and offers a full continuum of care to the Spectrum Health Hospital Group, Spectrum Health Medical Group and Priority Health Insurance Plan. The company wanted to unite all of its 23,000 clinicians and corporate employees under one dynamic internet to transform how they work as a health system. In 2015, Spectrum launched its Insite Internet on the Jive platform, instantly increasing connection, collaboration and communication.
Insite provides one stop shop for human resources needs and a centralized location for news creating across the system. Since the launch, Insite has seen a dramatic increase in adoption and engagement across the organization with more than 15,000 registered users and 1,400 consistent content creators. Spectrum also uses our Jive mobile app which have been critical in gaining leadership involvement.
Finally, Viavi Solutions, which sells networking, software and hardware, was created following the split of JDSU into two companies last year. The company wanted to increase channel sales and needed powerful community software to support its new partner program. Viavi use Jive-x to underpin a new partner portal which provides isolated sale, marketing and pricing information to its ecosystem along with an easy way to interact with Viavi employees. Based on the success of this initial community, the company turned to Jive to power vibrant employee and customer communities which are plans to launch later this year.
Turning to Slide 8, we’ll now talk about next steps for Jive in 2016 and give you our view on the competitive landscape. The collaboration sector is gaining in popularity which is good for Jive since it increases awareness of our solutions and provide additional sales opportunities. We have also seen more entrance across different pockets in the categories which can make sales cycle more competitive as customers often review multiple solutions to address their need.
To continue on in our market leadership position, we will innovate as we leverage our unique ability to provide a differentiated total solution that that solves specific business problems. Since our current customer base reports high level of satisfaction with Jive evidenced by our successful deployment, adoption and upsell track record, we will reinforce these strengths to realize more and more business value in the market. And as the category evolves, we will focus on executing these specific strategies, while keeping in mind the emerging signs of uncertainty in the macro IT spending environment could become more challenging.
In 2016, execution is critical. Our key areas of focus are to first, continue to simply packaging and promotion; second, deliver on ongoing product innovation; third, strength go-to-market execution; and fourth, become profitable by year-end.
Beginning with simplifying packaging and promotions on Slide 9, we will leverage Jive’s advantage as a central collaboration hub, expand our prepackage promotions and continue to drive more and more customers to the cloud. When we consider where the market is headed, one think has become abundantly clear. As software solutions continue to proliferate, companies have to find a way to bring all these options together and make it easier for employees to seamlessly use different applications to get work done, whether it’s on mobile or another device.
Serving as a connective hub has long than a core focus for Jive. By integrating silos software applications and processes with communication, social and collaboration capabilities, we can unite an organization’s workers internally and externally within an ecosystem of employees, partners and customers. We enable our customer to work smoothly between Microsoft Office, Dropbox, Google Docs, SharePoint, Box and many other software alternatives that company used internally and in the cloud.
In fact according to a recent survey of Jive customers, 95% of respondents have more connected to their colleagues, 90% experiences increased job satisfaction and 90% get their work done faster using Jive. So it’s no surprise that our customers equine the term Hub to describe Jive, which is now an industry leading solutions that helps companies leverage their past investments.
Earlier this month, we formalized our established market advantage by rolling out the Jive WorkHub to leverage our success experienced by our extensive customer base and over 30 million people worldwide. Regardless of what software people are using or where they are storing their documents, Jive is the answer to making all work together as efficiently as possible. We work with many customers over the years to implement our products and we’ve accumulated many best practices especially for certain lines of business and industry verticals. From a competitive standpoint, Jive WorkHub represents a compelling differentiation that no one else can offer that has this same comprehensive framework. In fact, Gartner has recently validated the Hub concept.
Turing to Slide 10, in January 2016 report entitled the future of social software in the workplace, Gartner notes that the social software market has matured and evolved into four distinct market segments, the Activity Hub, Cloud Office, Business Application and Situational Applications. Jive resided in the Activity Hub market segment.
Describing the Activity Hub, Gartner said, vendors in this segment remained focused on the role of a central destination site acting as a horizontal platform that brings work into that common experience. However, the ability to externally integrate with multiple business applications, Cloud Office platforms and other social software applications to provide a unified view will become more critical overtime. We Jive believe the Activity Hub aligns well with our strategy and unique value proposition.
Additionally, we see other analyst firms like Forrester and Current Analysis also discussing similar market transitions.
As you’ll see on Slide 11 using the Jive WorkHub as the foundation, we’ve launched three package solutions built to deliver immediate value, each package provides all the elements needed to solve a specific set of business problems such as communication and collaboration capabilities, integrations without a system, services and specialist add-on. Jive WorkHub is easy to setup and configure and the packages provide ready-to-use templates and prebuilt experiences with that practices.
Our first vertical package is, Jive for Healthcare Collaboration. This solution helps health systems improve care coordination and physician productivity, while significantly reducing clinical cost and ensuring compliance with federal regulations. We design this solution based on our success with many healthcare companies including Aetna, Humana and Parkview Health. We see significant opportunity for this solution based on our growing track record in this industry.
As for lines for business, we’ve rolled out two packages. The first is Jive for Employee Engagement, which targets human resource professionals. This product helps engage, retain and grow talented employees while minimizing geographic and departmental silos in order to improve employee satisfaction and retention. We built this package based on our best practices where our customers receive the greatest business value including PeerSense, GoDaddy and Anglo American.
The second is Jive for Customer Engagement which is designed for marketing leaders. This solution help the company connect their prospects to their brand to relevant content and experts and Jive-x provides the digital hub that helps prospects and from their purchase decisions. This package was designed based on our success with companies like EMC, Pink Petro and Schneider Electric.
These out of the box packages provide the sales organization with strong repeatable solutions that they can quickly execute to win business. To continue this momentum, we will introduce additional lines of business in vertical configurations throughout the year. We also intent to build up on our initial quick start success with similar promotions.
And finally, we will continue to emphasize our cloud offerings to new customers to drive these in greater adoption and increase efficiencies for both our customers and for Jive.
Slide 12 shows that we will continue to be a leader in innovation and bring simple, smart, beautiful products to the market in 2016. Earlier this month, we announced the latest release of our Jive-n Interactive Internet and Jive-x Cloud products that featured a consumer inspired redesign of our entire product portfolio a new optimized processes to engage a company’s employees, customers and partners. The latest Jive-n cloud release has been redesigned to be more engaging and mobile optimize to improve user experiences. It also seamlessly integrates our mobile Jive Daily, Jive Circle and Jive Chime.
For example, Jive Daily has been upgraded from a newsreader to an internet in your pocket that includes inbox and content creation.
Slide 13 shows our latest Jive-x Cloud release helps transform prospects into customers and customers into advocates to a digital hub that delivers the right conversations in a fully branded experience. Features include a seamless support ticketing experience, improved search engine optimization for more reach and engagement and translation services that enable users to read content in any language.
Moving to Slide 14, we will relentlessly focus on go-to-market execution. With the arrival of Jeff Lautenbach and David Puglia, our Chief Marketing Officer, we now have our team in place to take our go-to-market strategy to the next level and optimize the lead generation pipeline.
We had simplified our selling approach with solutions targeted to self-customer pain points and made it easier for customers to do business with us. We now have to execute on what we’ve built and better education prospects understanding of Jive’s value proposition.
In summary, we delivered a quarter and full year that was in line with our expectations, so we are not fully satisfied with the results and our demanding more of ourselves in 2016. We will continue to adjust and evolve our go-to-market strategies as we target the most promising opportunities for growth.
The people with Jive are some of the hardest working and talented people I’ve ever had the pleasure to work with. They are passionate about making Jive a better company and they understand that we are here to solve problems for our customers and increase growth and profitability for our shareholders. Thank you to all Jivers for all the all the work you’ve done over this past year.
And with that, I’ll turn the call over to Bryan.
Thanks Elisa. Starting on Slide 15, I will provide some color on our financial results for the fourth quarter and I’ll finish with our guidance for the first quarter of 2016.
Our fourth quarter short-term billings came in at $60.2 million, down 2% year-over-year. Our full year short-term billings were $199.1 million, up 2% year-over-year, which was within our guidance range of 0% to 5%.
As we indicated on our last call, we had a higher than anticipated amount of early renewals in the third quarter which were billings that would have otherwise happened in the fourth happened. Historically, the fourth quarter is our strongest seasonal billings quarter but we saw a smaller budget flash in Q4 2015. This is impart and expected result of reducing our dependency on the amount of enterprise deals in any given quarter.
The average annual subscription value of our customer base at the end of the fourth quarter was $189,000, an increase of 3% compared to the year ago period.
We ended 2015 with a backlog of $50.1 million, up from $43.7 million at the end of 2014. Although total multiyear customer commitments were down in 2015 compared to the prior year, there was a higher mix of multiyear commitments paid annually which adds the amount of our backlog. Backlog is defined as the amount of subscription revenue under contract that is not yet invoiced and therefore not reflected on our balance sheet.
Q4 non-GAAP operating expenses increased sequentially by $1 million which reflects investments made in our sales force in the second half of 2015 as well as higher end of year sales related expenses such as commissions.
From a profitability perspective, our fourth quarter non-GAAP operating loss was $2.9 million which was within our guidance range of a loss of $2.5 million to $4.5 million and consistent with a lower level of losses we’ve reported throughout 2015.
For the full year, non-GAAP operating loss improved significantly to $9.4 million compared to $17.3 million in 2014 and represented a $7.9 million improvement year-over-year.
While we had a slight uptick in fourth quarter spending. We continue balance between investing for growth and increasing profitability.
For the full year non-GAAP operating margin improved 5 percentage points from negative 10% in 2014 to negative 5% in 2015.
As a reminder, our annual Jive Hold event which is historically been a fourth quarter event was moved to the first quarter of 2016. This favorably impacted 2015 expenses by approximately $2.5 million and will represent approximately $2.5 million of additional spending in the first quarter of 2016.
Now, let me turn to the supplemental metrics we share on a quarterly basis. We ended the fourth quarter with 993 customer compared to 989 at the end of last quarter and 950 in the year ago period. While we are focused on growing our gross to net customer count, we are also targeting longer term customers best suited for our optimized cloud products.
Our renewal rates for the fourth quarter and the full year for customers that spend over $50,000 annually was below 90% when excluding upsells and was above a 100% when including upsells. Our renewal rates were consistent with our expectations given the continued transformation of the business as well as continued strong competitive environment. We expect renewal rates to be in this range into the first quarter of 2016.
Moving to Slide 16, in terms of business mix, Jive-n represented 77% of our product revenue for the quarter and Jive-x represented the remaining 23% compared to a 74%, 26% mix respectively in the four quarter of last year.
For revenue mix based on products versus services, products increased to 93% this quarter compared to 91% last year and services comprised 7% of revenue compared to 9% a year ago. Service revenue is trended lower due to our increased emphasis on moving customers to the cloud.
With respect to how customers are deploying our enterprise collaboration platform, 69% of our product revenue for the quarter related to hosted in cloud deployments and the remaining 31% related to on premise deployments compared to a 68%, 32% mix in the fourth quarter of last year. This trend also reflects a higher number of cloud adoptions by new and existing customers.
From a geographic perspective, the U.S. generated $37 million of revenue for the fourth quarter representing 74% of our total revenue and an increase of 3% on a year-over-year basis. International generated $13.2 million of revenue representing the remaining 26% of our total revenue and increasing 11% on a year-over-year basis.
Headcount in the quarter was 721 essentially flat from 722 in the prior quarter and compares to 658 in the year ago period. The majority of our year-over-year incremental headcount was in our sales group.
Turning to Page 17 and moving to the balance sheet. We ended the quarter with cash and cash equivalents and marketable securities of $112.7 million compared to $119.6 million at the end of Q3.
From a cash flow perspective, in the fourth quarter, we used $4.2 million of cash from operations and invested $1.7 million in capital expenditures which led to a negative free cash flow of $5.9 million. Compared to the prior year, our free cash flow was a negative $9.5 million. For the full year, our free cash flow was negative $6.2 million compared to $19 million a year ago.
Total differed revenue was $148.2 million at the end of the fourth quarter, down $12.3 million from Q4 of 2014 and up $7 million sequentially. Short-term differed revenue was $131.8 million, an increase of 3% compared to the year ago period. Long-term differed revenue was $16.4 million at the end of Q4 compared to $29.5 million at the end of Q3. Long-term differed revenue is driven by the level of multiyear prepaid invoicing and we continue to anticipate that we will see fewer of these arrangements overtime as we execute in our new selling model.
Turing to guidance on Slide 18, for the first quarter, we are targeting total revenue of $49.5 million to $50.5 million. Short-term billings changes expected to be in the range of negative 3% to positive 2%.
As a reminder, in the first quarter of 2015, our short-term billings were positively impacted by strong renewal activity. We did not anticipate that same level of early renewal activity in the first quarter of 2016.
Non-GAAP loss from operations is expected to be in the range of $4.5 million to $5.5 million resulting in a non-GAAP loss per share of $0.06 to $0.08 based on 76.5 million shares outstanding. We are targeting free cash flow to be positive in the range of $7.4 million to $8.4 million.
As I mentioned earlier, we will hosting our Jive Hold event in the first quarter which is expected to result in an increase of approximately $2.5 million in sales and marketing spend in Q1 2016.
We are at an important juncture in the company’s transformation process as we work through the execution phase of our strategic initiatives.
In addition, as the macro and IT spending environments have shown signs of uncertainty recently, we are monitoring how this dynamic may play out during 2016.
Give these considerations; we are taking more cautious approach regarding our long-term expectations. As a result, we play to provide guidance on a quarterly basis rather than in an annual basis at this time.
With that said, we are establishing a goal of becoming profitable by year-end is measure by non-GAAP operating profit on a quarterly basis. We remain optimistic about our long-term opportunities as we continue to balance between growth and profitability.
Now before we answer your questions, I’ll turn the call back over to Elisa.
Thanks Bryan. I want to emphasis that Jive will be laser focused on performance in 2016. This means growing the business by leveraging all the transformative changes we’ve made over the past year. We will still keep innovating, honing and aligning our go-to-market strategies as we move forward but our primary objective is execution.
And we’re happy now to take your questions.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Michael Nemeroff from Credit Suisse. Please go ahead.
Hi, this is Kyle Chen sitting in for Michael. Thank for taking my question. I guess just to start off, you know while we can appreciate the desired to be cautious and not get ahead of your skies in this environment, has something change relative to your planning or forecasting process that’s changed the level of visibility that you have. And I guess what are the catalyst and milestones that you are looking for that, would you be comfort to provide a longer term revenue outlook?
So - you know - this is Bryan. Nothing is changed with our forecasting process. I think we are focused on going quarter-to-quarter through the transition and I think for the reasons that we stated in the call have primarily, the fact that this transition has an effect and you can see it in the last couple of quarters on new business and the way that we are going to market in terms of bringing that new business in. We want to make sure that we’ve completed all of that work and we’re through the other side of this transition before we try to estimate what those follow-on effects could look like particularly forward out you know Q2, Q3, Q4.
Yeah, that’s helpful. And I guess just relative to retention it looks like renewals rates were sum 90% again in Q4 and expect to continue in Q1. I guess what were reasons for that churn and what are you doing to stand the attrition to carry in the old rates back to your historical levels. And I guess what are you building in relative to conservatives and new customers who maybe you know not want to go on this new journey with Jive?
So you know the dynamics in Q4 were no different than the dynamics in any other quarters as we’ve talked about them in the last four quarters or so, you know would continue to be partially competitive environment, partially the transition as we mentioned in terms where we are focused and making sure that the customers that are coming along with us are the ones that the best match you know are go forward vision for our cloud product offerings and in the way that we’re growing our portfolio products at Jive. You know that dynamic hasn’t changed and we’re talked about it in prior quarter. We mentioned that we thought would be an effect for Q1, so we’ve taking into account from a guidance standpoint. But the dynamic itself is not different in Q4 than it was essentially in Q3 and we’re expecting it to be roughly the same going into Q1.
In terms of what we’re doing from a retention standpoint, we are obviously focused on the success and adoption of all of our individual customers. We’ve got several teams inside the Jive that are being working on that for the better part of last year. And I think obviously as we go through this transition you know that the all of that hard work will certainly payoff, it’s our intention in better retention rates overtime.
Okay, thanks very much. Best of luck.
Our next question comes from Ian Strgar of UBS. Please go ahead.
Yeah, hi guys. This is Ian Strgar stuffing for Brent. So thanks for taking my questions. I just wanted to go back to your comments about sales restructuring and some of the insides that Jeff Lautenbach has had. Can you just give us any more detail on what types of changes making and also can you quantify what percentage of the sales force is being impacted or have been impacted by changes you’re making?
Well, I’ll talk about the strategy that Jeff put in the place and some changes that have happened that we believe are going to drive faster revenue attainment for us in the future. You know Jeff came in and organized the sale organization not only for the talent that we had but also to fill in the gaps of talent that we knew we needed to bring into the company. And Jeff did that rather quickly and swiftly and we’ve got some strong leaders who have joined the team.
In addition to that, Jeff really worked through the successful use cases that Jive has sold in the past quite well. But prioritize to the market opportunity and to where we think we can have the most scalable, repeatable solution. So we are focus on five key solutions that we are bringing to market with a slight vertically and LLB strategies. Jess has brought some discipline thinking around how we go after healthcare which has been a success for us in the past but Jeff’s put into a much more simplified package and go-to-market approach as well as the solutions I mentioned on the call for customer and employee engagement as well as focusing on HR as a line of business.
So overall, Jeff’s put some discipline and structure in the sales organization that I think we need for repeatability and for sales repeatability and he’s also made some key decisions around territories where we have created the what we think is now the right footprint of investment in some international markets that will more aligned with our revenue growth. So we are focused on the U.S. and EMEA growth and that power moving forward with the sales organization.
Okay, got it, thank you for that. So then I think just from our conversations with investors, you know I think investors are kind of looking at here any metrics around kind of traction with the Jive-w portfolio, just to get a sense of how that transition is progressing. Are there any metrics around user accounts or percentage of new business that you’d be willing to share for the new Jive-w application portfolio or you know will you be allowing to share those incomes in quarters?
So let me address how we’re going to market with the Jive-w application, in particular how we’ve created an integrated offer for those applications with our Jive-n flagship product. What we found when we launched the Jive-w app is a really interesting set of demand from our current customers that would fill the gap in other applications that they were using, because Jive didn’t have that kind of mobile leadership at the time. And so the interactive internet offering was putting together a holistic solution with both the best of Jive-n and the key work style app to create one solution for the modern mobile internet. No one else has this offering. This is offering I mentioned that we went to market with a very definitely simplified pricing and packaging in what Jive has done in the past and we see early indications that the sales cycle and uptick for that is higher than our typical go-to-market. So we are optimistic here that the combination of the products is what are sweet spot will be and we’re going to continue aggressively to sell that in Q1, Q2 and throughout 2016.
And I think the metrics that I would look at going forward would be our selling motion for the interactive internet solution.
Understood. Thanks a lot.
Our next question will come from Stan Zlotsky of Morgan Stanley. Please go ahead.
Hi guys, thank you for taking my question. I wanted to get on unprofessional services line and I know there is a tick down 12% year-on-year was down 11% in Q3, how much of the declines that were seeing, is it function of your purpose will move to in this high velocity model and just a simplified product suite?
I think that’s primarily the driver rate. This is Bryan. You know our services organization is laser focused on making customer successful, but heavy lifting in terms of you know doing customization out in the install based or even upgrades right as you move people to cloud, you don’t have services engagements that drive professional services fees, that’s a net positive for customer. You know as frankly net positive for us. I mean that’s not business that we’re anxious to go book you know day-in and day-out, we much try to have everyone on the cloud and getting upgraded for times a year.
So it’s certainly all part of our strategy to drive more velocity and the way customers interact with us which is you know putting them all up on the cloud and having those kind of services that used to be part of that offering drop away a bit.
Got it. And on new goal to reach profitability on a non-GAAP operating margin in 2016 by end of year, is that - I just wanted to make sure, are we talking about like Q4 timeframe and if - or was it for the full year, I wanted double checked? And second, where are you looking to get leverage in order to get to that goal?
Right, so you know certainly it’s on a quarterly basis. I don’t think mathematically it would work for the year and our focus is obviously on a quarter and the fourth quarter is probably the most likely quarter, its eight quarter by the end of the year. So that had certainly kind of the last quarter in that sequence.
In terms of leverage, I think there is the opportunity to grow Jive which is obviously where we are focused and then obviously looking at areas where we can to get better leverage from a spending standpoint and moderating spending where we can. I think it’ll be a combination of both of those things. You know it’s certainly, it’s not anywhere off of our long-term strategy to continue to grow dive. And you know I think we want to make sure that we are getting leverage in the areas we spend the most amount of money on the P&L which are services, engineering, sales and marketing, you know those are the big lever points and they also have been in the P&L.
Okay. And then the last one from me. As far you know customer adds, I know you guys have discussed the goal to get churn under control, when can we start to see the fruit of the high velocity model really start to come to the forefront and start seeing a double-digit type of customer additions in quarters? Thank you.
It’s Bryan. You know obviously we’re growing quarter-by-quarter as we work through not only the transition into selling model but also as Elisa mentioned the pricing and packaging and all other things that we’ve done. We’ve done a tremendous amount of work at the end of 2015 as we brought the team together and done you know kind of the capstone work on what was a very transformative year in 2015. The average selling cycles for Jive are usually in the six to nine month range. So to the extent that you are putting that those selling motions in place at the back half of 2015, you’d expect you kwon the mid part of 2016 to be the earliest place to see those show up.
You know we’ll certainly go quarter-by-quarter. We’re as Elisa said, very focused on seeing the results of the foundation that we built and now is the time obviously to execute and see those translate into particularly in the case we’re taking here higher gross customer adds which then leads to higher net customer add.
And just to add to that, the packaging work that we’ve done is not just about you know packaging a message, it’s truly operational work at Jive to make things simpler to purchase, simpler to access and then simpler to deploy. And that took up some time to really engineer that and put those packages together. And that is our - as I focused on execution on the call, that is our maniacal focus going forward if taking the work that we’ve done and making it actually create repeatability in the market.
Okay, great, thank you.
[Operator Instructions] Our next question will come from Walter Pritchard of Citi. Please go ahead.
Hi, thanks. Bryan, I just wanted to make sure on that work even by Q4, are you anticipating any being forward actually enforce to get there or is that kind of defeat constrained at these levels throughout some modest growth?
Well, you know like I said earlier, you know, the intent obviously is to grow Jive. You know I think something like a reduction enforce is something you do when you are in a situation where you need to reduce expenses in a more drastic or mediate manner. I think the goal is obviously to execute on our strategy, to look for areas of efficiency and obviously all of those options are on the table at any point in time when you are thinking about your P&L, but the key here is obviously to try to use the initiatives that we’ve got to grow Jive and put in a more profitable configuration through the kind of the evolution of Jive from a growth standpoint.
And then Elisa, on the competitive side, you brought that up in your script. And I am wondering are you seeing in the sort of versus where you were six months ago, are you seeing more from the platform side using a trademark in Microsoft and sales force you might be embedding some sort of social hub or social interaction into a platform versus some of the point players that are dealing at point product that might compete with diver that will be out for or something specific you are doing on one or more areas?
Yeah, thanks. The point players in terms of very specific apps or products, they don’t see a lot in competitive deals, mostly because our solutions are solving core business process applications within the company like the HR solutions or the marketing solutions, the healthcare solution. So they are much more robust business problems that we’re solving, so we don’t see that competitively in a deal or trying to win an account.
And then on the other side of the spectrum with the larger players, we do see that pressure in terms of adding to the full stack and adding on some kind of social capability. The difference is - there is two key differences, one of course Jive’s offering is robust around any solution to integrate. And the second is the continued fragmentation of It. So there is no real company at this point in time that has only one stack, everyone is using a little bit of everything and that puts drive in a competitive advantage when we’re being used as the hub. So I’ll tell you when we’re in the situation where we are competing for a hub like or internet like, when we win more we’re in a situation where the customers really looking for just light social capability, that’s a tougher competitive dynamic for us and that customer will tend to go with an integrated solution because they are not looking for robust business solution.
And then last question, on sales cycle, I mean and assuming the tight velocity model take hold, what would you expect sales cycle will be in straight 12 months to look like, if you think meaningfully reduce them something like during the six months or do you think it is for six to nine months with just a larger number of targets in the mix to be able to increase the number of deals closed?
Well, I mean, you’ve headed, you’ve headed on the head where we obviously want to reduce sales cycle time. And all of work around packaging, simplification, easier pricing understanding, easier deployment should have an effect of reducing sales cycle time in total. How much of that time, you know I’ll get back to you on when we start actually implementing this in a repeatable way but that is the goal.
Okay, thanks a lot.
Our next question will come from Michael Huang of Needham and Company. Please go ahead.
Thanks very much and good afternoon. Thanks for taking my question. So clearly you know we’ve seen increased volatility across our - you know over the - for the month of two over is I think turns around the global macro. I mean are you more cautious today you were a quarter ago, I mean certainly stocks have been pretty challenged. I was wondering is what you are seeing more transformation related or you seeing some leading indicators that suggest the things they are allow live out there from a macro standpoint.
So this is Bryan. You know in Q4, I would say that we didn’t see any appreciable macro impact. You know I think Q4 behaved, you know as we expected it behaved within the stand points of what we are doing in our own transformation. I think as we’ve entered this year, it’s not that we’ve seen it in our own close rates or our own business, but we’ve been obviously as you have seeing the dialog pick up and you know what we’re signaling here is we’re watching it and to the extent that you now we see it in quarters you know which is you typically see it as you are closing out the quarter and you are going to kind of get the deals that you are forecasting, so it’s earlier in the cycle then you would normally expect to see that show up. And we want to make sure that we are keeping an eye on it. I think that’s you know abundance of caution, you know we’re bringing it up now because it’s being talked about rather pervasively and you know something that we want to keep our eye on for the next couple of quarters.
And then I would just add you know as it may set in for more cautious spending behavior, it’s critically important for Jive to position business value, which goes right along with our solutions and vertical strategy that we are now implementing, it’s all about leading with the business value that we know our current customers have achieved and then extending that story into new prospect, so they can see a true business transformation benefit for doing business with Jive. It’s critical in any environment but even more important in a cautious spending environment.
It’s great. Okay, and just another kind of related question, so you know obviously you guys have kind of made some moves to improve the outlook in the velocity of the business here, and how are you sure that kind of what you are seeing, the disruption you are seeing is more sales execution related as opposed to it’s something more competitive or something more the demand driven? Thanks.
Well, I think the - you know from my point of view, the number of new entrance in this market and the number of you know current players you are adding special capabilities everywhere you turn is the clear indication that this market is interesting and growing even outside the third party predictions. I think that is super important because new entrance means opportunity.
The other thing I would say the category itself is as we started literally two years ago redefining the category not being about social enterprise but being about business value, you see more and more that’s happening even with the third party analyst firms, I mentioned that in the prepared remarks today. But there are several firms now relooking at, what is this category about and it’s being broken into segments because there are different problems and different types of things that need to be solves for both employees and customer experiences. So I am optimistic about the category for those reasons.
Great, thanks so much, I appreciate it.
Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Elisa Steele for any closing remarks.
Thank you very much for everyone’s attendance and we hope to see you at Jive later on in March. Take care.
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
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