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TIBX > SEC Filings for TIBX > Form 10-Q on 11-Apr-2013All Recent SEC Filings

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Form 10-Q for TIBCO SOFTWARE INC


11-Apr-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements relate to expectations concerning future events or matters that are not historical facts. Words such as "projects," "believes," "anticipates," "plans," "expects," "intends," "strategy," "continue," "will," "estimate," "forecast," and similar words and expressions are intended to identify forward-looking statements, although these words are not the only means of identifying these statements. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to risks and uncertainties, including, but not limited to, the factors set forth in Part II, Item 1A. "Risk Factors." This discussion should be read in conjunction with our Consolidated Financial Statements and accompanying notes and with our Annual Report on Form 10-K for the year ended November 30, 2012 and with our quarterly Condensed Consolidated Financial Statements and notes thereto which appear elsewhere in this Quarterly Report on Form 10-Q. All forward-looking statements and reasons why results may differ included in this Quarterly Report on Form 10-Q are made as of the date hereof, and we assume no obligation to update any such forward-looking statements or reasons why actual results may differ.
Executive Overview
Our products are currently licensed by companies worldwide in diverse industries such as financial services, telecommunications, government, energy, life sciences, insurance, logistics, manufacturing, retail, and transportation. We sell our products through a direct sales force and through alliances with leading software vendors and system integrators.
Our revenue consists primarily of license and maintenance fees from our customers, distributors and partners (including system integrators, resellers, professional service organizations and business partners) who embed our software in their products. In addition, we receive fees from our customers for providing consulting services. Our revenue is generally derived from a diverse customer base. No single customer represented greater than 10% of our total revenue for the first three months of fiscal year 2013. As of February 28, 2013, no single customer had a balance in excess of 10% of our net accounts receivable. For the first quarter of fiscal year 2013, we recorded total revenue of $237.8 million, an increase of 5% from the first quarter of fiscal year 2012. License revenue was $78.3 million, a decrease of 5% from the first quarter of fiscal year 2012. In addition, we generated cash flow from operations of $63.2 million in the first quarter of fiscal year 2013. Diluted earnings per share under generally accepted accounting principles in the United States of America ("GAAP") was $0.06 in the first quarter of fiscal year 2013 as compared to $0.13 for the first quarter of fiscal year 2012. We ended the quarter with $806.7 million in cash, cash equivalents and short-term investments.
We currently intend to grow our business by pursuing key initiatives to: broaden our product platform through internal development and acquisitions; increase our sales capacity by expanding our direct sales organization and developing our channel partnerships; expand our product offerings to new vertical markets; and employ marketing programs to increase awareness of us and our products among existing and prospective customers. Whether or not we are successful depends on our ability to: appropriately manage our expenses as we grow our organization; identify or acquire companies or assets at attractive valuations; enter into beneficial channel relationships; develop new products; and successfully execute our marketing and sales strategies.
Critical Accounting Policies, Judgments and Estimates The discussion and analysis of our financial condition and results of operations is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that can have significant impact on the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. We base our estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On a regular basis we evaluate our estimates, assumptions and judgments and make changes accordingly. We also discuss our critical accounting estimates on a regular basis with the Audit Committee of our Board of Directors.
We believe that the estimates, assumptions and judgments involved in revenue recognition, allowances for doubtful accounts, returns and discounts, stock-based compensation, business combination, impairment of goodwill, intangible and long-lived assets, and accounting for income taxes have the greatest potential impact on our Condensed Consolidated Financial


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Statements, so we consider these to be our critical accounting policies. Historically, our estimates, assumptions and judgments relative to our critical accounting policies have not differed materially from actual results. The critical accounting estimates associated with these policies are described in

Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of our 2012 Annual Report on Form 10-K for the fiscal year ended November 30, 2012.
Recent Accounting Pronouncements
Recent accounting pronouncements are detailed in Note 2 to our Condensed Consolidated Financial Statements.
Results of Operations
For purposes of presentation, we have indicated the first quarter of fiscal years 2013 and 2012 as ended on February 28, 2013 and February 28, 2012, respectively; whereas in fact, the first quarter of fiscal years 2013 and 2012 actually ended on March 3, 2013 and March 4, 2012, respectively. There were 93 days and 95 days in the first quarter of fiscal years 2013 and 2012, respectively. All amounts presented in the tables in the following sections of our Results of Operations are stated in thousands of dollars, except for percentages and unless otherwise stated.
The following table sets forth the components of our Results of Operations as percentages of total revenue for the periods indicated:

                                                                     Three Months Ended
                                                                        February 28,
                                                                     2013           2012
Revenue:
License                                                               33  %           36  %
Service and maintenance                                               67              64
Total revenue                                                        100             100
Cost of revenue:
License                                                                5               4
Service and maintenance                                               26              25
Total cost of revenue                                                 31              29
Gross profit                                                          69              71
Operating expenses:
Research and development                                              17              16
Sales and marketing                                                   34              34
General and administrative                                             8               8
Amortization of acquired intangible assets                             2               2
Acquisition related and other                                          -               -
Restructuring adjustment                                               -               -
Total operating expenses                                              61              60
Income from operations                                                 8              11
Interest income                                                        -               -
Interest expense                                                      (4 )            (1 )
Other income (expense), net                                            -               -
Income before provision for income taxes and noncontrolling
interest                                                               4              10
Provision for (benefit from) income taxes                              -               1
Net income                                                             4               9
Less: Net income (loss) attributable to noncontrolling
interest                                                               -               -
Net income attributable to TIBCO Software Inc.                         4  %            9  %

Our Results of Operations include incremental revenue and costs related to the acquisition of LogLogic. In connection with this acquisition, we have incurred additional expenses, including amortization of intangible assets and acquired technology; stock-based compensation; personnel and related costs; facility and infrastructure costs; and other charges. Total Revenue
Our total revenue consisted primarily of license, service and maintenance fees from our customers, distributors and partners.


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Three Months Ended
February 28,
2013 2012 Change Total revenue $ 237,790 $ 225,702 5 %

Total revenue in the first quarter of fiscal year 2013 increased by $12.1 million, or 5%, compared to the same quarter last year. The increase was primarily comprised of a $16.1 million, or 11%, increase in service and maintenance revenue, partially offset by a $4.1 million, or 5%, decrease in license revenue.
For the three months ended February 28, 2013, we experienced an increase in total revenue in Americas and Asia Pacific and Japan ("APJ") and a decrease in total revenue in Europe, the Middle East and Africa ("EMEA") compared to the same period last year. See Note 15 to our Condensed Consolidated Financial Statements for total revenue by region. The percentages of total revenue from the geographic regions are summarized as follows:

             Three Months Ended
                February 28,
             2013         2012
Americas       54 %         52 %
EMEA           36 %         39 %
APJ            10 %          9 %
              100 %        100 %



License Revenue

                                     Three Months Ended
                                        February 28,
                                 2013         2012      Change
License revenue               $ 78,263     $ 82,315      (5 )%
Percentage of total revenue         33 %         36 %

Our license revenue for the three months ended February 28, 2013 and 2012 was derived from the following three product lines: service oriented architecture ("SOA") and core infrastructure; business optimization; and process automation and collaboration. The percentages of license revenue from the three product lines are summarized as follows:

                                         Three Months Ended
                                            February 28,
                                         2013         2012
SOA and core infrastructure                45 %         57 %
Business optimization                      47 %         32 %
Process automation and collaboration        8 %         11 %
                                          100 %        100 %

Our license revenue in a particular period is dependent upon the timing, number and size of our license deals. Selected data about our license deals recognized for the respective periods is summarized as follows:

                                                                         Three Months Ended
                                                                            February 28,
                                                                         2013          2012
Number of license deals of $1.0 million or more                              12           20
Number of license deals of $0.1 million or more                             104          102
Average size of license deals of $0.1 million or more (in millions)   $     0.7     $    0.7

Cost of License Revenue

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                                       Three Months Ended
                                          February 28,
                                   2013        2012      Change
Cost of license revenue         $ 11,261     $ 9,040       25 %
Percentage of total revenue            5 %         4 %
Percentage of license revenue         14 %        11 %

Cost of license revenue mainly consisted of amortization of developed technology acquired through acquisitions and royalty costs. Cost of license revenue in the first quarter of fiscal year 2013 increased by $2.2 million, or 25%, compared to the same quarter last year, primarily due to higher amortization costs.

Service and Maintenance Revenue and Cost

                                                        Three Months Ended
                                                           February 28,
                                                   2013          2012       Change
Service and maintenance revenue                 $ 159,527     $ 143,387       11 %
Percentage of total revenue                            67 %          64 %
Cost of service and maintenance revenue         $  62,376     $  57,050        9 %
Percentage of total revenue                            26 %          25 %
Percentage of service and maintenance revenue          39 %          40 %

Service and maintenance revenue in the first quarter of fiscal year 2013 increased by $16.1 million, or 11%, compared to the same quarter last year. Maintenance revenue was 63% and professional services and training revenue was 37% of total service and maintenance revenue for the three months ended February 28, 2013. The increase for the three months ended February 28, 2013 was primarily due to continued growth in our installed software base and an increase in both the number and size of consulting engagements, reflecting our increased focus on providing more services to our customers.
Cost of service and maintenance consisted primarily of compensation for professional services, customer support personnel and third-party contractors and associated expenses related to providing consulting services. Cost of service and maintenance in the first quarter of fiscal year 2013 increased by $5.3 million, or 9%, compared to the same quarter last year. The increase in absolute dollars was primarily due to a $4.8 million increase in employee-related expenses.
The increase in employee-related expenses was primarily due to increased headcount.
Research and Development Expenses
Research and development expenses consisted primarily of employee-related expenses, including salary, bonus, benefits, stock-based compensation expenses, recruiting expense and office support, third-party contractor fees and related costs associated with the development and enhancement of our products.

                                           Three Months Ended
                                              February 28,
                                       2013         2012      Change
Research and development expenses   $ 41,625     $ 37,321       12 %
Percentage of total revenue               17 %         16 %

Research and development expenses in the first quarter of fiscal year 2013 increased by $4.3 million, or 12%, compared to the same quarter last year. The increase was primarily due to a $2.8 million increase in subcontractor costs and a $1.3 million increase in employee-related expenses.
The increase in subcontractor costs was due to the expansion of our research and development operations. The increase in employee-related expenses compared to last year was primarily due to an increase in headcount.


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Sales and Marketing Expenses
Sales and marketing expenses consisted primarily of employee-related expenses,
including sales commissions, salary, bonus, benefits, stock-based compensation
expenses, recruiting expense and office support, related costs of our direct
sales force and marketing staff, and the costs of marketing programs, including
customer conferences, promotional materials, trade shows, advertising and
related travel expenses.

                                      Three Months Ended
                                         February 28,
                                  2013         2012      Change
Sales and marketing expenses   $ 80,089     $ 75,718       6 %
Percentage of total revenue          34 %         34 %

Sales and marketing expenses in the first quarter of fiscal year 2013 increased by $4.4 million, or 6%, compared to the same quarter last year. The increase was primarily due to a $4.2 million increase in employee-related expenses. The increase in employee-related expenses compared to last year was primarily due to an increase in headcount.
General and Administrative Expenses
General and administrative expenses consisted primarily of employee-related expenses, including salary, bonus, benefits, stock-based compensation expenses, recruiting expense and office support and related costs for general corporate functions including executive, legal, finance, accounting and human resources, and also included accounting, tax and legal fees and charges.

                                             Three Months Ended
                                                February 28,
                                         2013         2012      Change
General and administrative expenses   $ 18,925     $ 17,595       8 %
Percentage of total revenue                  8 %          8 %

General and administrative expenses in the first quarter of fiscal year 2013 increased by $1.3 million, or 8%, compared to the same quarter last year. The increase was primarily due to a $1.3 million increase in employee-related expenses.
The increase in employee-related expenses was primarily due to an increase in headcount.
Amortization of Acquired Intangible Assets Intangible assets acquired through corporate acquisitions are comprised of the expected value of developed technologies, patents, trademarks, established customer bases and non-compete agreements, as well as maintenance and OEM customer royalty agreements. Amortization of developed technologies is recorded as a cost of revenue, and amortization of other acquired intangible assets is included in operating expenses.

                                                    Three Months Ended
                                                       February 28,
                                                2013        2012      Change
Amortization of acquired intangible assets:
In cost of revenue                            $ 4,097     $ 3,265
In operating expenses                           4,321       4,548
Total amortization                            $ 8,418     $ 7,813       8 %
Percentage of total revenue                         4 %         3 %

Acquisition Related and Other Expenses
Acquisition related and other expenses consisted of costs incurred after the issuance of a definitive term sheet for a particular transaction (whether or not such transaction is ultimately completed, remains in-process or is not completed) and included legal, banker, accounting and other advisory fees of third parties and severance costs for employees of the acquired company that were terminated within 90 days of the acquisition date.


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                                               Three Months Ended
                                                  February 28,
                                            2013      2012     Change
Acquisition related and other expenses:
Professional services fees and other      $  327     $ 396      (17 )%
Percentage of total revenue                    - %       - %



Restructuring Charges (Adjustment)

                                         Three Months Ended
                                            February 28,
                                      2013      2012      Change
Restructuring charges (adjustment)   $  7     $ (119 )         *
As percent of total revenue             - %        -  %

* Percentage change has been excluded as it is not meaningful for comparison purposes.
Stock-Based Compensation Cost
Stock-based compensation cost is included in our Condensed Consolidated Statements of Operations corresponding to the same functional lines as cash compensation paid to the same employees in the respective departments as follows:

                                         Three Months Ended
                                            February 28,
                                     2013         2012      Change
Stock-based compensation costs:
Cost of revenue                   $  1,603     $  1,282
Research and development             3,996        4,005
Sales and marketing                  5,239        5,292
General and administrative           5,554        4,745
Total                             $ 16,392     $ 15,324       7 %
Percentage of total revenue              7 %          7 %

Total stock-based compensation costs in the first quarter of fiscal year 2013 increased by $1.1 million, or 7%, compared to the same quarter last year primarily due to a $1.7 million increase in stock-based compensation costs related to restricted stock and restricted stock units, which was partially offset by a $0.8 million decrease in stock-based compensation costs related to stock options.

Interest Income

                                   Three Months Ended
                                      February 28,
                                2013      2012     Change
Interest income               $  198     $ 255      (22 )%
Percentage of total revenue        - %       - %

Interest Expense


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                                     Three Months Ended
                                        February 28,
                                 2013         2012      Change
Interest expense              $ (8,782 )   $ (1,465 )     499 %
Percentage of total revenue          4 %          1 %

Interest expense is primarily related to the outstanding borrowings under our convertible senior notes, mortgage note and credit facility.
Interest expense increased in the first quarter of fiscal year 2013 compared to the same quarter last year by $7.3 million, or 499%, due to the issuance of the convertible senior notes. See Note 8 and Note 9 to our Condensed Consolidated Financial Statements for further detail on the credit facility, mortgage note and the convertible senior notes.
Other Income (Expense), Net
Other income (expense) included foreign exchange gains and losses, realized gains and losses on investments, and other miscellaneous income and expense items.

                                           Three Months Ended
                                              February 28,
                                        2013       2012     Change
Other income (expense), net:
Foreign exchange gain (loss)          $ (843 )    $ 538
Realized gain (loss) on investments       (3 )      422
Other income (expense)                     4         16
Total other income (expense), net     $ (842 )    $ 976     (186 )%
Percentage of total revenue                -  %       - %

Other income (expense) decreased in the first quarter of fiscal year 2013 compared to the same quarter last year by $1.8 million primarily due to a $1.4 million difference in foreign exchange losses.

Provision for Income Taxes

                                                  Three Months Ended
                                                     February 28,
                                              2013        2012      Change
Provision for (benefit from) income taxes   $ (100 )    $ 3,300     (103 )%
Effective tax rate                              (1 )%        14 %

In the three months ended February 28, 2013, we recognized certain discrete items of tax expense and benefit of a net of $1.4 million primarily related to true-up of $1.8 million of tax expense for prior period withholding taxes and $3.3 million of tax benefit from retroactive legislative reinstatement of the federal research and development credit. In the three months ended February 28, 2012, we recognized a discrete benefit of $1.8 million tax benefit primarily related to lapses of various statutes of limitations and true-up for prior period withholding taxes. We recognize the withholding taxes as discrete items because of the high variability of withholding tax rates by country and the difficulty in forecasting the exact country of future revenue. On January 2, 2013, the American Taxpayer Relief Act of 2012 (H.R. 8, as amended) was signed into law. This Act extends the federal research and development credit through December 31, 2013. The federal research and development credit was reinstated retroactively to January 1, 2012. The retroactive tax benefit of the federal research and development credit for the eleven months ended November 30, 2012 was analyzed as a discrete tax benefit of $3.3 million in the first quarter of fiscal year 2013, the period in which the reinstatement was enacted into law.
The tax expense for the three-month periods ended February 28, 2013 and 2012 reflects a forecasted tax rate of 14% and 21%, respectively, offset by discrete items which are recognized in the period they are incurred. The forecasted tax rate reflects the benefits resulting from the reorganization of certain foreign entities, lower foreign taxes, domestic manufacturing incentives, and research . . .

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