Tableau Software 's (NYSE: DATA) mission is to help people see and understand data. And there's a lot of data out there right now.
For the vast majority of people, tables filled with thousands of numbers don't really say very much. But Tableau's business intelligence platform helps to get the data "talking." It cleans up raw data found in spreadsheets, in databases, and in the cloud. Then it presents the data in a way that can be easily visualized and understood. This helps decision-making managers notice trends more quickly, or it lets supporting analysts identify problematic outliers.
Tableau is in the middle of transitioning its business model. At one time, it primarily sold its software through perpetual licenses (where customers pay a one-time fee for the license up front, and then buy maintenance contracts each year). But now, Tableau offers continual subscriptions (where customers pay monthly and automatically receive any relevant updates). This transition sacrifices up-front revenue, but makes it easier for Tableau to expand its subscriptions to more users within an enterprise. This makes for more predictable long-term revenue and earnings, which Wall Street tends to be a fan of .
The company's recent second-quarter earnings reflected this business transition. Let's look at the results.
Tableau Software results: The raw numbers
|Metric||Q2 2018||Q2 2017||Year-over-Year Change|
|Revenue||$282.3 million||$212.9 million||32%|
|Operating income||($21.0 million)||($44.9 million)||N/A|
|Earnings per share||($0.15)||($0.54)||N/A|
Data source: Tableau. EPS is on a fully diluted basis. As of Jan. 1, Tableau revenue is reported and recognized using the new accounting standard ASC 606.
What happened this quarter?
Tableau added several new customers this quarter, and continued to transition existing customers to its subscription-based offering.
- Tableau added 4,100 new customers in the second quarter, bringing it to a total of 78,000.
- Annual recurring revenue (a trailing 12-month metric) was $697.7 million, up 44% over the same period last year.
- Subscription annual recurring revenue (ARR) was up 181% to $291.3 million , and now accounts for about 42% of total ARR. For reference, subscriptions accounted for only 14% of ARR just two years ago.
- Ratable license bookings mix (the percentage of new deals that are subscription-based rather than perpetual) came to 67%. Five quarters ago, it was 26%.
- Excluding stock-based compensation and the amortization of intangibles, Tableau's second-quarter operating income was $37.8 million, a 13% margin.
- The company repurchased 312,921 Class A shares during the second quarter for $30 million . Tableau is still authorized under its current program to repurchase an additional $ 340 million in shares. At its current $9 billion market capitalization, that would equate to just under 4% of the total share count.
What management had to say
CEO Adam Selipsky elaborated on the long-term opportunity Tableau is developing with customers: "We saw strong customer demand for subscriptions in the second quarter, as shown by our 67% ratable license bookings mix. Our new Creator, Explorer, and Viewer subscription offerings have made it even easier for our customers to buy and scale Tableau, as more and more organizations look to deploy self-service analytics with tailored solutions for every user."
The shift to subscriptions is an important step for Tableau to make the pie larger with existing customers. A subscription product can be continually updated and is easily translatable between departments in a company. This would allow customers to become larger and more profitable for Tableau without requiring a lot of additional sales and marketing. Adding new customers and then getting them to sign on additional users is a formula for success for newly public enterprise software providers like Tableau.
As a result of this transition, investors should realign and expect to see fewer large deals of $100k or higher. While that may be a bit less thrilling, the smoother subscription model should provide a dependable and profitable income stream that will slowly lift operating margins.