Tableau Software (DATA) Q2 2018 Results - Earnings Call Transcript

Tableau Software, Inc. (NYSE:DATA) Q2 2018 Earnings Call August 2, 2018 4:30 PM ET

Executives

Derek Wong - Tableau Software, Inc.

Adam Selipsky - Tableau Software, Inc.

Damon Fletcher - Tableau Software, Inc.

Analysts

Mark R. Murphy - JPMorgan Securities LLC

Raimo Lenschow - Barclays Capital, Inc.

Karl E. Keirstead - Deutsche Bank Securities, Inc.

Jesse Hulsing - Goldman Sachs & Co. LLC

Sanjit K. Singh - Morgan Stanley & Co. LLC

Thomas Michael Roderick - Stifel, Nicolaus & Co., Inc.

Jennifer Swanson Lowe - UBS Securities LLC

Brent Bracelin - KeyBanc Capital Markets, Inc.

Bradley Sills - Bank of America Merrill Lynch

Philip Winslow - Wells Fargo Securities LLC

Tyler Maverick Radke - Citigroup Global Markets, Inc.

Keith Frances Bachman - BMO Capital Markets (United States)

Operator

Good afternoon. My name is Leandra, and I will be your conference operator today. At this time, I'd like to welcome everyone to Tableau Second Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

I'll now turn the call over to Derek Wong, Senior Director of Investor relations.

Derek Wong - Tableau Software, Inc.

Thank you, Leandra. Good afternoon and thank you, everyone, for joining Tableau's second quarter 2018 earnings conference call. With me on the call today are Adam Selipsky, Tableau's President and Chief Executive Officer; and Damon Fletcher, Tableau's Chief Financial Officer.

Our press release was issued earlier today and is posted on our website. This call is being broadcast live via webcast. And following the call, an audio replay will be available on the Investor Relations section of our website. Adam and Damon will begin with prepared remarks, and then we will open the call for questions.

Before we begin, I would like to remind you that during today's call, we will be making forward-looking statements regarding future events and financial performance, including our guidance for the third quarter and fiscal year of 2018. We caution you that such statements reflect our best judgment based on factors currently known to us and that the actual events or results could differ materially.

Please refer to the documents we file from time-to-time with the SEC, in particular our most recently filed Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. These documents contain and identify important risk factors and other information that may cause our actual results to differ from those contained in our forward-looking statements.

Any forward-looking statements made during this call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in the forward-looking statements, even if new information becomes available.

During the call, we will also discuss non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the GAAP and non-GAAP results is provided in today's press release. The financial outlook that we have provided today excludes stock-based compensation expense, which cannot be determined at this time and are, therefore, not reconciled in today's press release.

I'd also like to remind everyone that, starting with the first quarter of 2018, we adopted the new revenue recognition accounting standard, otherwise referred to as ASC 606, on a modified retrospective basis. This means that results for reporting periods beginning on or after January 1, 2018 are presented under the new revenue recognition standard, while prior period amounts before January 1, 2018 are not adjusted.

With that, it's my pleasure to turn the call over to Adam.

Adam Selipsky - Tableau Software, Inc.

Thanks, everyone, for joining us today. We saw strong demand from customers in Q2, with strength across all of our major geographies. Our second quarter revenue under ASC 605 was $244 million, above our guided range, and up 14% year-over-year. Our second quarter license revenue on a 605 basis was $123 million, up 19% year-over-year, compared to an 11% decline a year ago.

Our revenue performance was particularly encouraging, given strong subscription adoption in the second quarter, with 67% of our overall license bookings now recognized ratably. This is at the high end of our guided range. And lastly, we added over 4,100 new customers in Q2, bringing us to over 78,000 total customer accounts.

Let's kick things off with subscription. In Q1 of 2017, our ratable license bookings mix was 26%. This was before we had publicly launched subscription licensing. In April of last year, we officially launched subscription licensing, giving our customers an easier way to buy Tableau, with lower upfront cost and reduced risk. Fast forward five quarters, and our mix is now 67%, showing how our customers have embraced subscription licensing enthusiastically.

As we've said, our transition to subscription is a multi-year effort, and in April of this year, we evolved our offerings even further. With three new subscription offerings, Tableau Creator, Explorer, and Viewer, we've made it easy for customers to scale and tailor Tableau capabilities to all of the different needs across their organizations.

The demand in Q2 has been encouraging, with customer resonance, adoption, and momentum right out of the gate. This demand we're seeing from our customers gives us the confidence to continue to invest in our business and help fuel our long-term growth.

Over the last three months, we've heard from numerous customers who've told us how much easier it is now for them to scale Tableau to thousands and even tens of thousands of users, especially with the ability to deploy an entire workforce with our new Viewer offering.

We've also heard from customers who previously would have bought perpetual Desktop and Server licenses, who have turned to subscription, Creator, Explorer, and Viewer, as a simpler and more cost-efficient solution for their diverse set of analytics needs. And we're seeing more and more organizations interested in going big with Tableau, versus buying Tableau in smaller increments under the old perpetual licensing model.

For example, this quarter, a major U.S.-based multinational energy company selected Tableau for enterprise self-service analytics across all of the business units at the organization. Our role-based subscription offerings played a critical role in expanding Tableau to over 20,000 individuals from the natural gas analyst to the front-line employee. Additionally, the inclusion of our data preparation product, Tableau Prep, inside of Creator, also served as a major factor in this company's decision to purchase Tableau via subscription.

Our role-based subscriptions are also helping many of our existing customers move from perpetual-based server deployments to a subscription model. For example, a long-time customer and Fortune 500 consumer products company had a growing Tableau user base that was putting pressure on their existing core-based deployment.

Our role-based subscriptions, and in particular, Tableau Viewer, gave this customer the right mix of flexibility, value, and functionality that made it possible to convert this quarter from a perpetual core model to a subscriptioned named-user model, including thousands of Explorers and tens of thousands of Viewers driving self-service analytics at a much wider scale.

A unique characteristic of the Tableau platform is our unparalleled choice and flexibility. Customers can deploy on premises via the public cloud on AWS, Google, or Azure, or with our fully-hosted solution, Tableau Online. And as for the latter, our role-based subscriptions have made it easier for customers who want to be cloud-first to scale Tableau to all of their users via the Explorer and Viewer licenses on Tableau Online. While early, this quarter we saw increased demand from customers purchasing Tableau Online through our new offerings.

For example, PACCAR, a Fortune 500 company and one of the largest manufacturers of heavy duty commercial vehicles in the world, this quarter adopted our Tableau Online subscription offerings to deploy self-service analytics to thousands of individuals in their organization, capitalizing on the flexibility of our subscription offerings to rapidly and cost-effectively scale.

Let's turn now to Tableau Prep, our new data preparation product that helps our customers get to analysis faster by offering them an easy, visual and smart approach to data prep. As we noted before, by bringing a modern and self-service approach to data prep, much like we did with traditional BI, our goal is to empower content creators to quickly and confidently combine, shape, and clean their data, thereby speeding up the time to insight.

The early feedback from our customers has been positive. Customers are particularly excited by how easy it is in Tableau Prep to quickly spot and clean dirty data via a really intuitive visual interface and also the ability to immediately see results, even with millions of rows of data. In fact, we saw promising but early results from Tableau Prep since launch, with over 6,500 customer accounts activating a Tableau Prep license. And given our large and growing customer base, we're excited to see how many more organizations will choose to bring a unique and time-saving self-service approach to their data prep needs.

Let's turn now to the rapid pace of product innovation at Tableau. Tableau continues to transform the way organizations approach analytics. Since Q2 of last year, we've delivered over 100 new features and capabilities, with quarterly releases that ensure a rapid pace of innovation across our platform, including the launch of Hyper, our new data engine technology, and Tableau Server on Linux earlier this year.

On that note, earlier this week, we released Tableau 2018.2, which further opens our platform to developers with our new Extensions API. This new API enables developers and partners to create third-party applications that can be dragged and dropped directly into Tableau dashboards, thereby increasing the reach and applicability of our analytics platform. From custom visualizations and write-back to advanced and predictive analytics, the possibilities are endless and limited only by a developer's creativity.

Many partners have already built extensions that can be found in our new Extensions Gallery. For example, both Narrative Science and Automated Insights have created extensions that help people automatically see insightful natural language descriptions of their data, without having to leave their Tableau dashboard.

2018.2 also marks an important step forward in our administration capabilities with the introduction of Tableau Services Manager. Services Manager gives our customers a direct way to manage their server deployments via a comprehensive tool for administrators to install and configure Tableau Server via the browser on both Windows and Linux.

We've also been investing in smart technologies to help customers get to answers faster and uncover unanticipated insights in their data from machine learning-based recommendations, for data sources, tables and drawings to fuzzy clustering in Tableau Prep. This also includes investment in natural language processing, including our ClearGraph acquisition last year which will make it simpler for people to interact with their data by enabling conversational-style inputs.

And to help drive our innovation agenda further, in Q2, we announced the acquisition of an AI startup, Empirical Systems, a company specializing in automated statistics that originated at MIT's Probabilistic Computing Project. Empirical has built a unique analytics engine that automates the complex analysis and data modeling that typically requires a trained statistician, helping anyone quickly identify key trends or outliers without having to manually explore every dimension and variation in their data.

By integrating Empirical Systems' technology into the Tableau platform, we're removing technical complexity and making it possible for more customers to use sophisticated analytical techniques in their everyday decisions.

Both our product innovation and customer passion for Tableau were on full display at our largest international customer conference to-date, with over 1,800 customers and partners joining us in London this past July, including Virgin Atlantic, Cargill, PVH Europe, Dyson, Groupon and Daimler AG. And we hope many of you will join us in New Orleans for our Annual Tableau Conference this October.

We'll be diving into the latest product updates, unveiling new features and hosting over 400 breakout sessions and training opportunities to boot. We're looking forward to hearing from over 100 Tableau customers sharing their use cases, including success stories from Allstate, Deutsche Bank, Boeing, Stamford Health, Cisco Systems, Kaiser Permanente and Credit Suisse.

In closing, Q2 marked a critical quarter for the company in our transition to subscription, as it saw the first major evolution in our subscription model since its launch a year ago. Our new role-based subscription offerings have been well received by our customers and have contributed to healthy demand for our subscription offerings as we head into the second half of the year.

As we take a step back to assess where we are on our mission to help people see and understand data, it's clear that the most important word in our mission is people. Every person, from the sophisticated data scientist to the casual data consumer, everyone should have the ability to harness the power of analytics to make better decisions faster. And our role-based subscriptions represent a step forward in making this vision a reality.

Before I turn the call over to Damon, I'd like to extend a warm congratulations to him on his official appointment as our CFO. Damon knows our culture, our business and our products. Many of our customers and the financial community already know Damon and have immense respect and admiration for him. He not only helped architect the transition to subscription, but has also been instrumental in structuring enterprise license agreements to help Tableau expand customer relationships at scale. The experience at Tableau, coupled with his expertise in finance and public accounting, made him the right choice for this role and will undoubtedly make his transition a smooth one.

I'll now turn the call over to Damon, who'll walk through the quarter's results and share our outlook.

Damon Fletcher - Tableau Software, Inc.

Thanks, Adam, and thank you everyone for joining us on the call today. Today, I'm going to cover the following topics in my prepared remarks. First, I'll discuss our Q2 2018 financial results. And afterwards, I'll discuss our Q3 and fiscal year 2018 outlook.

For the second quarter of 2018, total revenue under the new revenue standard, ASC 606, was $282.3 million. Under the ASC 605 revenue standard, total revenue was $243.6 million, up 14% year-over-year and above our guided range of $230 million to $240 million.

As Adam noted earlier, we saw strong demand from all major geographies this quarter and across both our commercial and enterprise teams. In particular, our U.S. region performed well in Q2. Second quarter license revenues under ASC 606 were $137.8 million. On a ASC 605 basis, second quarter license revenues were $122.6 million, up 19% year-over-year.

Under ASC 605, second quarter ratable license bookings, as a percentage of total license bookings, were 67%. This was at the high end of our expected range of 62% to 67%, as we continue to see strong uptake of our subscription offerings from both our commercial and enterprise customers.

Second quarter maintenance and services revenues under ASC 606 were $144.4 million. On a ASC 605 basis, second quarter maintenance and services revenues were $121 million, up 10% year-over-year.

Our total annual recurring revenue, or ARR, consists of the annualized value of all active maintenance and subscription contracts at the end of our reporting period. Total ARR and subscription ARR are unaffected by the new accounting standard. At the end of Q2 2018, total ARR was $697.7 million, up 44% year-over-year. And subscription ARR was $291.3 million, up 181% year-over-year.

We continue to have an overall combined renewal rate exceeding 90%, which includes both our maintenance on our perpetual licenses as well as subscription renewals. Our international revenues under ASC 606 were $85.3 million and represented 30% of total revenue. Our United States and Canada revenues under ASC 606 were $197 million and represented 70% of total revenue.

Now let's discuss operating margins and expenses. As a reminder, our operating margins and expenses are discussed on a non-GAAP basis. Please see our earnings press release tables located on our Investor Relations website for non-GAAP to GAAP reconciliations.

Second quarter total gross margin was 89% under ASC 606. On a ASC 605 basis, gross margin was 87%, compared to 89% in Q2 2017. Our Q2 operating income was $37.8 million under ASC 606. On a 605 basis, our Q2 operating loss was $7.3 million, compared to our guidance of $10 million to $17 million operating loss.

As a reminder, under the new accounting standards, certain sales commissions are now expensed over time, versus previously being recognized upfront.

Sales and marketing expenses under ASC 606 for the quarter were $122 million. On a 605 basis, sales and marketing expenses were $128.4 million, up 22% year-over-year. We ended Q2 with sales and marketing head count of 1,710 employees.

We invested $67.2 million in research and development in Q2, up 21% year-over-year. We ended Q2 with R&D head count of 1,069 employees. General and administrative expenses for the quarter were $23.8 million.

At the end of Q2, our total head count was 3,896 employees. This compares to 3,663 employees at the end of last quarter. Q2 was a strong hiring quarter for Tableau, as we continue to recruit and hire talented people and grow teams where we see strategic areas of opportunity across development, sales, and marketing.

Our non-GAAP effective tax rate was 20% for the quarter. This brings our non-GAAP net income under ASC 606 for the second quarter to $35.7 million and our non-GAAP diluted earnings per share under ASC 606 was $0.41. Given our reported non-GAAP net income on the 606 basis, our weighted average diluted share count used to calculate ASC 606 non-GAAP diluted earnings per share was approximately 86 million shares.

On a 605 basis, our non-GAAP net loss for the second quarter was $0.3 million, and our non-GAAP diluted loss per share was $0.00. Given our reported non-GAAP net loss under ASC 605, our weighted average diluted share count used to calculate non-GAAP diluted earnings per share was approximately 82 million shares.

On the balance sheet, cash and investments at the end of Q2 were $1 billion. Accounts receivables were $170.9 million and our DSOs were less than 65 days.

During the quarter, we repurchased approximately 313,000 shares of our Class A common stock for $30 million, bringing our cumulative shares repurchase to-date to roughly 2.4 million shares. As a reminder, our repurchase authorization does not have a fixed expiration. To-date, we have deployed approximately $160 million of our $500 million total stock repurchase authorization.

I will now turn to our financial guidance for Q3 2018 and fiscal year 2018. Please note that all forward-looking guidance other than revenue is discussed on a non-GAAP basis. Please also note that, unless otherwise specified, our Q3 and fiscal year 2018 guidance is being given under the ASC 605 accounting standard.

And as always, our outlook takes into consideration a number of factors, including, though not limited to, the overall progress we made thus far in our subscription transition, our current view of the market, environment and the demand we are seeing, our pipeline, and our customer buying behavior as our customers consider and decide on the deployments that work best for their needs.

We expect third quarter 2018 total revenue to be between $236 million, $246 million, representing year-over-year growth of 12% when using the midpoint of the range. This outlook assumes that the mix of ratable license bookings will represent approximately 72% to 76% of our license bookings for the third quarter.

For the third quarter, we expect a non-GAAP operating loss of $12 million to $19 million. And lastly, for the third quarter, we expect the non-GAAP loss per share range to be between $0.09 and $0.15. This assumes a basic share count of 83 million shares under a net loss scenario. This also assumes $3 million in other income, primarily related to interest income on our cash and investments.

Before I move on to full-year guidance, I'd like to provide some additional context around the ASC 606 impact to our guidance. We currently anticipate Q3 revenue under ASC 606 will be 13% to 15% higher than our Q3 ASC 605 revenue.

As you saw with Q2, our ASC 606 revenue will vary due to a number of factors, including, but not limited to, the mix of our sales that are subscriptions, subscription contract durations, and how much of our subscription business is on premises. And as noted earlier, the ASC 606 standard also results in the deferral of certain sales commissions, which we anticipate will result in approximately 2% decrease in ASC 606 reported Q3 2018 non-GAAP expenses.

Let's now turn to our fiscal year 2018 guidance. We are narrowing our fiscal year 2018 revenue expectations, now expect a range of $965 million to $985 million, representing year-over-year growth of 11% when using the midpoint of the range. As Adam noted in his remarks, the early demand from customers for our Creator, Explorer, and Viewer offerings has been strong, as evidenced by our subscription ARR growth and our customer count adds this quarter.

Our new subscription offerings are resulting in more customers opting for subscription, which we saw reflected in our 67% ratable license booking mix in Q2. The introduction of Viewer and the inclusion of Tableau Prep and Creator, among other factors, are driving higher subscription mix and demand. As such, we are raising our mix expectations for the second half of the year.

Our annual revenue guidance now assumes that the mix of ratable license bookings will be approximately 68% to 71%, an increase of 3 points at the midpoint, compared to our guidance for the full year shared last quarter. This increased mix expectation will have an associated impact on the full-year operating margins, due primarily to the ongoing mix shift from upfront to ratably recognized revenue.

As a result, we now expect a fiscal year 2018 operating loss of 4% to 5% of total revenue. As always, a faster-than-expected subscription transition may negatively impact our revenue and our operating margins in the near-term.

As Adam noted in his remarks, our ratable mix has moved from 26% in the quarter preceding our public launch of subscription to 67% mix in the most recent quarter. The success thus far in our subscription transition and the healthy demand we're seeing from customers give us the confidence to maintain the pace of our investments to fuel our long-term growth opportunity.

We will continue to focus on moving through the transition as quickly as possible. Doing so will help us more rapidly build a recurring revenue base that will alleviate the perpetual to subscription mix shift pressure on growth and margins, which will enable us to achieve our long-term operating targets.

We estimate our non-GAAP effective tax rate for 2018 to be 20%. We continue to expect fiscal year 2018 capital expenditures to be between $35 million and $40 million, down from $61.8 million in fiscal year 2017. For the full year, we expect to generate a non-GAAP loss per share of $0.30 to $0.40. This assumes $14 million of other income, primarily related to interest income from our cash and investments. We anticipate the full-year basic share count to be approximately 82 million shares.

In closing, as Adam mentioned earlier, we're excited to see the strong customer reception for our role-based subscription offerings in the second quarter, from positive initial feedback on Tableau Prep to healthy momentum with large deployments, given the added flexibility of Viewer. That said, we're still early in this process. And with a large existing customer base and the opportunity to scale and standardize Tableau to more and more existing and new users, we believe that the addressable market opportunity is significant and growing.

Before I turn the call over to Q&A, I'd like to thank Adam and our board of directors for the opportunity to serve as Tableau's next Chief Financial Officer. Tableau has always been a mission-driven company with an incredibly passionate customer base and a powerful end-to-end analytics platform. I'm honored to work with our leadership to continue to build on what the company has already accomplished, and look forward to helping more people and more organizations see and understand data.

I'd also like to recognize the valuable work of our world-class team of dedicated Tableau employees. I see proof of their dedication to our customers every single day, across development, sales, marketing, and operations teams, working around the globe, and I'm thrilled to help build these teams as we move forward. And for our shareholders and analysts, I've enjoyed meeting and speaking with many of you over the last few years and look forward to continuing our dialogue together.

Now I'll turn the call over to the operator for Q&A.

Question-and-Answer Session

Operator

And your first question comes from the line of Mark Murphy with JPMorgan. Your line is open.

Mark R. Murphy - JPMorgan Securities LLC

Yes. Thank you very much. Congratulations on the health of the business and a warm welcome to Damon as CFO.

I wanted, Adam, to ask you about the trend of the wall-to-wall deployments. I think you had commented back in May that you're starting to see those large deployments in the enterprise pretty regularly every quarter. And I just wanted to ask you how you think the lower-priced Viewer license has impacted that trend. And also, just what does the pricing curve look like for some of those higher volume transactions?

Adam Selipsky - Tableau Software, Inc.

Sure. Thanks, Mark. We've definitely seen a continued uptick in the number of large-scale deployments that are happening in the enterprise. I think there are a number of factors affecting that. I think probably most importantly is, as we've talked about many times, the sheer amount of data hitting those organizations and the increasing sophistication and realization that analytics is not only possible, but is a huge business driver. And these companies are creating cultures of analytics and deploying Tableau very broadly as a result.

I think strength across our products, improved governance, improved visual analytics capabilities are all helping. And, in addition, I think some of these pricing and packaging and bundling decisions that we've made, which have been driven by our customers, are also being well received. So I definitely think Viewer has been one of the significant components in enabling customers to look at both the capabilities that their employees need, as well as the total cost as they consider deploying to tens of thousands of employees.

Mark R. Murphy - JPMorgan Securities LLC

Okay. And on that topic, as a follow-up, I think apart from company-specific momentum which we see, we've heard that global demand for BI and analytics software has – I don't know if I should say inflected higher, but it has ratcheted up a bit in recent months. Just based upon what people are observing with kind of standing-room-only attendance levels at some of the industry events and some of the seminars, and I guess I'm just curious does that align with your observations at all in terms of stronger interest in the category?

Adam Selipsky - Tableau Software, Inc.

I would say, not that we're seeing an inflection point happening in a short period such as one quarter, but more than what we've been saying for many quarters in a row now, just continues to play out that there has been and we believe will continue to be strongly, consistently, increasing demand overall for analytics.

As I was saying a moment ago, the amount of data, the availability of sophisticated technologies like Tableau and the increasing sophistication and realization by these organizations of what they can accomplish once they transition to a data-centric culture, all of those things are going to, I believe, continue to play out for many quarters to come. And I think, in any one quarter, you don't see a particular variation in that trend, but rather an inexorable uptick.

Mark R. Murphy - JPMorgan Securities LLC

Okay, very good. Thank you for taking my questions.

Operator

Your next question comes from the line of Raimo Lenschow with Barclays. Your line is open.

Raimo Lenschow - Barclays Capital, Inc.

Gee, thanks. Can I stay on the topic on Viewer, please? Adam, you probably had a lot of conversation with investors this quarter, and the common question I got from people was like, look, if I have a choice of paying just Viewer for $12, why do I pay for the higher one? How did that play out in the client conversations that you were involved in this quarter? Is that kind of the debate you saw or how was it different?

Adam Selipsky - Tableau Software, Inc.

Hi, Raimo. No, I think that we saw it playing out differently than that. I think what we're seeing more and more from customers is that they really want Tableau for everyone. And what that means is everything from the sophisticated analyst all the way to the very casual or episodic user.

If you look at Creator, I mean that's really I think the standard-bearer in the industry now in terms of sophisticated offering for analysts, especially with the inclusion of Tableau Prep into that offering. And, of course, you've got Explorer in the middle and then at the other end of the spectrum, Viewer, which is not only less expensive and therefore makes the economics extremely compelling for large deployments, but it's actually a better offering for the casual user, precisely because it removes some of the sophistication and some of the complexity that the casual or episodic user, frankly, is not going to want to be bothered with. So I think that it's definitely one of the big enablers of these large deployments.

Raimo Lenschow - Barclays Capital, Inc.

Okay. Perfect. And then, maybe one follow-up for Damon. Like, I know we shouldn't, but kind of people are still calculating billings and using deferred. Can you just remind us of the moving parts to deferred that are happening as you go through this transition?

Damon Fletcher - Tableau Software, Inc.

Yeah, certainly. So under a ASC 605 basis, we still are deferring our on-premises and SaaS licensing. On a ASC 606 basis, on-premises term licensing are partially recognized upfront. And so, there's no deferral for part of those transactions.

If you look at the trends, I think we grew 36% year-over-year on deferred revenue, and sequentially up about $27 million since the previous quarter. So we had what we believe good fundamentals around kind of growth in both our on-balance sheet and off-balance sheet deferred revenue.

Raimo Lenschow - Barclays Capital, Inc.

Perfect. Thank you.

Operator

Your next question comes from the line of Karl Keirstead with Deutsche Bank. Your line is open.

Karl E. Keirstead - Deutsche Bank Securities, Inc.

Thanks. Adam, would you mind returning to a comment I think you made about the U.S. market, maybe it was Damon, doing particularly well in 2Q. I know international for Tableau has outgrown your U.S.-Canada region for a number of quarters. It feels like maybe things reversed a little bit and you saw a unique strength in the U.S. in 2Q. I'm just wondering if you could flesh that out a little bit more. What do you think drove that? Was it anything Tableau-specific? Or did the environment just feel a little bit more robust in the U.S.? Thank you.

Adam Selipsky - Tableau Software, Inc.

Sure. I think it's really the latter, the last thing you said, which is I think just in this particular quarter, there was just a little more relative strength perhaps in U.S.-CA region. But I want to stress that this is not a big pronounced trend. Mean we really felt strength across the board in all of our major geographic theaters. And perhaps this quarter, there's just incrementally a little more strength in the U.S. But we felt very good in the quarter about what was happening really across the world.

Karl E. Keirstead - Deutsche Bank Securities, Inc.

Got it. Okay. Thank you.

Operator

Your next question comes from the line of Jesse Hulsing with Goldman Sachs. Your line is open.

Jesse Hulsing - Goldman Sachs & Co. LLC

Yeah. Thanks. Adam, it seems like your strategy here with the pricing transition or subscription transition and just really focusing on improving enterprise capabilities is working. When you look forward, what are the investment priorities from here? Where do you see opportunity to push on the gas, both from a product and distribution perspective?

Adam Selipsky - Tableau Software, Inc.

Well, just given the growth and given the potential and the demand that we see, we're really going to continue investing at this stage across the business. So I think it's all of those things that you just mentioned. I think there are a lot of product areas where our customers are pushing us and where we see opportunities for great innovation.

Those include a lot of things around smart analytics, particularly natural language processing, machine learning, and AI, but also helping customers with their data models, helping dealing with complex queries, certainly more in visual analytics, more in our mobile environment. And, of course, continuing to innovate with Tableau Prep in the data preparation space. And then, not to be left out is, of course, some uniquely enterprise requirements, such as ever-improving governance, security and compliance capabilities.

So we have a lot of people working on all of those. It is a significant investment. We believe it's prudent to make that investment. We don't plan on slowing down in those areas. At the same time, we think within our field teams, there are a lot of important investments that our customers need us to continue making, particularly as we continue to expand and grow and mature across the world.

So we will be continuing to increase the local deployments of our field teams, and that includes not only quota-carrying reps, but also tactical pre-sales resources. And another great example is customer success, where we are highly and deeply committed to making sure our customers are actually successful in deploying, adopting, and managing Tableau successfully. And that will, in the end, yield strong renewal rates. We're going to stay very focused on that success and that will be one of the significant areas of continued investment.

Jesse Hulsing - Goldman Sachs & Co. LLC

And a quick follow-up to the line of questioning around the pricing changes that you made. If you look at large deals both on the $1-million deal metric and the $100,000-deal metric, they both improved pretty significantly from where you were last quarter on a year-over-year basis. Is it fair to say that the new pricing is helping accelerate the closing of some of these transactions? And are you starting to see that in the pipeline as well? Is the pipeline building a little bit faster than it was?

Adam Selipsky - Tableau Software, Inc.

Well, I think the new offerings are definitely helping the overall strength of the business for sure. So I think that is definitely one big factor. I think customers, as they get more sophisticated, definitely do not want a one-size-fits-all approach.

And so, again, I think the way that we're now delineating Creator from Explorer, from Viewer, really does move more and more towards having a tailored series of offerings that customers can deploy in whatever proportion is right for them. And we've seen that as a big enabler for saying yes to just make large Tableau deployments and also, particularly in Viewer, at getting more and more customers to move from their core-based licensing over to a subscription per user model. So I think it's had a lot of benefits in those areas.

Jesse Hulsing - Goldman Sachs & Co. LLC

Thank you.

Operator

Your next question comes from the line of Sanjit Singh with Morgan Stanley. Your line is open.

Sanjit K. Singh - Morgan Stanley & Co. LLC

Thank you for taking the questions, and congrats, Damon, on making it official. I guess my question was in terms of how we think about the transition to subscription. It seems like we have a new sort of path emerging with the existing license base moving to subscription.

So I was wondering, Adam, if you could tell us on what sort of levers you guys are pulling to make that happen? Is it the attractiveness of Prep that's getting the licensed customers to move over to subscription? Are you doing anything from a economic incentive perspective to get customers over to the subscription products, whether it's on the Desktop side or on the Server side?

Adam Selipsky - Tableau Software, Inc.

Sure. Well, I think the biggest factor is more and more customers are just becoming aware of the newer subscription offerings, and more of them are working through in their own organizations what that would look like, how that plays out for them. And as a result, more and more of them are coming to see what we certainly believe, which is that for most customers subscription is just flat-out better. And, again, the biggest reason for that is it's a risk-reduction program. It gives them the ability to walk away if we don't perform. And if you believe you have the best offerings and the best service, then you're willing to place that bet on yourself, and we are.

So I think, as time goes by, more and more customers are just coming to the same point of view, and that is the biggest trend. Of course, we've continued to sharpen all the subscription offerings. I think these new role-based offerings that we launched a quarter ago are absolutely fueling some of those conversions as well. And then we certainly, particularly with large deployments and big enterprises, are certainly working with them on a very custom basis as they come and talk to us about conversion, and making sure that we take into account the prior purchases that they've made and can help us move that conversion. But that happens really on a series of one-on-one conversations.

Sanjit K. Singh - Morgan Stanley & Co. LLC

That's very helpful. And then for my follow-up, in terms of looking at full-year guidance in the right perspective, I think I understand the revenue guidance. But when we look at the margin guidance, I think which came down a little bit, is the right way to look at it is the fact that it's on a higher ratable license mix? Or is there incremental investment that's going on as well that's causing a downtick in margin? Thank you very much.

Damon Fletcher - Tableau Software, Inc.

Yeah. Thanks. So the primary driver is just what you said, is the increased mix. So we're seeing strong demand from our customer base for our subscription offerings, which will have an impact on our recognized revenue. And given the strong demand fundamentals that we're seeing for our business, we're able to maintain the same revenue outlook. But we'll have the associated costs, given, as we've noted before, kind of the higher demand impacts expenses more than revenues, the cost of sale is the same for subscription and our perpetual offerings.

Sanjit K. Singh - Morgan Stanley & Co. LLC

Thank you.

Operator

Your next question comes from the line of Tom Roderick with Stifel. Your line is open.

Thomas Michael Roderick - Stifel, Nicolaus & Co., Inc.

Hey, guys. Thanks for taking my questions, and I'll echo my sentiments for you, Damon. Congratulations on the promotion. Well deserved.

I wanted to go back to the topic of Prep. It seems like you're getting a lot of looks early on, customers evaluating it, very appealing within the context of Creator. What sort of feedback are you getting with respect to sort of where the quality of the product stands, what customers want to see more out of? And maybe more directly, is this starting to be more directly competitive with the higher end sort of enterprise-grade tool like an Alteryx? Or is that partnership still pretty stable at the high end and this is more of an add-on to lower-end customers? Just kind of who's looking at this and how is it impacting that discussion?

Adam Selipsky - Tableau Software, Inc.

Sure. Well, we believe that data prep is an absolutely essential part of the whole analytics workflow. I think, as we talked about last quarter, HBR had a study showing that customers were spending well over 70% of their time doing data preparation and, say, 30% actually doing analysis. And we think it's our duty to help invert that ratio.

So we think there is a large and growing market for various data preparation needs. We continue to fully and completely work with our data prep partners. We embrace those partnerships. Our customers need those partners. They'll need new ones in the future as new solutions emerge as well.

And we have some customers who want a data prep capability directly from Tableau, directly in the platform. And for those customers, we've built Tableau Prep. We think that it is, for v1, is very well-situated to help democratize, if you will, data prep and make data prep accessible to a significantly wider audience than was available before.

But it's a big tent and customers make lots of different choices, have lots of different needs. And we think, as in any market like this, that there'll be a need both for offerings offered in a first-party way from us, as well as from third-party offerings. And we embrace all of that.

In terms of the feedback itself, again, look, it's really early, just three months into our new product. But the initial feedback has been really encouraging that it's really intuitive, simple, easy-to-use, and yet powerful set of capabilities. At the same time, we know, as with any v1, we've got a lot of work to do, not only with features on the Desktop, but certainly there's been a lot of calls for more enterprise capabilities in terms of IT administration, working across the whole organization. And so, of course, we've got folks busy at work with those types of areas.

Thomas Michael Roderick - Stifel, Nicolaus & Co., Inc.

Outstanding. Thank you. Damon, quick follow-up question for you. Just thinking about the numbers as they relate to the guidance for the rest of the year, how do you want us to think about what the trade-off is when you're exceeding expectations and guiding ahead with respect to the mix of ratable license bookings? So, this quarter, 67%, high-end of how you had guided, full year guiding up 3 points.

What's the right translation of what that means? And what does 3 points more on the ratable mix mean relative to what the license revenue might have otherwise looked like? And how do you think about that impacting profitability? Thanks.

Damon Fletcher - Tableau Software, Inc.

Yeah. Great. It's a great question. So, obviously, we view subscription mix adoption by our customers to be very positive for them and for our business. As we've talked about, we're moving through the transition as quickly as possible. Our guidance obviously reflects our kind of best expectations.

And as we look forward, the primary reason for driving through the subscription transition as quickly as possible is because it allows us to kind of build that recurring revenue base that will help us achieve kind of our long-term operating targets. And so we're very focused this year on getting through the transition as quickly as possible, even if it means kind of near-term impact on our revenue growth rates and our margin profile.

Thomas Michael Roderick - Stifel, Nicolaus & Co., Inc.

Perfect. Thank you very much.

Operator

Your next question comes from the line of Jennifer Lowe with UBS. Your line is open.

Jennifer Swanson Lowe - UBS Securities LLC

Great. Thank you. I wanted to actually follow-up on a question that Jesse asked a little earlier about how the new pricing impacted this quarter specifically. And I know it sounds like it's been a positive for the pipelines overall, but I'm just curious if you saw any pause, and obviously your results are very strong, but if you saw any pause in deals in Q2 as people rethought their plans related to the introduction of the new pricing SKUs or if the shape of business was pretty smooth? Just any color there would be really helpful.

Adam Selipsky - Tableau Software, Inc.

Sure. Thanks, Jen. Well, look, overall, we think it's been positive for customers and positive for the business. And I think the dominant dynamic that we've seen is new opportunities opening up where it was harder before for our people to contemplate 10,000-, 20,000-, 30,000-plus user deployments. And then I think, on the margin itself, given its competitive strength, our win rates were and continue to be strong.

Look, statistically, given the size of our customer base, there's got to be more than zero customers who downshifted, if you will, from an old Interactor, which would be today's Explorer, to a Viewer. But I think the overwhelming response has been what I just went through, which is just it opens up new opportunities. And so, from an overall perspective, we're just really not seeing any material net impact of potential cannibalization that certainly folks had speculated about and, of course, we considered ourselves.

Jennifer Swanson Lowe - UBS Securities LLC

Okay. And maybe just one more question on that front. Given that at least the initial – and I think this is almost premature to ask at this point, but just given the initial feedback to Viewer sounds very positive, do you think there's more opportunities to experiment on increasing the diversification of price SKUs or moving further down the price curve with even lighter-weight product? Should we expect over the coming years to see more action on that front?

Adam Selipsky - Tableau Software, Inc.

Well, I think if we're doing our job, we're going to be talking to a lot of customers and continuing to consider all sorts of new products, new features, which should be included with existing pricing new feature sets potentially as add-ons. That should all be in the mix at the high end and at the low end. It's very hard to predict which will be the most useful to our customers, but we really want to remain open-minded and think about all of those possibilities, and we should be doing so all the time.

Jennifer Swanson Lowe - UBS Securities LLC

Great. Thank you.

Operator

Your next question comes from the line of Brent Bracelin with KeyBanc. Your line is open.

Brent Bracelin - KeyBanc Capital Markets, Inc.

Thanks for taking the question. Adam, here what are your aspirations to evolve Tableau into a broader platform? I know it's early days with Prep, but that's off to a fast start with 6,500 customers. The move to role-based subscription seems to be well received. So what is your appetite to build or buy functionality across collaboration, data government, content discovery? What's your appetite there?

Adam Selipsky - Tableau Software, Inc.

Well, I think what we really believe customers need, again, given the backdrop of data explosion and ever-evolving sophistication in analytics, is an end-to-end analytics platform. So, that means we certainly have to be and already are today much broader than a narrow tool for data visualization.

At the other end of the spectrum, there are many things in the word data that we don't currently aspire to do, lots and lots of stuff to do with gathering, storing, processing data, which other companies will do and with whom we'll partner. But in the middle there is a sweet spot of customers needing, again, an end-to-end analytics platform to help them gather, prepare, analyze, collaborate and share in ever more sophisticated and ever more intuitive ways, all in a context of being governed, and secure and compliant. So there's a lot of work for years to come in that mouthful of a sentence that I just spoke.

But I think it's very clear that, as you become a mission-critical technology, I mean you have to have a breadth of capability; you have to have extremely high reliability; and you have to have both the breadth and depth of features the customers are going to require. And so, that's really I think where we're currently aiming.

Brent Bracelin - KeyBanc Capital Markets, Inc.

Helpful. And then, Damon, real quickly on the transactions north of $1 million. A little surprised to see a 47% jump there year-over-year. I think that's the highest we've seen in three years at least during a Q2, even with the mix shift of subscription. Was that mostly driven by new bundles? Or whether there was some timing of deals that maybe slipped from Q3 into Q2? And could you just touch on the pipeline going into the second half? Thanks.

Damon Fletcher - Tableau Software, Inc.

Sure. It's a great question. So I think it's primarily driven by the success thus far in driving kind of large deployments within our customer base. I think Viewer certainly helped in that because it allows companies to scale Tableau to tens of thousands of users at their organization. And so, it's part of a trend that we've been seeing and been working with our customers on for, really, since kind of the beginning of 2016 with some of our kind of enterprise license and those types of agreements. So really happen with the results there.

As we look forward, I think the pipeline, as you asked for, is kind of reflected in kind of our outlook and guidance. I will say that large deals can have variability from quarter-to-quarter, and so I don't want to extrapolate the trend that you saw from Q1 to Q2 to any future quarter because there will be variability associated with the timing of the large deals.

Brent Bracelin - KeyBanc Capital Markets, Inc.

Thank you.

Operator

Your next question comes from the line of Brad Sills with Bank of America Merrill Lynch. Your line is open.

Bradley Sills - Bank of America Merrill Lynch

Oh, great. Thanks, guys, for taking my question. Just one – I mean congratulations on the nice uptick on large deals. With that trend that you're seeing, are you seeing more mix of the business go towards replacements? In other words, in some of these big enterprise deals, where are these users coming from? Are they running Tableau in conjunction with a legacy system? Are they replacing their legacy system with Tableau? Any color there would be helpful, please.

Adam Selipsky - Tableau Software, Inc.

Sure. Thanks, Brad. I think there's a few different dynamics here. I mean, we continue to see new customers come into the ecosystem. We had over 4,100 new customers this quarter, which is I think equal to the large number of new customers we've seen in any of last four or five quarters. So that's a piece of it. Clearly, and in many cases, those customers are deploying new analytics use cases. They're doubling down on analytics and they've got new use cases and they got Tableau. And within our existing customer base, we certainly see that dynamic as well, a ton of new analytics use cases.

At the same time, I think the landscape is slowly evolving in terms of how people view old school or traditional BI versus their modern analytics deployments of Tableau. And look, some customers haven't started to think about it. Customers at the other end of the spectrum have already ditched some of those old guard providers and moved on to Tableau. And then there's a rich variety in the middle.

But if I kind of look back at the past couple years, I think you can definitely see the tone of the conversations changing and there's definitely more customers who are a lot more serious about getting off of those old platforms over time and moving to modern BI with Tableau. So I think we're seeing – felt the temperature in the room change over the past couple years, but that is going to be a process which plays itself out over a years, not months, period.

Bradley Sills - Bank of America Merrill Lynch

Great. Thanks, Adam. One more, if I may, please. With regard to the global SI channel, how engaged do you feel Tableau is with that channel? Is that an incremental opportunity for you?

Adam Selipsky - Tableau Software, Inc.

Well, we certainly have had long-standing relationships with many global SIs. Equally importantly, with regional SIs, specialized SIs by industry and by use case. Pretty much whomever our customers are used to working with and want to work with, we feel we have to have those relationships. So we continue to put more and more, not less, emphasis and resources into the overall partner ecosystem, channel, tech partners and SIs/consultants.

I think in the GSI space that you particularly asked about, we're going to continue to apply energy there. I think it will be important particularly for larger enterprises over time for us to have ever-more sophisticated joint offerings, joint solutions, with at least some of the global systems integrators. And so, again, we're going to continue to put resources into that.

Bradley Sills - Bank of America Merrill Lynch

That's great. Thanks, Adam.

Operator

Your next question comes from the line of Philip Winslow with Wells Fargo. Your line is open.

Philip Winslow - Wells Fargo Securities LLC

Hey. Thanks, guys, for taking my question. And congrats on the quarter, and congrats to Damon for being elevated to CFO, and congrats to the management team and board for making a good choice. I just want to focus actually on the front-end side. We've talked a lot about sort of the back end of analytics, the data prep side. But I guess a question for Adam and just the team here is how do you sort of think about the front-end, sort of more, call it, advanced analytics directly to the consumer of Tableau? Obviously, you made a small acquisition there, I think it was in June, kind on the sort of automated analytics side. How should we think about how far you want to go on the front-end and to sort of the advanced analytics side?

Adam Selipsky - Tableau Software, Inc.

Hi, Phil. That's certainly one of the very important areas of the analytics platform that we talked about. And we absolutely know the customers' need is to continue broadening our capabilities and extending the reach in those areas. I think there are different dimensions to that. One of the big ones is ease-of-use and intuitiveness. And it's kind of a chicken and egg.

There's absolutely demand to expand to many tens of thousands of users in each of those large organizations. At the same time, we need to actually enable capabilities to help fulfill that. And I think – but again by the time you've gotten to that 25,000th user, at large enterprise, you're no longer talking about an analyst. You're talking about a knowledge worker who may not consider themselves even particularly analytical or quantitative.

And so, over a number of years, it's going to be our job to really bring Tableau closer to those users as opposed to asking all of those users purely to come to Tableau. What that means is more natural language processing, more AI-driven capabilities to anticipate and automate the types of common questions that people are likely to ask. So I think that would be a significant area of investment for us going forward. And you've seen with the last couple acquisitions that we've made that they've been in those spaces, which by the way both have complemented existing efforts we've already had underway in those spaces.

But there's also other elements to that. Clearly, people are going to be working more and more in mobile environments. We've continued to improve our feature set there. And there's going to be even more collaboration and sharing requirements, and we continue to improve there, such as continued improvements in our web-based authoring and web-based collaboration capability.

So, again, another one of these areas that you've hit upon where I think we have no shortage of work to do. There's years of work left to do there. We feel really good about where we are today in terms of meeting customers' needs, but we know there's a lot more going forward.

Philip Winslow - Wells Fargo Securities LLC

Got it. Thanks, guys.

Operator

Your next question comes from the line of Tyler Radke with Citi. Your line is open.

Tyler Maverick Radke - Citigroup Global Markets, Inc.

Hey. Thank you. Thanks for taking my questions. So, one of the comments you made on the call was how these new features and the Viewer pricing is accelerating demand for the business and as well as accelerating demand for subscription.

Just to double click on the acceleration comment, I guess is it fair to say that you're seeing a bigger acceleration in your pipeline versus an acceleration in the business that you just reported in 2Q? And the reason I ask is, you did come in line with the guided range on subscription mix for 2Q versus in the outlook. You took that up by 3 points. So it would just imply that it's having a bigger impact in the pipeline. But I just wanted to take your pulse on that.

Damon Fletcher - Tableau Software, Inc.

Yeah. Thanks, Tyler. Yeah. The answer is yes. We're seeing our pipeline be a higher concentration of subscription mix. Therefore, we raised the kind of mix expectations for the remainder of the year. We've been able to maintain kind of the revenue outlook because we've also seen kind of the overall demand that we're forecasting also grow, as well as the subscription mix.

Tyler Maverick Radke - Citigroup Global Markets, Inc.

Great. And then, Damon, just on cash flow for FY 18, I know in Q1 and Q2 of last year I think you had some pretty favorable working capital tailwinds. Just curious where you're thinking cash flow might end up in FY 18?

Damon Fletcher - Tableau Software, Inc.

Yeah. So, if you look at the year as a whole, we anticipate operating cash flows as a percent of revenue to be a bit lower than the kind of 20% that we've seen in the past. I think, as a reminder, subscription sales were collecting less cash upfront from customers, despite a kind of similar cost structure.

Tyler Maverick Radke - Citigroup Global Markets, Inc.

Thanks.

Operator

We have time for one more question coming from the line of Keith Bachman with BMO. Your line is open.

Keith Frances Bachman - BMO Capital Markets (United States)

Hi. Thanks very much. I wanted to ask about the new price points in the competitive dynamic, if I could. And more specifically, when you think about the breadth of price points, how are you finding the competitive landscape versus Microsoft in particular? Are you seeing your win rates change? Are you seeing discounting is still required?

And if you think about the new customer adds that was healthy this quarter, for those new customer adds, if you had to aggregate or average I guess, what price points do you think those new customers are coming in? In other words, are they coming in on a breadth of products or the low end? Any color there would be helpful. Thank you.

Adam Selipsky - Tableau Software, Inc.

Sure. So, look, as we've said many times before, any time you're in an attractive fast-growing market, you're going to have vigorous competition. That's just sort of the way the laws of physics work. And we're in one of those markets, and so no surprise, we've got that robust competition. And we don't think that's going to change any time soon.

As we've said, our win rates have been strong and our win rates continue to be strong. There is no particular change there...

Keith Frances Bachman - BMO Capital Markets (United States)

Okay

Adam Selipsky - Tableau Software, Inc.

...so no weakening that I can think of with a particular competitor. I think it's not just about price point. It's about overall value. It's about total cost of ownership. And there are a lot of independent third-party analyst reports showing that Tableau has the lowest total cost of ownership, once you take into account all factors of any of the significant modern analytics product sets.

So, we're never comfortable. We're never going to rest. But we have many, many customers who believe we are providing the best value, and that's why we've seen the continued progression of results that we've seen. So we'll continue to listen closely to customers, but I think they've received well the richer set of capabilities that we've at least allowed them to really tailor the offerings for the needs across the enterprises.

Keith Frances Bachman - BMO Capital Markets (United States)

Okay. Great. Thank you.

Operator

And there are no further questions at this time. This concludes today's conference call. You may now disconnect.