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| VIGN > SEC Filings for VIGN > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
The statements contained in this Quarterly Report on Form 10-Q that are not purely historical statements are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934, including statements regarding our expectations, beliefs, hopes, intentions or strategies regarding the future. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results. Factors that might cause or contribute to such a difference include, but are not limited to, those discussed elsewhere in this report in the section entitled "Risk Factors That May Affect Future Results" and the risks discussed in our other historical Securities and Exchange Commission filings.
Overview
Vignette develops and sells software for managing and delivering content. Our software products, which fall into various standard industry categories, including Web content management, transactional content management, intranet solutions, social media solutions, web experience optimization and rich media and video solutions, enable organizations to build, manage and deploy information-based applications. Vignette's software helps organizations improve their interactions with key audiences, including customers, prospects, employees, partners, patients and citizens, by making it possible for them to deliver online experiences that support their larger business goals. We place particular emphasis on supporting online experiences that are personal, social, transactional and ubiquitous. Our early content management and delivery tools laid the groundwork for some of the Web's most influential and popular sites. Today, our award-winning solutions continue to power some of the world's most prominent online brands and enable organizations to have more meaningful interactions with all of their important constituencies.
Organizations in virtually every industry are undertaking next-generation Web initiatives. In general, a renewed focus on growth has led these organizations to re-examine, among other things, the quality of the online experience they provide to their key audiences. From Vignette's perspective, improving the online experience demands better management and delivery of business content. Vignette's best customers derive the greatest value from this content at the point of customer interaction, particularly when that point of interaction is online.
Vignette's Web Experience Platform helps our customers improve the way they connect with their key audiences online. It gives them tools for building great online experiences that support the organizations larger goals (creating a more social online experience, for example, where visitors spend more time on a site or are encouraged to provide product feedback can serve an organization's desire to grow online product sales or to shorten product development cycles). Vignette's platform also provides numerous ways to improve the organization's management of the content that fuels the online experience (and that online visitors create).
Vignette's platform helps organizations create online experiences that are more personal. It helps them create large, feature-rich online communities with the interactivity and content contribution that today's audiences expect and the performance and scalability that global enterprises require. Vignette's platform also supports the creation of Web experiences that are of consistently high quality regardless of location, time of day, or device (computer, television, mobile phone, PDA, kiosk, etc.).
Some of our customers also want to use the online channel to connect customers and other key audiences with internal business processes. In particular, public sector organizations and commercial organizations in the financial services, insurance and healthcare industries are making technology investments that allow them to extend business activities - loan origination, case processing, customer service and similar processes - to the Web. Vignette's Transactional Content Management solution, a component of the Vignette Web Experience Platform is expressly designed to provide these capabilities.
Vignette's software products are brought together in various combinations to deliver solutions to the common content management challenges above. Following is a brief description of most of our software products:
Vignette Content Management manages business content of virtually any type (text, images, video, compound content types, etc.) and ensures the delivery of that content to Web sites. It is especially suited to large organizations that maintain many separate Web sites for distinct sets of constituents because it eliminates the inevitable issues of versioning, redundancy, currency, and so on, that are common to complex Web environments. It is designed to separate content from its delivery, which makes it easy to repurpose content across multiple sites that may look and behave very differently. This separation of content and delivery also makes it easy for Vignette customers to offer Web experiences that are of consistent quality regardless of Web device. A great deal of design effort has gone into making Vignette Content Management accessible to non-technical people, which means that much of the day-to-day responsibility for an organization's online experience can reside with customer-focused business people, not technical personnel.
Vignette High Performance Delivery provides a unique, integrated combination of real-time caching and intelligent cache management capabilities that can help improve dynamic Web site performance, make Web sites more scalable, and in many cases reduce costs and manual overhead.
Vignette Portal lets organizations build and deliver highly customizable Web experiences tailored to the requirements of audiences such as employees, partners and customers. Portal applications typically combines in a single view or screen a number of visual objects, each of which can be linked to an application or another Web page. Vignette Portal lets organizations create such composite applications particularly rapidly.
Vignette Collaboration supports improved productivity through collaborative workspaces, where teams can share, capture and search information. This helps organizations reduce the risk of knowledge being lost. It breaks down many of the communication and collaboration barriers that exist in geographically dispersed organizations. Encouraging fluid online collaboration can also improve business relationships across departments and between organizations and their key constituencies.
Vignette Business Integration Studio is a graphical application integration environment for collecting and integrating content and applications from a wide selection of sources with minimal coding. Vignette Business Integration Studio allows users to readily and dynamically map content from disparate schemes, remote repositories and applications to an aggregated destination. We offer over fifty pre-built application and technology adapters that can be used by Vignette Business Integration Studio to integrate with enterprise, desktop, database and proprietary content sources existing throughout an enterprise. Adapters are plug-ins to Vignette Business Integration Studio that provides prepackaged integration capabilities to common technology applications.
Vignette Community Applications provides organizations with tools for delivering blogs, wikis, forums and social microsites to build communities and launch products, brands and campaigns.
Vignette Community Services is an enterprise-class social computing and online community solution that leverages user generated content and supports popular new ways to deliver the compelling user experiences that can help you engage and connect with your demanding online audiences. Vignette Community Services enables Web 2.0 tools including ratings, reviews, commenting and tagging of content in a single offering that can be added to virtually any Web site.
Vignette Recommendations gives users the most relevant content and products based on social search. By analyzing the behavior and the most useful resources for similar users, Vignette Recommendations makes it easier to find the right content. It helps deliver a better online experience by providing content recommendations, product recommendations and social search functionality.
Vignette Dialog augments everyday email by delivering highly personalized content to the intended recipients at the designated time through online and offline touch points. A simple, graphical environment allows business users to create planned, multi-step conversations that can be triggered by virtually any type of event, including opening an email, failing to open an email, filling out a form on a Web site, completing a purchase, attending an event or placing a customer service call.
Vignette Video Services is a set of video management services, accessible through industry-standard APIs that can be integrated into virtually any framework, such as Enterprise Content Management and Web Content Management systems, to provide advanced video capabilities offered via a hosted solution.
Vignette Rich Media Module is of particular value to organizations that must manage large volumes of images, podcasts, Adobe Flash files and video content. These and other types of rich media pose special challenges for editors responsible for managing libraries of this content and for the approval, categorizations, tagging and publishing of these assets. Rich Media Services helps organizations get their rich media assets under control and productively incorporated into each organization's particular online experience.
Vignette Media is a digital publishing platform; the first completely integrated content, rich media, and video management solution designed specifically for the business needs of Telecommunications, Media and Entertainment companies. Vignette Media allows marketing and media professionals to add, manage, and publish rich media and video assets to their Web experience in an easy, relevant and engaging way through a single user interface; a single solution for all online content needs.
Vignette Records & Documents is an enterprise document and records management solution that manages fixed assets, automates document based workflows, manages casework through a process and implements important archival and disposition of records. Vignette Records & Documents facilitates risk and compliance management and implements important document management capabilities including metadata search, query by example, indexed full text search, check in/out and ACL security.
Vignette Case Manager enables organizations to automate and manage high value, customer-facing business transactions. Case Manager gives an organization's customers control over when and how they want to interact, whether in person in a branch during business hours, on the phone, or via the Web or e-mail at a time and place of the customer's choosing. Vignette Case Manager makes this innovation possible by allowing organizations to deliver their back-office business processes directly to customers, across multiple channels and in a personalized and consistent way.
Vignette WebCapture is a secure Web transaction capture and playback risk management solution that archives transactions on a customer's site and creates a permanent record of them for dispute resolution.
Vignette IDM is an integrated document management, archive and retrieval solution that addresses document capture, production imaging supporting forms OCR/ICR, high-performance image viewing, printing and storage management; business process automation and workflow supporting case management, business process management and Web services; output report management for capturing, mining, linking, distribution and statement presentment; and Computer Output to Laser Disc ("COLD") storage and records management supporting electronic and physical records, retention management, e-mail archiving and regulatory compliance.
Our solutions and products are supported by our professional services organization, Vignette Professional Services (VPS). VPS offers pre-packaged and custom services to help organizations define their online business objectives and deploy their applications. Our education, consulting and customer care teams give customers the benefit of our experience with thousands of customer implementations. We partner with a number of leading consulting firms and system integrators to implement our software for their clients. In many cases, we work in blended teams to implement solutions. To ensure that we provide support to our customers on their chosen platform and infrastructure, we have long-standing relationships with key technology providers such as Microsoft, BEA Systems, Hewlett Packard and Sun Microsystems.
Overview of First Quarter Results
The Company reported total revenues of $33.9 million for the three months ended March 31, 2009 versus $44.8 million of total revenues for the three months ended March 31, 2008, a decrease of 24.2%.
More specifically, license revenues were $6.9 million in the first quarter of 2009 compared to $9.7 million for the first quarter of 2008, a decrease of 28.9%. The Company attributes the decline in license revenue to a number of factors including a challenging economic environment, intense competition and a need to improve sales and marketing effectiveness. Maintenance and support revenue of $18.3 million decreased $2 million as compared to the first quarter of 2008 or 9.9% and professional services revenues of $8.2 million decreased $6.5 million or 44.2%. International revenue comprised 40.2% and 40.8% of total revenue for the quarters ended March 31, 2009 and 2008, respectively, and no single customer accounted for more than 10% of our quarterly revenues.
Total expenses, including both cost of revenue and operating expenses, were $36.0 million and $47.0 million for the three months ended March 31, 2009 and 2008, respectively. The decrease is a combination of lower operating expenses of $5.3 million and lower cost of revenue of $5.7 million. This was largely driven by lower sales and marketing expenses as well as planned reductions in R&D and G&A costs. Sales and marketing expenses decreased $4.1 million or 26.4% from Q1 2008. The decrease is due to the headcount reductions taken in Q3 and Q4 2008, lower commissions due to lower license revenue and lower expenses due to foreign currency movements. R&D decreased $1.1 million or 13.2% from Q1 2008. The decrease is due to the headcount reductions taken in Q3 and Q4 2008. The lower cost of revenues is attributed to the decrease in professional services revenue.
The movements in revenues and expenses outlined above resulted in a $2.1 million operating loss in the first quarter of 2009 compared to an operating loss of $2.2 million in the first quarter of 2008. Other income for the three months ended March 31, 2009 was down due to a significant decrease in the amount of interest income earned during the quarter as a result of lower market interest rates. The company generated a $1.8 million loss before provision for income taxes in the first quarter of 2009 compared to a loss of $0.4 million in the first quarter of 2008. Net loss for the first quarter of 2009 was $1.8 million compared to a net loss of $0.8 million in the same period last year.
Total cash and short-term investments increased by $4.2 million during the quarter to $143.1 million as of March 31, 2009. The net increase is driven primarily by $6.1 million of cash generated from operating activities offset with $1.7 million of cash used for capital expenditures.
Our headcount at March 31, 2009 was 687 compared to 643 at December 31, 2008, and an increase of 20 from 667 at March 31, 2008. The increase is primarily due to the addition of 92 employees as part of the ongoing project to in-source our research and development facility in India.
Outlook
Our objective is to maintain and extend our position as a leading global provider of Next-Generation Web solutions. These solutions enable organizations to harness the power of their business content and the Web to deliver rich, personalized online interactions in direct or indirect support of customer acquisition and retention and revenue growth. We will continue to focus on delivering profitable growth, expanding our customer base of global 2000 organizations, extending our technology leadership through investment in research and development, expanding our global sales capabilities and building upon our strategic alliances with leading companies.
The first quarter of 2009 was challenging for the company and for the global economy and we saw lower revenues and lower net income than in the first quarter of 2008. In an attempt to reverse that trend, we are implementing, among other things, new territory assignments, an enhanced reseller model, a new sales force automation system, a new lead management system, and a shift in marketing spend towards more online marketing. We believe this may help improve direct and indirect sales channel productivity. We will strive to encourage cross-functional team selling through enhanced team realignment around customer accounts and regions and meet market-specific needs for designated solution areas such as healthcare, transactional content management, next generation web presence and collaborative records and document management. We will continue to focus on the indirect channel as a means to better distribute and expose our software and solutions to the marketplace. We will also continue to focus on realizing efficiencies and cost-savings across our business.
As we previously stated, 2009 is going to be a year of uncertainty. However, we were able to manage through Q1 by delivering $6.1 million of cash flow from operations. We accomplished this by closely managing and controlling operating expenses in line with revenue during the quarter. Vignette is committed to careful management during this economic uncertainty by planning conservatively, investing prudently and making the necessary operational adjustments along the way to position ourselves for long-term success. We will continue to monitor the revenue outlook to maintain a balance between revenue and investments. We remain committed to generating positive cash flow for 2009. In the first quarter of 2009, the weakening economy had a negative effect on demand for our products and services and this trend may continue through the balance of 2009 or longer. Given the impact that the ongoing uncertainty in the economy can have on our business we have suspended giving detailed quarterly guidance in 2009. Instead, we are providing directional annual guidance for key elements of the P&L but not specifically for total revenues or EPS metrics.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are reviewed periodically. Actual results may differ from these estimates under different assumptions or conditions.
Management has discussed with and agreed upon the development and selection of the following critical accounting policies with the Audit Committee of the Board of Directors:
• Revenue recognition;
• Estimating the allowance for doubtful accounts;
• Stock based compensation;
• Accounting for income taxes;
• Estimating business restructuring accruals; and
• Valuation of goodwill and identifiable intangible assets.
Revenue recognition. Revenue consists of product and service fees. Product fee income is earned through the licensing or right to use our software and from the sale of specific software products. Service fee income is earned through the sale of maintenance and support services, subscription services, consulting services and training services.
We do not recognize revenue for agreements with rights of return, refundable fees, cancellation rights or acceptance clauses until such rights to return, refund or cancel have expired or acceptance has occurred.
We recognize revenue in accordance with Statement of Position ("SOP") 97-2, Software Revenue Recognition, as amended by SOP 98-4 and SOP 98-9, Securities and Exchange Commission Staff Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial Statements as revised by SAB 104 and Emerging Issues Task Force ("EITF") 00-21, Revenue Arrangements with Multiple Deliverables.
Where software licenses are sold with maintenance and support or other services, we allocate the total fee to the various elements based on the fair values of the elements specific to us. We determine the fair value of each element in the arrangement based on vendor-specific objective evidence ("VSOE") of fair value. VSOE of fair value is based upon the normal pricing and discounting practices for those products and services when sold separately and, for support services, is measured by the renewal rate. For all of our multiple element contracts where software license is one of the delivered elements we use the residual method. Under the residual method, the arrangement fee is first allocated to the undelivered elements based upon their VSOE of fair value and the remaining arrangement fee, including any discount, is then allocated to the delivered element. If the residual method is not used, discounts, if any, are applied proportionately to each element included in the arrangement based on each element's fair value without regard to the discount.
Revenue allocated to product license fees is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, no significant remaining obligations with regard to implementation are outstanding and collection of a fixed or determinable fee is reasonably assured. We consider all payments outside our normal payment terms, including all amounts due in excess of one year, to not be fixed and determinable and such amounts are recognized as revenue as they become due. If collectibility is not considered reasonably assured, revenue is recognized when the fee is collected. For software arrangements where we are obligated to perform professional services for implementation of the product, we evaluate whether delivery has occurred upon shipment of software or upon completion of services and if the customer payment is reasonably assured. This evaluation is made based on various factors such as the nature of the services work, order type (e.g. initial vs. follow-on), customer's payment history, if such services are available from other vendors, if we have sufficient experience in providing such services, etc. In the instances where delivery is deemed not to have occurred upon shipment based on the aforementioned factors, license revenue is recognized as our obligations under the implementation are met.
Revenue from perpetual licenses that include unspecified, additional software products is recognized ratably over the term of the arrangement, beginning with the delivery of the first product.
Revenue allocated to maintenance and support services is recognized ratably over the maintenance term.
Revenue allocated to subscription services, including implementation and set-up fees, is recognized ratably over the term of the arrangement beginning on the commencement dates of each contract. We recognize professional services sold with an initial subscription order over the term of the related subscription contract as these services are considered to be inseparable from the subscription service.
Revenue allocated to training and consulting service elements is recognized as the services are performed.
We follow very specific and detailed guidelines, discussed above, in determining revenues; however, certain judgments and estimates are made and used to determine revenue recognized in any accounting period. Material differences may result in the amount and timing of revenue recognized for any period if different conditions were to prevail.
Estimating the allowance for doubtful accounts. We continuously assess the
collectibility of outstanding customer invoices and in doing so; we maintain an
allowance for estimated losses resulting from the non-collection of customer
receivables. In estimating this allowance, we consider factors such as:
historical collection experience, a customer's current credit-worthiness,
customer concentrations, age of the receivable balance, both individually and in
the aggregate and general economic conditions that may affect a customer's
ability to pay. Actual customer collections could differ from our estimates. For
example, if the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
Stock based compensation. The Company measures all share-based payment awards at fair value on the date of grant and recognizes compensation expenses for all share-based payments on a straight-line basis over the service period that the awards are expected to vest pursuant to the guidance of Statement of Financial Accounting Standards 123R, Share-Based Payment ("Statement 123R") and Staff Accounting Bulletin 107 ("SAB 107") of the Securities and Exchange Commission. Restricted stock and stock options issued under equity plans as well as well as stock purchases under our employee stock purchase plans are subject to the provisions of Statement 123R and the interpretive guidance of SAB 107.
We estimate the fair value of stock options using a Black-Scholes valuation model. Option-pricing models require the input of highly subjective assumptions, including the option's expected life and the price volatility of the underlying stock. Judgment is also required in estimating the number of stock-based awards that are expected to be forfeited. If actual results or future changes in estimates differ significantly from our current estimates, stock-based compensation expense and our results of operations could be materially impacted.
Accounting for income taxes. We account for the effect of income taxes in accordance with Statement of Financial Accounting Standards 109,Accounting for Income Taxes ("SFAS No. 109") and the various interpretations thereof. At the end of each interim period we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year. This estimated effective tax rate is used to determine income taxes on a current year-to-date basis from ordinary operations. Estimating an effective tax rate involves estimates and forecasts by management in arriving at an estimated full year tax liability on a legal entity basis. In each successive interim period, to the extent our estimates need to be revised, we expect that our effective tax rate will change accordingly, affecting tax expense (or benefit) for both that successive interim period as well as year-to-date interim results. In addition to the tax provision attributable to ordinary operations, the income tax expense recorded will also . . .
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