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

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Form 10-Q for TIBCO SOFTWARE INC


11-Jul-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 six months of fiscal year 2013. As of May 31, 2013, no single customer had a balance in excess of 10% of our net accounts receivable.
For the second quarter of fiscal year 2013, we recorded total revenue of $245.8 million, a decrease of 1% from the second quarter of fiscal year 2012. License revenue was $82.3 million, a decrease of 11% from the second quarter of fiscal year 2012. In addition, we generated cash flow from operations of $24.9 million in the second quarter of fiscal year 2013. Diluted earnings per share under generally accepted accounting principles in the United States of America ("GAAP") was $0.05 in the second quarter of fiscal year 2013 as compared to $0.16 for the second quarter of fiscal year 2012. We ended the quarter with $726.6 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 second quarter of fiscal years 2013 and 2012 as ended on May 31, 2013 and May 31, 2012, respectively; whereas in fact, the second quarter of fiscal years 2013 and 2012 actually ended on June 2, 2013 and June 3, 2012, respectively. There were 91 days in the second quarter of both fiscal years 2013 and 2012. 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          Six Months Ended
                                                         May 31,                     May 31,
                                                    2013          2012         2013           2012
Revenue:
License                                              33  %          37  %        33  %          37  %
Service and maintenance                              67             63           67             63
Total revenue                                       100            100          100            100
Cost of revenue:
License                                               5              4            5              4
Service and maintenance                              25             24           26             25
Total cost of revenue                                30             28           31             29
Gross profit                                         70             72           69             71
Operating expenses:
Research and development                             17             16           17             16
Sales and marketing                                  35             32           34             33
General and administrative                            7              7            8              7
Amortization of acquired intangible assets            2              2            2              2
Acquisition related and other                         -              -            -              -
Restructuring adjustment                              -              -            -              -
Total operating expenses                             61             57           61             58
Income from operations                                9             15            8             13
Interest income                                       -              -            -              -
Interest expense                                     (4 )           (2 )         (4 )           (1 )
Other income (expense), net                           -              -            -              -
Income before provision for income taxes and
noncontrolling interest                               5             13            4             12
Provision for (benefit from) income taxes             1              2            1              2
Net income                                            4             11            3             10
Less: Net income (loss) attributable to
noncontrolling interest                               -              -            -              -
Net income attributable to TIBCO Software Inc.        4  %          11  %         3  %          10  %

Our Results of Operations include incremental revenue and costs related to the acquisitions of Maporama and 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.


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Total Revenue
Our total revenue consisted primarily of license, service and maintenance fees
from our customers, distributors and partners.

                       Three Months Ended                   Six Months Ended
                             May 31,                             May 31,
                   2013         2012      Change       2013         2012      Change

Total revenue $ 245,846 $ 247,363 (1 )% $ 483,636 $ 473,065 2 %

Total revenue in the second quarter of fiscal year 2013 decreased by $1.5 million, or 1%, compared to the same quarter last year. The decrease was primarily comprised of a $10.3 million, or 11%, decrease in license revenue, partially offset by a $8.8 million, or 6%, increase in service and maintenance revenue. Total revenue for the six months ended May 31, 2013 increased by $10.6 million or 2%, compared to the same period last year.
For the six months ended May 31, 2013, we experienced an increase in total revenue in Americas and a decrease in total revenue in each of Asia Pacific and Japan ("APJ") and 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       Six Months Ended
                  May 31,                  May 31,
             2013         2012        2013         2012
Americas       58 %         53 %        56 %         52 %
EMEA           32 %         34 %        34 %         37 %
APJ            10 %         13 %        10 %         11 %
              100 %        100 %       100 %        100 %

License Revenue

                                     Three Months Ended                    Six Months Ended
                                           May 31,                              May 31,
                                 2013         2012      Change       2013          2012       Change
License revenue               $ 82,266     $ 92,581      (11 )%   $ 160,529     $ 174,896      (8 )%
Percentage of total revenue         33 %         37 %                    33 %          37 %

Our license revenue for the three and six months ended May 31, 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       Six Months Ended
                                              May 31,                  May 31,
                                         2013         2012        2013         2012
SOA and core infrastructure                51 %         55 %        48 %         56 %
Business optimization                      40 %         31 %        43 %         32 %
Process automation and collaboration        9 %         14 %         9 %         12 %
                                          100 %        100 %       100 %        100 %


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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          Six Months Ended
                                                       May 31,                    May 31,
                                                  2013          2012         2013          2012
Number of license deals of $1.0 million or
more                                                  12           20            24           40
Number of license deals of $0.1 million or
more                                                 147          137           251          239
Average size of license deals of $0.1

million or more (in millions) $ 0.5 $ 0.6 $ 0.6 $ 0.7

Cost of License Revenue

                                       Three Months Ended                  Six Months Ended
                                            May 31,                             May 31,
                                   2013        2012      Change       2013         2012      Change
Cost of license revenue         $ 11,108     $ 9,401       18 %    $ 22,369     $ 18,441       21 %
Percentage of total revenue            5 %         4 %                    5 %          4 %
Percentage of license revenue         14 %        10 %                   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 second quarter of fiscal year 2013 increased by $1.7 million, or 18%, compared to the same quarter last year. Cost of license revenue for the six months ended May 31, 2013 increased by $3.9 million, or 21%, compared to the same period last year. The increases were primarily due to higher royalty and amortization costs. Service and Maintenance Revenue and Cost

                                        Three Months Ended                         Six Months Ended
                                              May 31,                                   May 31,
                                 2013          2012         Change         2013          2012         Change
Service and maintenance
revenue                       $ 163,580     $ 154,782           6 %     $ 323,107     $ 298,169           8 %
Percentage of total revenue          67 %          63 %                        67 %          63 %
Cost of service and
maintenance revenue           $  62,863     $  59,486           6 %     $ 125,239     $ 116,536           7 %
Percentage of total revenue          25 %          24 %                        26 %          25 %
Percentage of service and
maintenance revenue                  38 %          38 %                        39 %          39 %

Service and maintenance revenue in the second quarter of fiscal year 2013 increased by $8.8 million, or 6%, compared to the same quarter last year. Service and maintenance revenue for the six months ended May 31, 2013 increased by $24.9 million, or 8%, compared to the same period last year. Maintenance revenue was 62% and professional services and training revenue was 38% of total service and maintenance revenue for the three and six months ended May 31, 2013. The increase for the three and six months ended May 31, 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 second quarter of fiscal year 2013 increased by $3.4 million, or 6%, compared to the same quarter last year. The increase was primarily due to a $2.5 million increase in employee-related expenses from higher headcount. Cost of service and maintenance for the six months ended May 31, 2013 increased by $8.7 million, or 7%, compared to the same period last year. The increase was primarily due to a $7.3 million increase in employee-related expenses from higher headcount.


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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                      Six Months Ended
                                            May 31,                                May 31,
                                 2013         2012        Change        2013         2012        Change
Research and development
expenses                      $ 42,575     $ 38,605          10 %    $ 84,200     $ 75,926          11 %

Percentage of total revenue 17 % 16 % 17 % 16 %

Research and development expenses in the second quarter of fiscal year 2013 increased by $4.0 million, or 10%, compared to the same quarter last year, primarily due to $2.4 million in employee-related expenses and $1.2 million in subcontractor costs from an expansion of operations. Research and development expenses for the six months ended May 31, 2013 increased by $8.3 million, or 11%, compared to the same period last year primarily due to $4.0 million in subcontractor costs and $3.7 million in employee-related expenses from an expansion of operations.
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                        Six Months Ended
                                              May 31,                                  May 31,
                                  2013         2012        Change         2013          2012         Change
Sales and marketing expenses   $ 85,224     $ 78,923           8 %     $ 165,313     $ 154,641           7 %

Percentage of total revenue 35 % 32 % 34 % 33 %

Sales and marketing expenses in the second quarter of fiscal year 2013 increased by $6.3 million, or 8%, compared to the same quarter last year, primarily due to $4.4 million in employee-related expenses from higher headcount and higher marketing program costs. Sales and marketing expenses for the six months ended May 31, 2013 increased by $10.7 million, or 7%, compared to the same period last year primarily due to $8.6 million in employee-related expenses and higher marketing program costs.
The increase in employee-related expenses compared to last year was primarily due to an increase in headcount. The increase in marketing and facility expenses was due to the expansion of sales and marketing. 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                       Six Months Ended
                                             May 31,                                 May 31,
                                 2013         2012        Change         2013         2012        Change
General and administrative
expenses                      $ 17,924     $ 17,407           3 %     $ 36,849     $ 35,002           5 %

Percentage of total revenue 7 % 7 % 8 % 7 %

General and administrative expenses in the second quarter of fiscal year 2013 increased by $0.5 million, or 3%, compared to the same quarter last year. General and administrative expenses for the six months ended May 31, 2013 increased by $1.8 million, or 5%, compared to the same period last year. The increase was primarily due to a $1.2 million increase in fees and charges.


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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                       Six Months Ended
                                             May 31,                                 May 31,
                                 2013         2012        Change         2013         2012        Change
Amortization of acquired
intangible assets:
In cost of revenue            $  4,246     $  3,899                   $  8,343     $  7,164
In operating expenses            4,713        5,653                      9,034       10,201
Total amortization            $  8,959     $  9,552          (6 )%    $ 17,377     $ 17,365           - %

Percentage of total revenue 4 % 4 % 4 % 4 %

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.

                                       Three Months Ended                       Six Months Ended
                                             May 31,                                May 31,
                                 2013          2012        Change        2013         2012        Change
Acquisition related and
other expenses:
Transitional and other
employee related costs        $      26     $      -                  $     26     $      -
Professional services fees
and other                           542          929                  $    869     $  1,325
Total                         $     568     $    929         (39 )%   $    895     $  1,325         (32 )%

Percentage of total revenue - % - % - % - %

Restructuring Adjustment

                                    Three Months Ended                Six Months Ended
                                         May 31,                          May 31,
                                2013       2012      Change      2013       2012      Change
Restructuring adjustment      $ (22 )    $ (400 )     (95 )%   $ (15 )    $ (519 )     (97 )%
As percent of total revenue       -  %        -  %                 -  %        -  %


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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                       Six Months Ended
                                                 May 31,                                 May 31,
                                     2013         2012        Change         2013         2012        Change
Stock-based compensation costs:
Cost of revenue                   $  1,869     $  1,116                   $  3,472     $  2,397
Research and development             4,122        3,353                      8,118        7,359
Sales and marketing                  4,422        4,694                      9,661        9,986
General and administrative           4,530        5,231                     10,084        9,976
Total                             $ 14,943     $ 14,394           4 %     $ 31,335     $ 29,718           5 %

Percentage of total revenue 6 % 6 % 6 % 6 %

Total stock-based compensation costs in the second quarter of fiscal year 2013 increased by $0.5 million, or 4%, compared to the same quarter last year primarily due to a $3.4 million increase in stock-based compensation costs related to service based-stock awards, which was partially offset by a $2.1 million decrease in stock-based compensation costs related to performance-based . . .

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