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JIVE > SEC Filings for JIVE > Form 10-Q on 1-May-2013All Recent SEC Filings

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Form 10-Q for JIVE SOFTWARE, INC.


1-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"). Forward-looking statements may be identified by the use of forward-looking words such as "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "could," "would," "project," "plan," "expect" or the negative or plural of these words or similar expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

the effects of increased competition in our market;

our ability to successfully enter new markets and manage our international expansion;

our ability to timely and effectively scale and adapt our existing technology and network infrastructure;

our ability to increase adoption of our platform by our customers' internal and external users;

our ability to protect our users' information and adequately address security and privacy concerns;

our ability to successfully integrate acquired technologies;

our ability to maintain an adequate rate of growth;

our future expenses;

our ability to effectively manage our growth;

our ability to maintain, protect and enhance our brand and intellectual property;

the attraction and retention of qualified employees and key personnel; and

other risk factors included under "Risk Factors" in this Quarterly Report on Form 10-Q.

These forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Please refer to Item 1A. Risk Factors in this Quarterly Report on Form 10-Q, for a discussion of reasons why our actual results may differ materially from our forward-looking statements. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our expectations change.

Overview

We provide a social business platform that improves business results by enabling a more productive and effective workforce through enhanced communications and collaboration both inside and outside the enterprise. Organizations deploy our platform to improve employee productivity, enhance revenue opportunities, lower operational costs, increase customer retention and improve strategic decision making. Our platform is offered on a subscription basis, deployable in a private or public cloud and used for internal or external communities. We generate revenues from platform license fees as well as from professional service fees for configuration, implementation and training.

We sell our comprehensive Jive Social Business Platform across two principal communities: internally for employees within the enterprise and externally for customers and partners outside the enterprise. Internally focused communities comprised 70.6% of revenues derived from our Jive Social Business Platform in the first quarter of 2013 compared to 63.7% in the first quarter of 2012. As the market for social business software within the enterprise continues to grow, we expect revenues from internally focused communities to continue to be higher than revenues generated from externally focused communities.


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We offer our platform both as a public cloud service and as a private cloud solution. In March 2012, we released Jive Cloud, one of our public cloud services that is on a quarterly release cycle and is a non-customizable version of our platform. In the first quarter of 2013, product revenues from all public cloud deployments, including Jive Cloud, represented 62.4% of total product revenues compared to 62.3% in the first quarter of 2012. With the release of Jive Cloud and the enterprises overall adoption of cloud-based technologies, we anticipate that, over the long-term, public cloud deployments of our platform will comprise an increasing portion of our business.

Historically, we have generated the largest portion of our revenues from sales to customers within the United States. Revenues from customers in the United States accounted for 76.7% of total revenues in the first quarter of 2013 compared to 78.2% in the first quarter of 2012. We are continuing to focus on expanding our sales headcount and channel partners internationally, and we anticipate the percentage of our revenues generated outside of the United States will increase in the future.

In response to our growing customer base outside of the United States, as well as the increase in public cloud deployments, we opened an internally managed data center in the Netherlands in 2012. Additionally, we plan to continue our investment in our hosting infrastructure by opening another internally managed data center in Asia beginning in the second quarter of 2013 as we continue to focus on international expansion in the region.

Additionally, in the first quarter of 2013 we released Jive 7. Major new functionality in this release includes Purposeful Places, which brings people, content and information together in intelligent collaboration areas optimized around specific business activities to produce tangible outcomes; Structured Outcomes, which takes everyday workplace conversations and converts them into actionable activities; and seamless integration with an even broader enterprise ecosystem including Box and salesforce.com.

Seasonality

Our fourth quarter has historically been our strongest quarter for new billings and renewals. This pattern may be amplified over time if the number of our customers with renewal dates occurring in the fourth quarter continues to increase. Furthermore, our quarterly sales cycles are frequently weighted toward the end of the quarter, with an increased volume of sales in the last few weeks of each quarter. The year-over-year compounding effect of this seasonality in billing patterns and overall new business and renewal activity has historically resulted in the value of invoices that we generate in the fourth quarter increasing in proportion to our billings in the other three quarters of our fiscal year. We expect this trend to continue in future years.

Critical Accounting Policies and the Use of Estimates

Preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. We believe the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, result primarily from the need to make estimates about the effects of matters that are inherently uncertain.

Management's Discussion and Analysis and Note 2 to the Consolidated Financial Statements in our 2012 Annual Report on Form 10-K describe the significant accounting estimates and policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management's estimates. During the first quarter of 2013, there were no significant changes in our critical accounting policies or estimates from those reported in our 2012 Annual Report on Form 10-K, which was filed with the SEC on February 25, 2013.


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New Accounting Pronouncements

See Note 11 of the Condensed Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q for a discussion of new accounting pronouncements.

Non-GAAP Key Metrics

In addition to GAAP metrics such as total revenues and gross margin, we also regularly review billings, a non-GAAP measure, and the number of Jive Social Business Platform customers to evaluate our business, measure our performance, identify trends affecting our business, allocate capital and make strategic decisions.

Billings

The following tables set forth a reconciliation of total revenues to billings
(dollars in thousands):



                                                 Three Months Ended March 31,           Dollar            %
                                                    2013                 2012           Change         Change
Total revenues                                 $        33,852        $   25,318       $   8,534          33.7 %
Deferred revenue, end of period                        121,405            80,710          40,695          50.4 %
Less: deferred revenue, beginning of period           (117,047 )         (77,826 )       (39,221 )        50.4 %

Billings                                       $        38,210        $   28,202       $  10,008          35.5 %

We monitor billings, a non-GAAP measure, in addition to other financial measures presented in accordance with GAAP to manage our business, make planning decisions, evaluate our performance and allocate resources. We believe that this non-GAAP measure offers valuable supplemental information regarding the performance of our business, and it will help investors better understand the sales volumes and performance of our business.

Our use of billings has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for total revenues or an analysis of our results as reported under GAAP. Some of these limitations are:

billings is not a substitute for total revenues, as billings are recognized when invoiced, while revenue is recognized ratably over the contract term;

billings can include fees paid for license terms greater than 12 months and for subscription renewals prior to the expiration of the current subscription term and, therefore, does not always closely match with the timing of delivery of support, maintenance, and hosting services and the costs associated with delivering those services;

changes to the composition of current period billings may impact the correlation of current period billings to future period revenues;

billings would not exclude any agreements that contain customer acceptance provisions or other contractual contingencies that would require deferral of revenue required under GAAP; and

other companies, including companies in our industry, may not use billings, may calculate non-GAAP measures differently or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP measures as comparative measures.

We consider billings a significant performance measure and a leading indicator of future recognized revenue based on our business model of billing for subscription licenses annually and recognizing revenue ratably over the subscription term. The billings we record in any particular period reflect sales to new customers plus subscription renewals and upsell to existing customers, and represent amounts invoiced for product subscription license fees and professional services. We typically invoice our customers for subscription fees in annual increments upon initiation of the initial contract or subsequent renewal. In addition, we also enter into arrangements with customers to purchase subscriptions for a term greater than 12 months, most typically 36 months. For subscriptions greater than 12 months, the customer has the option of being invoiced annually or paying for the full term of the subscription at the time the contract is signed. If the customer elects to pay the full multi-year amount at the time the contract is signed, the total amount billed for the entire term will be reflected in billings. If the customer elects to be invoiced annually, only the amount billed for the 12-month period will be included in billings.

Billings for consulting services typically occur on a bi-weekly basis as the services are delivered.


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The increase in billings in the period presented was primarily driven by increased upsell of our products to existing customers, the addition of new customers and a subset of customers electing to renew their existing subscription and pay in full for a new subscription term greater than 12 months.

Jive Social Business Platform Customers

We define the number of our platform customers at the end of any given measurement period by counting each customer under an active contract for our Jive Social Business Platform, which includes Jive Cloud, that carries a balance in our deferred revenue account at the end of that period. While a single customer may have multiple internal and external communities to support distinct departments, operating segments or geographies, we only include that customer once for purposes of this metric. We believe the number of Jive Social Business Platform customers is a leading indicator of our future revenues, billings and upsell opportunities.

Our Jive Social Business Platform customer count was as follows:

As of March 31, 2013 2012 Change % Change Jive Engage Platform customer count 830 676 154 22.8 %

Our product revenue grew by 41.5% in the first quarter of 2013 compared to the first quarter of 2012. Our product revenue has grown at a faster rate than our customer count as we have realized greater upsell with our existing customers and as the average contract size has increased over that time.

Components of Results of Operations

Revenues

We generate revenues primarily in the form of software subscription fees and professional services for strategic consulting, configuration, implementation and other services related to our software. We offer our products with subscription terms typically ranging from 12 to 36 months. In addition to sales of our platform, our revenues include fees for sales of modules, additional users and page views. While subscription-based licenses make up the substantial majority of our product revenues, in limited instances we license our software to customers on a perpetual basis, with ongoing support and maintenance services. Revenues generated through the sale of subscription licenses also include fees for updates and maintenance. We recognize revenue from professional services ratably over the subscription term when they are bundled with a subscription license, because we do not have fair value of all the various services provided. These amounts, when recognized, are classified as professional services revenues on our consolidated statements of operations based on the hourly rates at which they are billed.

Cost of Revenues

Cost of product revenues includes all direct costs to produce and distribute our product offerings, including data center and support personnel, depreciation and maintenance related to equipment located at our hosting service providers and in our Jive managed data centers, salaries, rent for our data centers, web hosting services expense for public cloud and Jive Cloud implementations, third-party royalty costs, benefits, amortization of acquired intangible assets and stock-based compensation.

Cost of professional services revenues includes all direct costs to provide our professional services, which primarily include salaries, benefits and stock-based compensation for our professional services personnel, as wells as consulting and outside services. We recognize expenses related to our professional services organization as they are incurred, while the majority of associated professional services revenues are recognized ratably over the subscription term.

Cost of revenues also includes allocated overhead costs for facilities and information technology. Allocated costs for facilities consist of rent and depreciation of equipment and leasehold improvements related to our facilities. Our allocated costs for information technology include costs for compensation of our information technology personnel and the cost associated with our information technology infrastructure. Our overhead costs are allocated to all departments based on headcount.

We expect that cost of revenues may increase in the future depending on the growth rate of our new customers and billings and our need to support the implementation, hosting and support of those new customers. We also expect that cost of revenues as a percentage of total revenues could fluctuate from period to period depending on growth of our services business and any associated costs relating to the delivery of services, the timing of sales of products that have royalties associated with them, the amount and timing of amortization of intangibles from acquisitions and the timing of significant expenditures.


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Research and Development

In the first quarter of 2013, we began capitalizing costs related to the development of a new architecture for our future generation platform service. The capitalized costs were incurred during the application development stage. Once complete, our internal-use software related to our platform service will be amortized on a straight line basis over its estimated useful life and recorded as a component of cost of product revenues. We capitalized $0.2 million of internally developed computer software costs in the three months ended March 31, 2013.

Research and development costs include salaries, benefits and stock-based compensation for our engineers and developers, allocated facilities costs and payments to third parties for research and development of new software. We focus our research and development efforts on developing new versions of our platform with new and expanded features and enhancing the ease of use of our platform. We believe that continued investment in our technology is important for our future growth, and, as a result, we expect research and development expenses to increase in absolute dollars although they may fluctuate as a percentage of total revenues.

Sales and Marketing

Sales and marketing expenses primarily consist of salaries, incentive compensation and benefits, travel expense, marketing program fees, partner referral fees and stock-based compensation. Sales incentive compensation is recorded as earned as a component of sales and marketing expense. Sales incentive compensation is generally earned at the time a customer enters into a binding purchase agreement while associated revenue is recognized ratably over the subscription term. In addition, sales and marketing expenses include customer acquisition marketing, branding, advertising, customer events and public relations costs, as well as allocated facilities costs. We plan to continue investing heavily in sales and marketing to expand our global operations, increase revenues from current customers, build brand awareness and expand our indirect sales channel. We expect sales and marketing expenses to increase in absolute dollars and remain our largest expense in absolute dollars and as a percentage of total revenues, although they may fluctuate as a percentage of total revenues.

General and Administrative

General and administrative expenses primarily consist of salaries, benefits and stock-based compensation for our executive, finance, legal, information technology, human resources and other administrative employees. In addition, general and administrative expenses include legal and accounting services, outside consulting, facilities and other supporting overhead costs not allocated to other departments. We expect that our general and administrative expenses will increase in absolute dollars as we continue to expand our business domestically and internationally and incur additional expenses associated with being a publicly traded company.

Other Expense, Net

Other expense, net consists primarily of interest expense on our outstanding debt and foreign exchange gains and losses, as well as income related to our investments.

Provision For (Benefit From) Income Taxes

Provision for (benefit from) income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign tax jurisdictions. Since we have generated net losses, we have placed a valuation allowance against any potential future benefits for loss carryforwards and research and development and other tax credits.


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Results of Operations

The following tables set forth our statement of operations data, both in
absolute dollars and as a percentage of total revenues (dollars in thousands):



                                                      Three Months Ended               Three Months Ended
                                                    March 31, 2013 (1)(2)            March 31, 2012 (1)(2)
Revenues:
Products                                          $     30,663          90.6 %     $    21,671           85.6 %
Professional services                                    3,189           9.4 %           3,647           14.4 %

Total revenues                                          33,852         100.0 %          25,318          100.0 %
Cost of revenues:
Products                                                 9,212          27.2 %           6,822           26.9 %
Professional services                                    3,848          11.4 %           3,789           15.0 %

Total cost of revenues                                  13,060          38.6 %          10,611           41.9 %

Gross profit:
Products                                                21,451          63.4 %          14,849           58.7 %
Professional services                                     (659 )        (1.9 )%           (142 )         (0.6 )%

Total gross profit                                      20,792          61.4 %          14,707           58.1 %
Operating expenses:
Research and development                                12,677          37.4 %           8,355           33.0 %
Sales and marketing                                     18,864          55.7 %          11,356           44.9 %
General and administrative                               5,866          17.3 %           3,802           15.0 %

Total operating expenses                                37,407         110.5 %          23,513           92.9 %

Loss from operations                                   (16,615 )       (49.1 )%         (8,806 )        (34.8 )%
Other income (expense), net                                (10 )        (0.0 )%           (119 )         (0.5 )%

Loss before provision for (benefit from) income
taxes                                                  (16,625 )       (49.1 )%         (8,925 )        (35.3 )%
Provision for (benefit from) income taxes                  (24 )        (0.1 )%             24            0.1 %

Net loss                                          $    (16,601 )       (49.0 )%    $    (8,949 )        (35.3 )%

Basic and diluted net loss per common share       $      (0.25 )                   $     (0.15 )

Shares used in per share calculations                   65,459                          61,446

(1) Stock-based compensation was included in our statements of operations data as follows (in thousands):

                                     Three Months Ended           Three Months Ended
                                     March 31, 2013 (2)           March 31, 2012 (2)
      Cost of revenues             $      521          1.5 %    $      258          1.0 %
      Research and development          2,232          6.6 %           947          3.7 %
      Sales and marketing               2,224          6.6 %           526          2.1 %
      General and administrative        1,162          3.4 %         1,354          5.3 %

                                   $    6,139         18.1 %    $    3,085         12.2 %

(2) Percentages may not add due to rounding.

Revenues



                                    Three Months Ended
         (Dollars in thousands)          March 31,            Dollar          %
                                     2013          2012       Change       Change
         Products                 $   30,663     $ 21,671     $ 8,992         41.5 %
         Professional services         3,189        3,647        (458 )      (12.6 )%

         Total revenues           $   33,852     $ 25,318     $ 8,534         33.7 %


Table of Contents

Products Revenues

The increase in products revenues in the first quarter of 2013 compared to the first quarter of 2012 was primarily the result of an increase in the average annual subscription transaction size and an increase in the aggregate number of customers on the Jive Social Business Platform, which grew to 830 as of March 31, 2013 from 676 as of March 31, 2012.

Certain information regarding our revenues was as follows:

                                                           Three Months Ended March 31,
                                                             2013                 2012
Dollar value of total revenues generated in the U.S.    $ 26.0 million       $ 19.8 million
Percentage of total revenues generated in the U.S.                76.7 %               78.2 %
Product revenues from public cloud deployments as a
percentage of total product revenues                              62.4 %               62.3 %
Product revenues from private cloud deployments as a
percentage of total product revenues                              37.6 %               37.7 %
Percentage of Jive Social Business Platform revenues
that represented internally focused communities                   70.6 %               63.7 %
Percentage of Jive Social Business Platform revenues
that represented externally focused communities                   29.4 %               36.3 %

Additionally, the renewal rate, excluding upsell was approximately 90% for transactions over $50,000 in the first quarter 2013.

Professional Services Revenues

The decrease in professional services revenues in the first quarter of 2013 compared to the first quarter of 2012 was primarily due to the release of Jive Cloud, a public cloud, non-customizable version of our Jive Platform. Professional services revenues as a percent of product revenues decreased by seven percentage points as continued enhancements of the core product have decreased the amount of customization requested by our customers.

We offer professional services as both standalone and bundled services. When sold as standalone, the contract revenue is recognized as the services are delivered. For our bundled services, the amounts are recognized ratably over the subscription term of which they are bundled with. Standalone revenue in the first quarter of 2013 decreased $0.6 million compared to the first quarter of 2012.

Cost of Revenues and Gross Margins



                                                Three Months Ended March 31,             Dollar
(Dollars in thousands)                          2013                    2012             Change         % Change
. . .
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