Ariba Reports Results for Second Quarter of Fiscal Year 2010

Ariba

Reports Results for Second Quarter of Fiscal Year 2010

Company posts 16% year-over-year growth in subscription software revenue

 

 

 

Revenue:

 

Earnings Per Share:

 

Balance Sheet and Cash: 

 

 

Conference Call Information

 

 

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Ariba Safe Harbor

 

 

Investor Contact:

(650) 390-1200

Investor@ariba.com

 

Media Contact:

Ariba, Inc.

(412) 297-8177

kmaster@ariba.com

 

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style="height:15.0pt; width:418pt">Ariba, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited; in thousands)
		March 31,		September 30,
		2010		2009
ASSETS
Current assets:
Cash and cash equivalents		$   151,078		$   130,881
Short-term investments		21,594		12,169
Accounts receivable, net		19,927		19,660
Prepaid expenses and other current assets		12,653		11,235
Total current assets		205,252		173,945
Property and equipment, net		16,390		14,418
Long-term investments		21,007		23,155
Restricted cash, less current portion		29,241		29,241
Goodwill		406,507		406,507
Other intangible assets, net		15,204		17,660
Other assets		3,572		3,245
Total assets		$   697,173		$   668,171
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$      7,986		$      7,758
Accrued compensation and related liabilities		19,659		29,010
Accrued liabilities		13,328		17,010
Restructuring obligations		17,131		17,964
Deferred revenue		117,936		101,172
Total current liabilities		176,040		172,914
Deferred rent obligations		11,813		14,539
Restructuring obligations, less current portion		31,974		31,098
Deferred revenue, less current portion		7,463		9,288
Other long-term liabilities		6,627		6,281
Total liabilities		233,917		234,120
Stockholders' equity:
Common stock		180		179
Additional paid-in capital		5,210,537		5,189,566
Accumulated other comprehensive loss		(3,431)		(3,688)
Accumulated deficit		(4,744,030)		(4,752,006)
Total stockholders' equity		463,256		434,051
Total liabilities and stockholders' equity		$   697,173		$   668,171

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style="height:15.0pt; width:663pt">Ariba, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited; in thousands, except per share data)
		Three Months Ended				Six Months Ended
		March 31,				March 31,
		2010		2009		2010		2009
Revenues:
License		$           -		$           -		$           -	##	$           -
Subscription and maintenance		$    58,756		$    54,856		$   117,129		$   108,937
Services and other		28,374		29,837		55,672		61,843
Total revenues		87,130		84,693		172,801		170,780
Cost of revenues:
License		-		-		-		-
Subscription and maintenance		12,639		11,832		25,313		23,480
Services and other		19,954		18,524		39,416		38,322
Amortization of acquired technology and customer intangible assets		1,025		1,387		2,352		2,775
Total cost of revenues		33,618		31,743		67,081		64,577
Gross profit		53,512		52,950		105,720		106,203
Operating expenses:
Sales and marketing		28,641		25,927		56,943		53,504
Research and development		11,344		10,451		22,490		21,355
General and administrative		5,756		12,212		16,453		23,815
Litigation benefit		(7,000)		-		(7,000)		-
Insurance reimbursement		-		-		-		(7,527)
Amortization of other intangible assets		-		210		104		420
Restructuring costs		8,579		7,698		8,579		9,399
Total operating expenses		47,320		56,498		97,569		100,966
Income (loss) from operations		6,192		(3,548)		8,151		5,237
Interest and other income (expense), net		74		(739)		395		(5,755)
str="Income (loss) before income taxes ">Income (loss) before income taxes		6,266		(4,287)		8,546		(518)
Provision for income taxes		515		449		570		791
Net income (loss)

 $      5,751

 $     (4,736)

 $      7,976

 $     (1,309)

str="Net income (loss) per share - basic ">Net income (loss) per share - basic 

 $        0.07

 $       (0.06)

 $        0.09

 $       (0.02)

Net income (loss) per share - diluted

 $        0.06

 $       (0.06)

 $        0.09

 $       (0.02)

str="Weighted average shares - basic ">Weighted average shares - basic 

       86,578

       82,416

       85,869

       81,681

str="Weighted average shares - diluted ">Weighted average shares - diluted 

       88,753

       82,416

       88,507

       81,681

Net loss per share - basic and diluted 

 $        0.07

 $       (0.06)

 $        0.09

 $       (0.02)

Weighted average shares - basic and diluted 

       86,578

       82,416

       86,578

       82,416

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style="height:15.0pt; width:503pt">Ariba, Inc. and Subsidiaries
Cash Flows
(Unaudited; in thousands)
				Three Months Ended
				March 31,
				2010		2009
Operating activities:
Net income (loss)				$          5,751		$   (4,736)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Provision for doubtful accounts			267		759
	Depreciation

            2,011

      1,899

Amortization of intangible assets

            1,025

      1,597

Impairment of fixed assets

                 -  

      4,277

Stock-based compensation 

           11,229

      8,096

Restructuring costs

            8,579

      7,698

Changes in operating assets and liabilities: Accounts receivable

              (528)

      1,776

Prepaid expense and other assets

           (1,120)

     (4,328)

Accounts payable

               269

     (2,820)

str="Accrued compensation and related liabilities ">Accrued compensation and related liabilities  

            3,144

      2,099

Accrued liabilities 

           (5,949)

        (438)

Deferred revenue

            5,937

      6,659

Restructuring obligations

           (4,210)

     (6,238)

Net cash provided by operating activities

           26,405

     16,300

Investing activities: Purchases of property and equipment

           (4,436)

     (1,150)

Purchases of investments, net of sales

               495

          (11)

Allocation from restricted cash, net

                 -  

         386

Net cash used in investing activities

           (3,941)

        (775)

Financing activities: Proceeds from issuance of common stock, net

            2,057

      2,147

Repurchase of common stock

              (808)

        (696)

Net cash used in financing activities

            1,249

      1,451

Effect of exchange rates on cash and cash equivalents

                 32

         115

Net change in cash and cash equivalents

           23,745

     17,091

Cash and cash equivalents at beginning of period

         127,333

     95,405

Cash and cash equivalents at end of period

 $      151,078

 $ 112,496

Non-GAAP FinancialMeasures

           The accompanying press release dated April 29, 2010 contains non-GAAPfinancial measures.  The following table reconciles the non-GAAPfinancial measures in the press release to the most directlycomparable financial measures prepared in accordance with GenerallyAccepted Accounting Principles in the United States of America(GAAP).  These non-GAAP financial measures include non-GAAPrevenues, non-GAAP cost of revenues, gross profit, operatingexpenses, income (loss) from operations, net income (loss) and netincome (loss) per share amounts.

           Non-GAAP financial measures should not be considered as a substitutefor, or superior to, GAAP financial measures, which should beconsidered as the primary financial metrics for evaluating ourfinancial performance.  Significantly, non-GAAP financialmeasures are not based on a comprehensive set of accounting rules orprinciples.  Instead, they are based on subjectivedeterminations by management designed to supplement our GAAPfinancial measures.  They are subject to a number of importantlimitations and should be considered only in conjunction with ourconsolidated financial statements prepared in accordance with GAAP. For example, our non-GAAP financial measures have the effect ofexcluding a purchase accounting adjustment, costs and expenses fromour operating results that should be properly considered under asystem of accrual accounting.  In addition, our non-GAAPfinancial measures differ from GAAP measures with the same names, mayvary over time and may differ from non-GAAP financial measures withthe same or similar names used by other companies.  Accordingly,investors should exercise caution when evaluating our non-GAAPfinancial measures.

           Despite these limitations, we believe our non-GAAP financial measuresprovide meaningful supplemental information about our operatingresults, primarily because they exclude a purchase accountingadjustment and costs and expenses that we do not believe areindicative of the ongoing operating performance of our business andour senior management.  Although these items should properly beconsidered in our GAAP financial measures, we believe they should beexcluded when evaluating our current operating performance.  Thenon-GAAP financial measures disclosed in the accompanying pressrelease are used by our Board of Directors and senior management toevaluate our current operating performance, are used in evaluatingthe performance of our senior management, and are used in our budgetand planning processes. We believe that our non-GAAP financialmeasures are helpful to investors by facilitating comparisons of ourcurrent and prior operating results and by facilitating comparisonsof our operating results with those of other software companies.

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style="height:15.0pt; width:579pt">Ariba, Inc. and Subsidiaries

Reconciliation of GAAP to Non-GAAP Operating Results

(Unaudited; in thousands, except per share data)

style="height: 25.5pt;width:427pt" str="The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP operating results for the period indicated below: ">The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP operating results for the period indicated below:

Three Months Ended

Three Months Ended  March 31, 2010 March 31, 2009 Revenue reconciliation:

  GAAP revenue

 $                   87,130

 $                   84,693

  Purchase accounting adjustment

                            -  

                            -  

     Total non-GAAP revenues

 $                   87,130

 $                   84,693

Three Months Ended  Three Months Ended  March 31, 2010 March 31, 2009 Expense reconciliation:

  GAAP revenue

 $                   87,130

 $                   84,693

  Less: GAAP net income (loss)

                       5,751

                      (4,736)

     Total GAAP expenses

                     81,379

                     89,429

  Amortization of intangible assets

                      (1,025)

                      (1,597)

  Stock-based compensation

                    (11,229)

                      (8,096)

  Tax accrual reversal

                       3,089

                            -  

  Litigation benefit

                       7,000

                            -  

  Restructuring costs

                      (8,579)

                      (7,698)

     Total non-GAAP operating expenses

 $                   70,635

 $                   72,038

Three Months Ended  Three Months Ended  March 31, 2010 March 31, 2009 Net income reconciliation:

str=" GAAP net income (loss) ">

  GAAP net income (loss) 

 $                    5,751

 $                   (4,736)

     Amortization of intangible assets

                       1,025

                       1,597

     Stock-based compensation

                     11,229

                       8,096

     Tax accrual reversal

                      (3,089)

                            -  

     Litigation benefit

                      (7,000)

                            -  

     Restructuring costs

                       8,579

                       7,698

  Non-GAAP net income

 $                   16,495

 $                   12,655

Three Months Ended  Three Months Ended  March 31, 2010 March 31, 2009 Net income per share reconciliation:

  GAAP net income (loss) per share - basic

 $                      0.07

 $                     (0.06)

     Amortization of intangible assets

                         0.01

                         0.02

     Stock-based compensation

                         0.13

                         0.10

     Tax accrual reversal

                        (0.04)

                            -  

     Litigation benefit

                        (0.08)

                            -  

     Restructuring costs

                         0.10

                         0.09

  Non-GAAP net income per share - basic

 $                      0.19

 $                      0.15

  Non-GAAP net income per share - diluted

 $                      0.19

 $                      0.15

Weighted average shares - basic

                     86,578

                     82,416

Weighted average shares - diluted

                     88,753

                     84,645

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style="height:15.0pt; width:579pt">Ariba, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Operating Results
(Unaudited; in thousands, except per share data)
style="height: 25.5pt;width:427pt" str="The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP operating results for the period indicated below: ">The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP operating results for the period indicated below:
	Six Months Ended

Six Months Ended  March 31, 2010 March 31, 2009 Revenue reconciliation:

  GAAP revenue

 $                 172,801

 $                 170,780

  Purchase accounting adjustment

                            -  

                          355

     Total non-GAAP revenues

 $                 172,801

 $                 171,135

Six Months Ended  Six Months Ended  March 31, 2010 March 31, 2009 Expense reconciliation:

  GAAP revenue

 $                 172,801

 $                 170,780

  Less: GAAP net income (loss)

                       7,976

                      (1,309)

     Total GAAP expenses

                    164,825

                    172,089

  Amortization of intangible assets

                      (2,456)

                      (3,195)

  Stock-based compensation

                    (24,752)

                    (17,622)

  Tax accrual reversal

                       3,089

                            -  

  Litigation benefit

                       7,000

                            -  

  Restructuring costs

                      (8,579)

                      (9,399)

  Other-than-temporary decline in long-term investment

                            -  

                      (1,414)

     Total non-GAAP operating expenses

 $                 139,127

 $                 140,459

Six Months Ended  Six Months Ended  March 31, 2010 March 31, 2009 Net income reconciliation:

  GAAP net income (loss)

 $                    7,976

 $                   (1,309)

str=" Purchase accounting adjustment ">

     Purchase accounting adjustment 

                            -  

                          355

     Amortization of intangible assets

                       2,456

                       3,195

     Stock-based compensation

                     24,752

                     17,622

     Tax accrual reversal

                      (3,089)

                            -  

     Litigation benefit

                      (7,000)

                            -  

     Restructuring costs

                       8,579

                       9,399

     Other-than-temporary decline in long-term investment

                            -  

                       1,414

  Non-GAAP net income

 $                   33,674

 $                   30,676

Six Months Ended  Six Months Ended  March 31, 2010 March 31, 2009 Net income per share reconciliation:

  GAAP net income (loss) per share - basic

 $                      0.09

 $                     (0.02)

str=" Purchase accounting adjustment ">

     Purchase accounting adjustment 

                            -  

                         0.00

     Amortization of intangible assets

                         0.03

                         0.04

     Stock-based compensation

                         0.29

                         0.22

     Tax accrual reversal

                        (0.04)

                            -  

     Litigation benefit

                        (0.08)

                            -  

     Restructuring costs

                         0.10

                         0.12

     Other-than-temporary decline in long-term investment

                            -  

                         0.02

  Non-GAAP net income per share - basic

 $                      0.39

 $                      0.38

  Non-GAAP net income per share - diluted

 $                      0.38

 $                      0.36

Weighted average shares - basic

                     86,578

                     81,681

Weighted average shares - diluted

                     88,753

                     84,344

Discussion of Specific Items Excluded From Non-GAAPFinancial Measures

Our non-GAAP financial measures include a purchaseaccounting adjustment related to deferred revenues and generallyexclude costs and expenses for (i) amortization of intangible assetsrelated to acquisitions, (ii) stock-based compensation,  (iii)restructuring and integrationcosts, and (iv) litigation benefit, (v)tax accrual reversal and (vi)  other-than-temporary impairmentof long-term investments. They also exclude the release of a taxreserve and the benefit of a patent litigation judgement. We excludethese items because we believe they are not closely related to theongoing operating performance of our business and the performance ofour senior management and are generally excluded from our budget andplanning process.  In addition to these reasons, we believe ournon-GAAP financial measures are also helpful to investors byfacilitating comparisons of our operating results over different timeperiods and by facilitating comparisons of our financial performancewith that of other companies.  In addition, except for costs andexpenses related to restructuring and integration, these items arenon-cash items that do not affect cash flows.

(1) Purchase accounting adjustment –deferred revenue.  As announced on December 17, 2007, Aribaacquired Procuri, Inc. In accordance with the fair value provisionsof EITF 01-3, Accounting in a Business Combination for DeferredRevenue of an Acquiree, acquired deferred revenue of approximately$4.5 million was recorded on the opening balance sheet, which wasapproximately $5.9 million lower than the historical carrying value.Although this purchase accounting requirement has no impact on theCompany's business or cash flow, it adversely impacts the Company'sreported GAAP revenue primarily for the first twelve months post-acquisition. In order to provide investors with financial informationthat facilitates comparison of both historical and future results,the Company has provided non-GAAP financial measures which excludethe impact of the purchase accounting adjustment. The Companybelieves that this non-GAAP financial adjustment is useful toinvestors because it allows investors to (a) evaluate theeffectiveness of the methodology and information used by managementin its financial and operational decision-making and (b) compare pastand future reports of financial results of the Company as the revenuereduction related to acquired deferred revenue will not recur whenrelated subscription terms are renewed in future periods.

(2) Amortization of Acquired IntangibleAssets.  In accordance with GAAP, we amortize intangibleassets acquired in connection with acquisitions over the estimateduseful lives of the assets.  We exclude these amortization costsin our non-GAAP financial measures because they (i) result from prioracquisitions, rather than the ongoing operating performance of ourbusiness, and (ii) absent additional acquisitions, are expected todecline over time as the remaining carrying amounts of these assetsare amortized.  We believe excluding these costs helps investorscompare our financial performance with that of other companies withdifferent acquisition histories. However, as with impairment charges,we recognize that amortization costs provide a helpful measure of thefinancial impact and performance of prior acquisitions and considerour non-GAAP financial measures in conjunction with our GAAPfinancial results that include amortization costs.           

(3)  Stock-Based Compensation Expenses. We exclude stock-based compensation expense associated with stockoptions and stock granted to employees and non-executive directors inour non-GAAP financial measures.  While stock-based compensationis a significant component of our expenses, we believe that investorswish to be able to exclude the effects of stock-based compensationexpense in comparing our financial performance with that of othercompanies.

(4)  Restructuring

costs

andintegration.  We recorded restructuring related to leaseabandonment accruals and/(or) severance and related benefits in thethree months and six months ended March 31, 2009 and the three monthsand six months ended March 31, 2010.  We exclude this from ournon-GAAP financial measures because it is unrelated to our ongoingoperations and is significantly impacted by factors outside ourcontrol.  We believe excluding restructuring costsandintegration helps investors compare our operating performance withthat of other companies.  We recognize, however, thatrestructuring costs and integration will impact cash flows and thatwe and investors should carefully consider the impact of these costson future cash flows.

(5) Litigation benefit.We received $7.0 millionfrom Emptoris in relation to a patent litigation judgment which werecorded as income in the three months and six months ended March 31,2010.  We exclude this from our non-GAAP financial measuresbecause it is unrelated to our ongoing operations. We believeexcluding the litigation benefit helps investors compare ouroperating performance with that of other companies.  Werecognize, however, that the litigation benefit impacts cash flow andthat we and investors should carefully consider the impact of this oncash flow.

(6) Release of tax reserve.We released a taxreserve of approximately $3.1 million in the three months and sixmonths ended March 31, 2010.  We exclude this from our non-GAAPfinancial measures because it is unrelated to our ongoing operations.We believe excluding the tax reserve release helps investors compareour operating performance with that of other companies. 

(7) Other-than-temporary impairment of long-terminvestments. We recorded an other-than temporary impairmentof a long-term investment in the six months ended March 31, 2009. We exclude this from our non-GAAP financial measures because it isunrelated to our ongoing operations. We believe excluding theother-than-temporary impairment helps investors compare our operatingperformance with that of other companies.  We recognize,however, that the other-than-temporary impairment may impact cashflows and that we and investors should carefully consider the impactof these costs on future cash flows.