Tableau Software Inc Class A (DATA) Q4 2018 Earnings Conference Call Transcript

Tableau Software Inc Class A (DATA)
Q4 2018 Earnings Conference Call
Feb. 5, 2019, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants
  
  See all our earnings call transcripts.

Prepared Remarks:

Operator

Good afternoon. My name is Sheryl and I will be your conference operator today. At this time, I would like to welcome everyone to Tableau's fourth quarter and fiscal year 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. If you would like to ask a question during this time, simply press *1 on your telephone keypad. If you would like to withdraw your question, press #. I'd now like to turn the call over to Derek Wong, Senior Director in Investor Relations.

Derek Wong -- Senior Director, Investor Relations

Thanks, Sheryl. Good afternoon and thank you, everyone, for joining Tableau's fourth 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. 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'll 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 first quarter and fiscal year 2019 as well as certain long-term financial targets. 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 10Q and our annual report on Form 10K.

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 any accordance with generally accepted accounting principles. A reconciliation of the GAAP and non-GAAP results are 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 is 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 a new revenue recognition accounting standard, otherwise referred to as AFC606 on a modified retrospective basis. This means that results for reporting periods beginning on or after January 1st, 2018, are presented under the new revenue recognition standard, while prior period amounts before January 1st, 2018, are not adjusted. With that, it's my pleasure to turn the call over to Adam.

 Adam Selipsky -- Chief Executive Officer

Thanks, Derek. And thanks, everyone, for joining us today. Before I jump into our quarterly performance, it's worth taking a moment to highlight some of the progress we've made in this company over the past year. 2018 was a transformative year for Tableau. We added more than 15,700 new customer accounts; accelerated the pace of innovation by delivering more than 140 new features to our end-to-end analytics platform and welcomed more than 17,000 Tableau enthusiasts at our annual customer conference in October. We made major strides in our subscription transition, as well. At nearly 80% ratable licensing in Q4, compared to about 50% just one year ago. On an AFC606 basis, our 2018 revenue crossed the $1 billion milestone at $1.6 billion with license revenue of $556 million.

Our AFC605 revenue grew 12% in 2018 to reach $983 million with license revenue at $498 million up 16% compared to a decline of 11% last year due to subscription transition. The enterprise opportunity has also been a big area of focus over the past year. We've significantly expanded the breadth and depth of our analytics platform with new capabilities like Tableau server on Linux, hyperdata engine technology, and Tableau Prep. All while continuing to strengthen our security, governance, and compliance capabilities. As a result, in 2018 we saw dramatic increase each quarter in year-over-year growth of customer accounts purchasing greater than $1 million. This is a testament to end users and IT within large enterprises collaborating to deploy Tableau and Linux at scale.

As we look to the coming year, our guiding principles are the same as they were when I started at Tableau. A relentless customer focus, innovating rapidly and acting with urgency. As always, we have plenty of work left to do but the opportunities to delight our customers are large and growing by the day. For today's call, we'll cover five topics. First, a review of our Q4 results. Second, the strong subscription uptick we continue to see from customers. Third, the growing demand we've seen from large enterprise. Fourth, the unparalleled product innovation we're delivering as we expand our analytics platform. And lastly, a look ahead to the coming year in our strategic areas of focus.

Let's start with our Q4 performance. On an AFC606 basis, our fourth quarter revenue was $336 million. Under AFC605, fourth quarter revenue was $276 million, up 11% year-over-year and at the high-end of our guided range. On an AFC606 basis, our fourth quarter license revenue was 171 million. Our fourth quarter license revenue on a 605 basis was $152 million up 17% year-over-year compared to a 15% decline a year ago when we were earlier in our subscription transition. We added over 3,900 customer accounts in Q4, bringing the total customer accounts to over 86,000. Our ratable license booking mix this quarter was 79% compared to 51% in Q4 of last year, and we expect it to continue tracking upward.

Let's turn now to subscription. Subscription has always been about making it easier for customers to scale and grow their analytic footprint with reduced risks and lower upfront cost. The introduction of our role-based offerings last year has made this even easier by allowing more customers to tailor Tableau to their specific data rolls and needs and we continue to see a strong uptake in the fourth quarter of our creator, explorer, and viewer offering. For example, this quarter, Woolworths, Australia's leading retailer, chose our role-based offerings to help scale Tableau to tens of thousands of users in their organization. In order to analyze massive data volumes for fast, real-time decision-making. Our speed, ease of use, and ability to serve multiple business functions, were all important in Woolworths' decision to select Tableau.

We're delighted to partner with Australia's leading retailer to cultivate an enterprisewide data culture and fuel their innovation agenda with the power of Tableau. Customers are also deploying Tableau to suit their specific organizational needs. For example, one of the leading professional services firms in the world went big with Tableau in Q4. They license thousands of creators for their frontline consultants to engage with large companies and government agencies globally. This firm has come to embrace analytics and look at data-driven insights as a core differentiator, especially as more and more of their own clients are defined by how they leverage data. Transitioning the licensing model of a software company is not an easy task, so it's been incredible to see such strong resonance from our customers and to see them embrace subscription licensing so rapidly.

In fact, in just two years we've gone from 20% ratable mix to just under 80% at the end of this quarter. As we head into 2019, we look forward to progressing with our transition as quickly as possible. To do so, we'll be focused on building our capabilities to ensure the customers are successful in deploying, adopting, and managing Tableau, as well as continuing to refine our role-based offerings so customers can tailor Tableau to each and every user in their organization. Let's turn now to the enterprise opportunity. Q4 is seasonally our biggest quarter, especially in the enterprise. And this quarter was no different as we saw 36 customer accounts purchase more than $1 million, up over 30% from last year. We continue to see strong demand for Tableau from some of the largest organizations around the world with expansions commonly ranging from thousands to tens of thousands of employees.

Not only are customers rapidly scaling their analytic footprint, but we're also seeing more organizations consolidate their analytic vendors from many down to a small handful, and in some cases to just one main vendor of choice. And when customers do choose to standardize on Tableau, they're doing so with buying from their IT departments, given our steadfast commitment to security, governance, and compliance. For example, this quarter, Verizon expanded its Tableau footprint within the organization. We're incredibly excited to work with Verizon to bring data-driven insights to enable more people and businesses to communicate with each other. Let's turn now to our recent product announcements, where we continue to innovate rapidly for our customers. Expanding the breadth and depth of the Tableau platform continues to be a top priority, including critical areas like data preparation, data management, and smart analytics.

Since we launched Tableau Prep in April of last year, we've rolled out nine releases and added 49 new features, including using machine learning algorithms to help users fix common data quality issues faster. Tableau Prep has made data preparation easier by democratizing a needlessly complex task into a simple and visual process. Tableau Prep Conductor, our soon to be released add-on to Tableau Server and Tableau Online that automatically schedules and manages Prep flows. We'll take this a step further. Prep conductor will bring expanded data management capabilities to our platform and we look forward to fueling further innovation in data management areas like governance and discoverability as our customers curate more data than ever before.

We've also been receiving very positive feedback from customers using Ask Data in our public beta. Ask Data leverages the power of natural language processing so that people can ask questions of their data in plain, simple language, and instantly get an interactive visual response right in Tableau. Ask Data will be apart of our upcoming 2019.1 release, which has many other capabilities and will be available shortly. In conclusion, 2018 was all about growing the breadth and depth of our analytics platform in helping more and more customers drive data-driven insights in their organization. As we head into 2019, we're laser-focused on six strategic areas. First, continuing our subscription momentum as we make it even easier for organizations to dramatically scale analytics with our role-based subscription offerings.

Second, refining and evolving our enterprise go-to-market strategy, including building on our outreach and communications with IT and other senior level management personnel, as well as continuing to invest in our customer success teams to ensure that our customers reap the full benefits of their Tableau investment. Third, making it easier for our customers to see and understand data, including infusing more natural language processing across our platform with Ask Data, as well as giving our customers the ability to explain the why behind their data with smart and simple automated insight. Fourth, making it easier for IT departments to deliver trusted, secure, and governed data, at scale.

And for data consumers that just need a report or a dashboard, will sensibly add reporting features as customers transition from legacy BI systems. Fifth, continue to invest in our partner ecosystem across our regional and global system integrators, our technology partners that help make our 65+ data connectors in a public cloud implementation possible, and our VAR and reseller channel partners, which all serve as a critical amplifier for our business. And lastly, continuing to build out our international footprint in areas of high growth, including investing in our global sales teams, partners, and offices. In closing, we're now entering the era of data ubiquity, where data stores are growing everywhere, and where analytics can empower everyone.

As the trusted leader in this space with an unparalleled end-to-end analytics platform, we're well positioned to help organizations around the world empower their entire workforces with data-driven insights for faster and better decisions that create impact. It's more important than ever that we deliver on these imperatives as our customers, their data, and their use cases, all grow in size and complexity by the day. With so much opportunity ahead of us, you can see why it still feels like we're just getting started here at Tableau. I'll now turn the call over to Damon, who will walk through this quarter's results and share our outlook.

Damon Fletcher -- Chief Financial Officer

Thanks, Adam. And thank you, everyone, for joining us on the call today. For today's call, I'm gonna cover the following topics in my prepared remarks. First, I'll discuss our Q4 financial results. Following, I'll discuss our fiscal year 2019 and Q1 2019 outlook. And finally, I'll offer some additional thoughts on our long-term operating framework. For the fourth quarter of 2018, total revenue under the new standard, AFC606, was $336 million. Under the AFC605 revenue standard, total revenue was $275.7 million, up 11% year-over-year, and at the high end of our guided range of $266-276 million. Fourth quarter license revenue under AFC606 was $178 million.

On a 605 basis, fourth quarter license revenue was $151.8 million, up 17% year-over-year. Under AFC605, fourth quarter ratable license bookings as a percentage of total license bookings were 79%, up from 51% in Q4 last year. Consistent with our commentary last quarter, we continue to expect that our ratable license bookings mix will approach 90% by the end of 2019 if we were to continue to report on a 605 basis. Fourth quarter maintenance and services revenues under AFC606 were $165.5 million. On a 605 basis, fourth quarter maintenance and services revenue was $124.0 million, up 3% year-over-year.

By the end of Q4 2018, total ARR was $840.9 million, up 41% year-over-year. Subscription ARR at the end of Q4 was $443.2 million, up 127% year-over-year. Our overall combined renewal rates continue to exceed 90%, which includes both our maintenance on our perpetual licenses as well as subscription renewals. Our international revenues under AFC606 were $110.4 million and represented 33% of total revenue. In particular, we saw strength in our APAC region this quarter. Over the last few months, we have continued to grow our international footprint, including expansion into Sweden, the Netherlands, and Hong Kong. We had 36 customers purchase more than $1 million in Q4 compared to 27 customers in Q4 of last year. We saw in 634 deals in Q4 greater than $100,000 compared to 590 deals in Q4 of last year.

Please note that starting in Q1 2019, we will no longer be reporting our deals greater than 100,000 metrics, given the size of our company and how frequently these transactions occur. We plan to continue to disclose our customer counts that purchase greater than $1 million in the quarter. 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 in our investor relations website for non-GAAP to GAAP reconciliations. Fourth quarter total gross margin was 89% under AFC606. On an AFC605 basis, gross margin was 87%. Our Q4 operating income was $60 million under AFC606. On a 605 basis, our Q4 operating loss was $8.3 million.

As a reminder, under the new accounting standard, certain sales commissions are now expensed over time versus being recognized upfront previously. Sales and marketing expenses under AFC606 for the quarter were $146.5 million. On a 605 basis, sales and marketing expenses were $154.5 million, up 17% year-over-year. We ended Q4 with sales and marketing headcount of 1,842 employees. We invested $67.4 million in research and development in Q4, up 19% year-over-year. We ended Q4 with R&D headcount of 1,125 employees. General and administrative expenses for the quarter were $26.3 million. At the end of Q4, our total headcount was 4,181. This compares to 4,101 employees at the end of last quarter. Our non-GAAP effective tax rate was 20% for the quarter. This brings our non-GAAP net income under AFC606 for the fourth quarter to $52.2 million.

Our Q4 non-GAAP diluted earnings per share under AFC606 was $0.59. Given our reported non-GAAP net income under AFC606, our weighted average diluted share count used to calculate our AFC606 non-GAAP diluted earnings per share was approximately 88 million shares. On an AFC605 basis, our non-GAAP net loss for the quarter was $2.7 million and our non-GAAP diluted loss per share was $0.03. Given our reported non-GAAP net loss under AFC605, our weighted average diluted share count used to calculate AFC605 non-GAAP diluted earnings per share was approximately 84 million shares. On the balance sheet, cash and investments at the end of the Q4 were $1.05 billion.

Accounts receivable net were $236.1 million. And our DSOs were less than 65 days. Our off-balance sheet remaining performance obligations, or RPO, at the end of the year, was $240.1 million up 141% this year. During the quarter, we repurchased approximately 259,000 shares of our class A common stock for $30 million, bringing our accumulative shares repurchase to date to roughly 2.9 million shares. As a reminder, our repurchase authorization does not have a fixed expiration. To date, we have deployed approximately $220 million of our 500 million total stock repurchase authorization. I will now turn to our financial guidance for the fiscal year 2019 and in Q1 2019. Please note that all forward-looking guidance other than revenue is discussed on a non-GAAP basis.

Additionally, our guidance is now being issued on an AFC606 basis as we will no longer be reporting 605 results going forward. As always, our outlook takes into consideration a number of factors, including but not limited to, our current view on the market environment and our customer demand we are seeing, our pipeline, and our customer buying behavior, as our customers consider and decide on the licensing and deployments that work best for their needs, which include: licensing via subscription or perpetual, multi-year versus single year subscription contracts, or deploying Tableau on-premises or in the public cloud versus Tableau online.

Before I dive into Q1 2019 guidance, I'd like to first cover our full-year 2019 guidance. For the full year, we are maintaining our total revenue range of $1.33-1.40 billion, consistent with a preliminary outlook we issued on the Q3 earnings call. I'd like to spend a minute on ARR before moving on to operating margins. We continue to believe that total ARR offers the best proxy for tracking and measuring the overall health of our business. And because total ARR is unaffected by the 605 to 606 accounting changes, we believe that ARR will help investors bridge and track our growth as we move to 606 reporting. As a reminder, ARR or annual recurring revenue is calculated as the annualized contract value of all active contracts at the end of a quarter. An ACV based methodology normalizes for duration and we believe offers a more helpful way of understanding the longer term, recurring license momentum of the business. As such, we are initiating total ARR guidance for 2019 year-end.

At the end of 2019, we are currently expecting total ARR of $1.12-1.15 billion, representing year-over-year growth of 35% when using the midpoint of the range. We do not plan on issuing quarterly ARR guidance and will update our full-year guidance as necessary throughout the year. We continue to anticipate that our maintenance ARR related to perpetual licenses will decline year-over-year, particularly now that a high concentration of our sales are subscription. Let's now turn to the operating margin outlook for 2019. We expect fiscal year 2019 operating margins of 12-14% of total revenue. We view the modern analytics market as dynamic and growing with large underserved opportunities to help customers deploy analytics at scale.

Because of the clear growth opportunity in front of us, we are continuing to invest in several key areas in 2019, including fueling our international growth, investing in our product innovation, and building out our operational infrastructure to lay the foundation to scale our business over the long-term. We estimate our non-GAAP effective tax rate for 2019 will be 20%. We expect fiscal year 2019 capital expenditures to be between $55-65 million, up from $22 million in fiscal year 2018. Note that our Q4 2018 capex came in lighter than expected due to shifts in project timing moving into 2019. We expect heavier capital expenditures this year due to the build-out of several facilities, which offer us favorable long-term economics but incur capital expenditures in the near term.

For the full year, we expect to generate non-GAAP income per share of $1.54-1.85. This assumes $17 million of other income, primarily related to interest income from our cash and investments. We anticipate the full-year diluted share count to be approximately 89.5 million shares. Now that we've laid out our full-year 2019 guidance, I'd like to spend a moment walking through the impact of the subscription transition on our quarterly financials under 606. Let's start by revisiting our hypothetical perpetual versus subscription unit example we detailed on the earnings call at the launch of our transition. We can now use this example to help illustrate the differences in the unit economics of a single year subscription sale versus perpetual under AFC606. For an individual deploying Tableau server on-premises or in the public cloud as an explorer, our subscription price is $35.00 per user, per month, billed annually.

We would, therefore, invoice the customer $420.00 compared to the $1,000.00 for a comparable perpetual license. For a perpetual license, we would recognize the entire amount in year one as both license and maintenance revenues. In this perpetual example, $800.00 would be recognized in license revenue immediately during the quarter of sale, and $200.00 we recognize in maintenance revenue over the course of the year. With the subscription sale under 606 accounting, we would recognize a little more than half of the $420.00 up front, as license revenue during the quarter of sale, and the remaining amount over the annual subscription period on the maintenance and services line on the income statement. As you can see in this unit example, for a single year of subscription contracts, even with the upfront recognition of the license component under AFC606, the amount of subscription revenue in a given quarter is still less than the comparable perpetual sale.

Before I move on, I'd like to quickly cover multi-year subscription contracts. For multi-year subscription sales, the total revenue recognized under 606 is similar between the perpetual and subscription sale as the entire license component of a multi-year contract is generally recognized up front as license revenue. Similar to our single-year contracts, we generally invoice multi-year contracts on an annual basis, which means that under 606 revenue includes revenue recognized but not yet billed. This creates a contract asset under 606 similar to an unbilled receivable. As a result, when considering our billings, it is important to reconcile the change in quarter-to-quarter contract assets in addition to the changes in deferred revenue.

We are now providing our quarter-end contract asset figure in our trending metrics table at the end of our press release. And lastly, as a reminder, our ARR is not impacted by the split between single-year and multi-year subscription contracts as its normalized contract durations. Let's turn now to our Q1 2019 guidance. Our ongoing subscription transition will have some degree of impact on our top line growth rate, primarily in the first half of 2019 due to the single-year subscription dynamic just discussed. This dynamic is more pronounced in the first half of 2019 because the percentage of our bookings that were perpetual was higher during the first half of 2018. For context, recall that a ratable license booking mix on a 605 basis was 59% in Q1 '18 and 67% in Q1 '18.

And we anticipate that it would be above 80% in the first half of 2019 if we were to continue to report on a 605 basis. We expect first quarter 2019 total revenue to be between $278-292 million representing year-over-year growth of 16% when using the midpoint of the range. Let's turn now to operating margin outlook for Q1. For Q1, we expect a non-GAAP operating loss of 1-5% of revenue. We expect our non-GAAP effective tax rate for Q1 will be 20%. We expect Q1 capital expenditures to be between $15-18 million. For the first quarter, we expect non-GAAP net income per share to be between -$0.09-0.01. This assumes a basic share count of 85 million shares under a net loss scenario and a diluted share count of 89 million shares under a net income scenario. This also assumes $4 million in other income primarily related to interest income on our cash and investments.

Before I conclude, I'd like to briefly revisit our long-term operating framework that we first issued at our 2017 analyst day. As you may recall, our long-term operating framework assumes 20%+ topline growth and 20%+ non-GAAP operating margins over a multi-year period. We remain committed to this long-term framework. Given where we are in the subscription transition, we also believe it is appropriate at this point to initiate a long-term free cash flow target. Free cash flow offers investors a way to understand and measure the cash generation potential of a recurring revenue business model and as such, we are currently targeting a 25%+ long-term free cash flow margin.

 Our long-term revenue margin and free cash flow targets are based off our expectations at our subscription renewal base and contractual backlog will continue to grow and build upon itself over time, which would not only help drive sustained topline growth but also margin and free cash flow expansion. Lastly, please remember that on a quarter-to-quarter basis, cash flows can fluctuate due to seasonality and other factors. For example, as you've seen from previous years, Q2 is our lowest cash flow quarter due to the seasonal booking trends in Q1. In closing, I'd like to thank team Tableau for their significant contributions over the last 12 months in helping us deliver on our mission of delighting customers. All of your hard work and effort is not lost on our customers. I'll now turn the call over to the operator for Q&A

Questions and Answers:

Operator

To ask a question, please press *1 on your telephone keypad. Your first question comes from the line of Jennifer Lowe of UBS. Please go ahead, your line is open.

Jennifer Lowe -- UBS -- Analyst

Great. Thank you. There's a lot in there so maybe just to start going back to some of Adam's comments. Adam, you talked a little bit about refining the role-based model this year. And I just wanted to clarify, is that sort of with the skews you already have or are you signaling that there might be more skews and more price points introduced in the year to come?

Adam Selipsky -- Chief Executive Officer

Thanks for the questions, Jennifer. One, I think we'll just continue to add functionality to all of our offerings. So, if you look at Creator, clearly, we've continued to iterate on Tableau Prep, which now has a lot more functionality than it did when we first released it. And we're gonna be adding into in all of these offerings, various capabilities, such as natural language processing through app data.

In addition to that, I think we will continue to add more features. We've talked about Tableau Prep Conductor. We said that will be licensed separately, as an add-on essentially. Each time we release a major piece of functionality, we'll continue to evaluate whether it's part of the existing skews that we have or priced separately. So that was really the intent of those comments.

Jennifer Lowe -- UBS -- Analyst

Great. And then just a quick one for Damon. Looking at the fiscal '19 guidance and the reaffirmation of the revenue guidance, it looked like the operating margin guidance moved up by about 100 basis points. Can you just talk a little bit about the dynamics there because I think the message clearly seems to be that you're firmly investing in these growth opportunities? So, I'm just trying to square what seems to be implied slightly less OpEx planned for this year. Thanks.

Damon Fletcher -- Chief Financial Officer

Thanks a lot, Jennifer. Really, we just finalized our plan for 2019 as we worked through it over the last couple of months. We're hoping to drive some efficiencies in our business. Obviously, with our performance over the last 12 months and building a recurring revenue base, that's gonna bolster kind of our operating margins as we look forward into multiple years. I think it's just a reflection of what we've seen from growth in our recurring revenue base and some of the efficiencies we plan on driving in the new year.

Operator

Your next question comes from the line of Karl Keirstead of Deutsche Bank. Please go ahead. Your line is open.

Karl Keirstead -- Deutsche Bank -- Analyst

Thanks. So, Damon, it sounds like you're trying to focus us on ARR as the best proxy for business momentum. So, I just wanted to home in your end of 2019 ARR guidance for growth. So, 35%. Given that you just did growth, the 41% -- the fact the growth rate is hanging in there fairly well at a similar rate sounds pretty good. I'm just wondering if you could outline for us what are a couple of key variables driving that ARR growth. What's embedded in that ARR guidance? What key assumptions would you flag for us?

Damon Fletcher -- Chief Financial Officer

Sure. Thanks a lot, Karl. First of all, I'd say we continue to drive strong ARR across the board in our business. I think this quarter we generated a little less than $80 million in total ARR. As we look at the year going forward, I think there's a couple of different factors. One is customer expansion; so, having our customers expand their usage with Tableau.

And we've seen that a number of larger deals over the last few quarters and talked about that. And then also just the new customer acquisition. Obviously, we've employed two customer accounts around that 4,000-mark for quite some time now. I think that's the two biggest drivers: customer acquisition and then expansion within our existing customer base.

Okay, good, that's helpful. And then maybe that's a nice segue for a question for Adam. Adam, you mentioned in your remarks about -- I think you mentioned Verizon standardizing on Tableau. So that might be an example of a customer expansion. Are you at liberty to offer any additional details perhaps what you're standardizing off? Anything else just given that it's a pretty marquee client?

Adam Selipsky -- Chief Executive Officer

No, I think what we said is that we really said to be partnering with him on them on expansion, their expanded use of Tableau. And it really goes across a lot of different organizations within Verizon. A lot of different use cases. A lot of different roles. But I don't think they have more detail than that to announce right now. But it is representative of the types of expansions that we're seeing across different industries that these are very major expansions like the Woolworths that we discussed, which can go up to the many tens of thousands of employee expansions.

Analyst

Okay, that's helpful. Thank you both.

Operator

Your next question comes from the line of Raimo Lenschow of Barclays. Please go ahead, your line is open.

Raimo Lenschow -- Barclays -- Analyst

Hey, thanks for taking my questions. Adam, can you talk to the strength in the launch deals you saw in the quarter? Obviously, there was some surrounding international. And you called out APAC but can you -- what drove that for the period's end year-over-year growth is obviously very good. And then Damon, a question for you on maintenance. You obviously kinda lose the -- you mentioned maintenance here are for perpetual is coming down but then you're adding maintenance from the 606 on the new stuff. Could you talk a little bit about the dynamics we need to be aware of when we start modeling this? Thank you.

Adam Selipsky -- Chief Executive Officer

Hey, Raimo. Adam here, I'll start with the first question. So, I think there are a few things driving that 30% year-over-year seven-figure deal growth. One is just the overall trend of all of our customers have more and more data. And what they need to do with that data becomes more and more complex. I think there's just this overall trend toward analytics is becoming more and more mission-critical in the lives of enterprises. And not just pushing out deeper and deeper. And we're just starting to enter that -- I think that time of where analytics becomes ubiquitous across organizations.

Going from millions to tens of millions and even greater than that. A number of people really using analytics as a core part of what they do every day. Then more specifically, I think another significant piece is the expanding breadth and expanding the depth of the platform capabilities that we've been building. So, more governance, more data management capabilities, enable IT departments and security departments to endorse and promote Tableau going across the organization.

I think the expansion of our skews, of our packages last year, particularly the creation of the Dior offering, which is obviously meant for a more casual user, has been really important in having the right offering for the infrequent or the casual user. Might be the 20th or the 50,000th user in the organization. So, I think all of those things are coming together as driving those expansions.

Damon Fletcher -- Chief Financial Officer

And Raimo, this is Damon talking about your second part of that question, which was around maintenance ARR. As a reminder, our maintenance ARR that's in the key metrics is actually just a perpetual maintenance ARR within the subscription ARR, we'll be recognizing part of those subscription contracts in license revenue in part of those subscription contracts in maintenance and services revenue.

And we've given you a representative example of what that split looks like to help you model out that transition. So, we said a little bit more than half of a single year transaction we'd recognize as license upfront and a little less than half, therefore, would be recognized as maintenance services over the years. So that's the best direction we could give you. We thought that'd be helpful and provide you a little bit more color this quarter, Raimo.

Operator

Your next question comes from the line of Tyler Radke of Citi. Please go ahead, your line is open.

Tyler Radke -- Citi -- Analyst

Hey, thanks for taking my question. Maybe just start off on -- I appreciate, first of all, the guidance for ARR for 2019. I think that's helpful. Maybe just talk about what you saw in Q4 of 2018. Obviously, you did grow above 40% but that growth rate was lower than what you saw in Q1 to Q3. And it looked like relative to where the street was that 841 was a little bit lower. Just anything to help us think about that number.

Damon Fletcher -- Chief Financial Officer

Sure. Thanks a lot, Tyler. This is Damon. What I just said earlier, we generated around $80 million in total AR this quarter. If you look at the trends, AR has grown dramatically over the last year. I think it's a little bit kinda large numbers as we're lapping bigger and bigger numbers in the prior year. I think Q4 total AR for us was in line with our expectations.

Over the long one, we expect total AR to converge with revenue as you look at over our multi-year horizon. So, we feel pretty good about the total AR generated in the quarter and I think we're looking at about 35% at the midpoint next year.

Tyler Radke -- Citi -- Analyst

Okay, great. then if I could ask a follow-up about how you're thinking about operating margins -- sorry, operating cash flow, for 2019. Obviously, we saw cash flow down this year but how should we be thinking about that next year?

Damon Fletcher -- Chief Financial Officer

Thanks, Tyler. We're not providing any annual free cash flow or operating cash flow targets. What I will say is we did kinda talk about the seasonality of cash flows in our prepared remarks with Q2 always being a lower quarter and then making sure you're aware that this year's gonna be a little heavier on the capex growing as we build out a couple of facilities. But we're not initiating any annual free cash flow or operating cash flow targets.

Operator

Your next question comes from the line of Brad Sills of Bank of America Merrill Lynch. Please go ahead, your line is open.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great, thank you. Thanks, guys. Just a question please on -- as you've seen progress here with the enterprise, obviously, bigger deals, bigger expansion deals. How important is the global SI channel and could you remind us where you are in kinda development of that channel, please?

Adam Selipsky -- Chief Executive Officer

Thanks, Brad. Adam here. So, I talked briefly just about the overall strategic importance of our partner ecosystem. And I always think about three legs to that stool, so buyers and resellers, basically the channel. Two, technology partners, be they for data connectors or public cloud providers. And then three, SIs and consultants. And within the SI, just to kinda break it into two buckets, you've got the regional SI and we've got the very strong partners there in many different countries around the world. And then there are the global SIs, which I understand was part of your question. So, we continue to expand the global SI partnerships.

There are a lot of examples of that, Deloitte and their Taxalytics solution was just one. We've been partners for a while now with other global SIs, either including Accenture, for example. We continue to have regular initiatives with each of those to deepen what offerings, what solutions, we can bring to customers together. So, I do think they will continue to be important. I would argue increasingly important to our enterprise customers worldwide, many of whom choose to buy or integrate through the global SIs. So, I think it'll be an important increasing part of our focus going forward.

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Great, thanks. And then one more if I may, just on the margin outperformance for the year. Damon, on the guide, is there any change in philosophy in terms of investment in sales and marketing versus gaining productivity out of the existing sales people that you have this year now that you're getting into these bigger expansion deals versus say, in years past?

Damon Fletcher -- Chief Financial Officer

Thanks, Brad. I think from a margin expansion in the current year, I think that's a little bit to do with the actual overperformance on the revenue side. As for how we think about gaining efficiencies, I think you're absolutely right. We've been working really since Dan Miller joined at the beginning of 2017. How do we optimize and better to account planning and drive more efficiencies within the sales team? Really pleased with the progress we're making over the last two years.

Operator

Your next question comes from the line of Phil Winslow of Wells Fargo. Please go ahead, your line is open.

Philip Winslow -- Wells Fargo -- Analyst

Thanks, guys, for taking my question. Obviously, there's been a lot of innovation on Tableau sort of on the backend on the data prep side, any mention of the machine learning capabilities that have been added in to help with the data blending side? When you think about the frontend, though, called predictive analytics, making those more accessible to end users. How do we think about sorta -- or how should we think about sorta what you guys are working on the backend and sorta how you wanna go and call on the frontend beyond visualization in the predictive side and kinda where that fits in the road map?

Adam Selipsky -- Chief Executive Officer

Hey, thanks for the question. It's Adam here. One of my favorite words is "and." I think given where customers need us to go in the fullness of time, that it's not a choice between that backend and the frontend. It's not a choice between data preparation, data management, and ease of use and predictive analytics and automated insights. The most useful platform that customers will adopt will have to do all of that. And that's not easy. That requires multi-threaded focus, which is precisely why we continue to invest strongly in the business while we continue to higher efficiency.

Specifically, on the frontend, I think we've talked a bit about the upcoming ask data, national image processing capability, which will be in our impending 2019.1 release, which we're really excited about because customers are excited about it. You'll remember, we also last year bought Empirical Systems, which is really focused on automatic insights and helping to explain more of the whys of your data beyond the what. Just as we have integrated other acquisitions and then before too terribly long, kinda come out with those capabilities native inside of Tableau, I would anticipate over the course of 2019 and beyond that, we'll do the same with the user-facing smart analytics features like automatic insight.

It's a very important part of our platform. Not only in terms of broad ease of use but in terms of enabling analysts to do things that used to be in the realm of purely data scientists. But data scientist jobs are certainly safe -- there aren't enough of them in the world so it's really important that we enable analysts to do some tasks, which have typically been data science oriented.

Operator

Your next question comes from the line of Mark Murphy of JP Morgan. Please go ahead, your line is open.

Mark Murphy -- JP Morgan -- Analyst

Yes, thank you very much. Damon, could you possibly repeat the year-end RPO or backlog number? And the growth rate with that number. And I was wondering if you think the strength in that number is a result of the health of the subscription transition or is there perhaps any other underlying driver of that increase?

Damon Fletcher -- Chief Financial Officer

Sure, that's a great question. So, the number was $240.1 million of our off-balance sheet remaining performance obligations. That number was up 141% this year. And that is primarily due to the growth in our subscription install base, particularly those which have multi-year contracts. And so, this is primarily driven by the growth in kinda the enterprise segment of multi-year contracts.

Mark Murphy -- JP Morgan -- Analyst

Okay. As well, I think you had mentioned strength in APAC this quarter. I'm just curious, what did you observe with respect to North America and European bookings trends. Was there anything unusual across those end markets or did those participate pretty well in the large deal growth?

Adam Selipsky -- Chief Executive Officer

Hey, Mark, it's Adam here. From time to time, to be helped with time callouts, specific GO, which maybe was no worthy in the quarter. And I think we talked about US enterprise in the past and EMEA in the past in this quarter. We focused a little bit on APAC. We're not really kinda breaking out on a consistent regular basis. There's specific performance of each GO. Overall, we continue to feel good about the growth of the business. We talked about the big enterprise space in the 30% growth in large deals. Metrics like that. Folks can continue to grow the capabilities that will lead to customer adoption. And as I said, from time to time, will call out a segment here and there.

Operator

Your next question comes from the line of Brent Bracelin of Keybanc. Please go ahead, your line is open.

Brent Bracelin -- Keybanc -- Analyst

Thanks for taking the question. Quick one for Damon and one for Adam. Damon, AR guide of 35%; midpoint revenue guide of 18% year-over-year. I think if I go back three years, the last time we saw license growth above 20%. What's the license trajectory here? Obviously, the implication here is north of 20% license growth. Is that the right assumption? And then Adam, as you think about the industry and those shift to rolled base pricing, what would you attribute to this 35% growth in ARR? I know there's some tailwind around the model transition, but it definitely feels like share gains are accelerating here. Would love to get your thoughts on the rationale on why. Thanks.

Damon Fletcher -- Chief Financial Officer

I'll handle the first part, which is -- we don't provide kind of a license revenue guidance and the outlook for the year. I will say that obviously, the shape of the year -- we talked a little bit in our prepared remarks about the first half having some headwinds due to the single year mix dynamics. As we move over the entire year, I think those will dissipate and will grow faster in the second half of the year. I'll turn it over to Adam for the second part of the question.

Adam Selipsky -- Chief Executive Officer

Sure. On the AR growth question, obviously, as you alluded to; one big dynamic in the business has been this dramatic switch from perpetual payers licensing to subscription licensing. If you look seven quarters ago in Q1 of 2017, we were 26% ratable license bookings. It's up around close to 80% seven quarters later in Q4 of '18. So, it's been -- the one big dynamic, which has a mathematical effect in there. But I'd say, more conceptually, what you're seeing is two things in that growth. One is, as I mentioned earlier, just the overall need for analytics and how it's being deployed more and more as a mission-critical application. Not as a nice to have.

But it's something with which the organization must be empowered -- not just with a small handful essential center of excellence. But very broadly across the organization. As we've seen in certain other applications spread over the decade. We think that's where analytics is heading. So that's one. And then two, I think that Tableau has gotten more and more noticed and become better known and known as the leader in the space, there has been -- we certainly see customers transitioning from other providers. We talked on the call a little bit about the kinda legacy BI providers. Now we're seeing more and more frequently, customers consolidating their BI platforms and going down from multiple providers down to a small handful and some cases just down to one or two. We're very often the beneficiary of that as sorta the innovation leader in the space.

Operator

Your next question comes from the line of Zane Chrane of Bernstein Research. Please go ahead. Your line is open.

Zane Chrane -- Bernstein Research -- Analyst

Hi, thanks for fitting me in. Question on the mix between Tableau online and your on-prem subscription business. Can you give us a sense of how big the Tableau online revenue run rate is or what portion of the subscription that comprises? I know that's gonna be really important in modeling the revenue going forward under 606. And kinda related to that, are there any other KPIs or metrics that you may start to disclose that would help with modeling the company going forward with a new accounting standard? Thank you.

Damon Fletcher -- Chief Financial Officer

Thanks a lot, Zane. Tableau online, which is our fully managed SAS service, is a growing part of our business. I think it's -- in the past, we've talked a couple of data points. I think we said there were 11,000 customers a couple of quarters ago during our recent couple of customer conference. That'll give you kinda some general sense of where it stands related to our overall business. We don't provide the actual revenue breakout of that in our SEC filings at this point but that'd give you a general sense of kinda where it stands. I'd say it's growing very rapidly and it's a key part of our long-term strategy.

Zane Chrane -- Bernstein Research -- Analyst

That's helpful. Just a quick follow-up. As far as the Tableau Prep conductor offering, is there any update you can give us on the maybe intended pricing for that or how we should think about the potential for the cross-sell opportunity maybe in terms of how many people are currently using Tableau Prep or how many enterprises may be interested in adopting that? Thank you.

Damon Fletcher -- Chief Financial Officer

Thanks a lot. This is Adam. I'm not gonna comment -- or this is Damon, sorry. I'm not gonna comment specifically on the price points. We'll have more to announce with that at the launch of 2019.1. I will say that, yeah, obviously, new customers who have Tableau Prep, the desktop version, are the customers that will be targeting with a prep conductor before then to be able to schedule their flows with the new offering. But more to come as we launch 2019.1.

Operator

Your next question comes from the line of Steve Koenig of Wedbush Securities. Please go ahead, your line is open.

Steve Koenig -- Wedbush Securities -- Analyst

Hi, thanks, gentlemen, for getting me on the call. I would like to ask you guys about -- as you look toward the long-term and you've gained visibility and confidence in achieving your 20% objective and in fact you see Tableau gaining share in the market. If you see an opportunity to grow faster, what's your philosophy on trading off growth for margin? How do you think about that?

Damon Fletcher -- Chief Financial Officer

Thanks, this is Damon. Obviously, any opportunity for us to invest in our business that will allow us to grow faster I think will make those investments. We want to get the right pace of investment in order to grow the business. We've talked about sustained 20%+ growth, which is gonna be driven in large part by kind of an expanding -- rapidly expanding -- recurring revenue base. And so, we've been growing that now 41% year-over-year with our annual recurring revenue. And that'll be a big part of our strategy. I'd say customer expansion and a growing recurring revenue base will help us get to our long-term kinda targets.

Operator

Your next question comes from the line of Michael Turits of Raymond James. Please go ahead, your line is open.

Michael Turits ­­-- Raymond James -- Analyst

Hey, guys. Two questions. Damon, maybe I'll just drill down on the questions just asked. Any thoughts on why at this point in the 606 bases that margins will be flat at 13% last year to this year? And then, as far as the revenue guide, 18% nicely that kept the dollar amount of next year. But is there any specific in 606 then now where you're benefiting from an increase either amount of term or duration of term? In terms of how it would boost the growth rate on 606 bases?

Damon Fletcher -- Chief Financial Officer

Sure, I'll try to answer both of those questions. So, on the margin outlook for the year, we're gonna continue to invest our business. One of the things we're really trying to do, as I just spoke about earlier, was getting sustained at 20%+ kinda growth rate. And so, we're making a number of investments, both in infrastructure and kinda global expansion and increasing the size of our team that handles renewals, as an example, and works with the customers in our customer success program.

Those are our kinda critical areas of investments that we have to be able to sustain that long-term growth model. As far as the -- what is the driver of the kinda growth rate on the revenue side and does contract duration impact that; I think it would impact that and when we look for it in our outlook for next year, we're assuming kind of a similar contract duration.

Michael Turits ­­-- Raymond James -- Analyst

Just to follow up; is it not only is duration the same but is your percentage of term, which obviously gets that upfront recognition on a 606 basis? Is that the same or is there any benefit of a mix shift there?

Damon Fletcher -- Chief Financial Officer

A mix shift would actually be a headwind. So, if we move more customer from perpetual over to subscription, which we are anticipating moving somewhere around the 80% in the second half of this year to approaching 90% as a subscription in the end of 2019. That growth of 10% will have a headwind against revenue growth rates. The vast majority of our sales are on an on-premises or hosted in the public cloud and so they are term licenses. And so that'll have a headwind, not a tailwind.

Operator

We have time for one more question. The last question comes from the line of Tom Roderick of Stifel. Please go ahead. Your line is open.

Tom Roderick -- Stifel -- Analyst

Hey, guys, thanks for squeezing me in for a question. So, Damon, just a brief question thinking about the ratable license mix this quarter in terms of bookings. Not a big deal given that it was down a couple percents sequentially there to 79% as a percentage of total bookings. But it does seem to be the first quarter we've seen it down in a while since going through this transition. Anything to call out in terms of any large particular perpetual deals that are worth noting for the fourth quarter that wouldn't have necessarily shown up in the AR number?

And then Adam, perhaps a follow-on question to you, a bigger question about that. It still seems like there's quite a bit of meat left on the bone relative to the installed base of perpetual customers. What's the sort of carrots at the end of the stick to convert that installed base perpetual to move a little first to subscription? Is that a pricing game? Is that a functionality game? Just help us understand your thinking in terms of how to move that install base on perpetual over the subscription perhaps a little faster than we've seen?

Damon Fletcher -- Chief Financial Officer

Thanks, I'll answer the first part and then turn it over to Adam. If you look four quarters ago, we were at 51% now up to 79%. I think just the move from Q3 to Q4. We were actually expecting that when we actually issued our guidance last quarter given what we were seeing in our pipeline.

I think being the end of the year just being a heavy capex number for many companies, I think there were just a couple of customers who opted for perpetual. I wouldn't say anything outsize that drove that results but just a couple of deals that were probably in that greater than the million-dollar category that kinda impacted that mix. I'll turn it over to Adam for the second part.

Adam Selipsky -- Chief Executive Officer

Sure. This is Adam. Just to kinda quickly follow-up on Damon's comments. If you look at kind of the two-quarter growth rate, we went from 67% ratable license bookings in Q2 up to 79% in Q4. So that 12% increase is still pretty sizable in two quarters when you consider it's very up to close to 80%. And obviously, as that number goes higher and higher, the absolute number of percentage points it can increase has got to diminish over time. There's kinda simple math there. We're still pretty on pace and pretty pleased with the overall subscription. Expansion, as Damon said, we still expect to be approaching 90% by the end of this calendar year.

In terms of the drivers of that percentage of expansion that continued transition of the install base over from perpetual to subscription licensing, I think it'll be a few things. I think some of it is just -- a lot of these big customers have just been preparing over time and they may not have been ready to make that shift on a dime, but they know it's coming, they know that in general, the world of software is moving more of a subscription basis. I think they're anticipating themselves, getting their retirement, betting more than what just be ready every quarter or at least every year. And we will also continue to have I think more and more robust subscription offerings. More and more capabilities, which make subscription really compelling.

And so, I think that will persuade a good number of perpetual customers that subscriptions really a very positive thing for them going forward. And then finally, yes, of course, we work very closely. We're super customer-centric and we work really closely with existing customers. We know they've made existing commitments. And of course, in each of those is a very one-on-one conversation about what the economics of that switch looks like from perpetuals to the subscription. It will continue to take that sorta deep one-on-one focus with each one of them.

Tom Roderick -- Stifel -- Analyst

Really helpful. Thank you both. Appreciate it, nice job.

Operator

I would now like to turn the call over to Derek Wong for closing remarks.

Derek Wong -- Senior Director, Investor Relations

Thanks, everyone for joining us today and appreciate the time taken. And have a good evening. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 65 minutes

Call participants:

Derek Wong -- Senior Director, Investor Relations

Adam Selipsky -- Chief Executive Officer

Damon Fletcher -- Chief Financial Officer

Jennifer Lowe -- UBS -- Analyst

Karl Keirstead -- Deutsche Bank -- Analyst

Raimo Lenschow -- Barclays -- Analyst

Tyler Radke -- Citi -- Analyst

Brad Sills -- Bank of America Merrill Lynch -- Analyst

Philip Winslow -- Wells Fargo -- Analyst

Mark Murphy -- JP Morgan -- Analyst

Brent Bracelin -- Keybanc -- Analyst

Zane Chrane -- Bernstein Research -- Analyst

Steve Koenig -- Wedbush Securities -- Analyst

Michael Turits ­­-- Raymond James -- Analyst

Tom Roderick -- Stifel -- Analyst

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