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JIVE > SEC Filings for JIVE > Form 10-Q on 1-Aug-2014All Recent SEC Filings

Show all filings for JIVE SOFTWARE, INC.

Form 10-Q for JIVE SOFTWARE, INC.


1-Aug-2014

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 timely and effectively acquire or develop new products that meet the needs and expectations of our market;

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 maintain an adequate rate of growth;

our future expenses;

our ability to effectively manage our growth;

risks related to actions of activist shareholders;

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 an enterprise collaboration 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 subscription license fees as well as from professional service fees for strategic consulting, configuration, implementation and training.

We sell our comprehensive Jive Enterprise Collaborations Platform (the "Jive Platform") across two principal communities: internally for employees within the enterprise and externally for customers and partners outside the enterprise. Internally focused communities comprised 73.2% of revenues derived from our Jive Platform in the first six months of 2014 compared to 70.3% in the first six months of 2013. As the market opportunity for enterprise collaboration software within the enterprise continues to grow, we expect revenues generated from internally focused communities to continue to be a higher percentage of our total revenues than revenues generated from externally focused communities. However, we are continuing to invest in our external community technology and intend to continue to focus on achieving growth and market-share in both markets.


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We offer our platform both as a public cloud service and as a private cloud solution. In 2012, we released Jive Cloud, one of our public cloud services that is a non-customizable version of our platform and is generally on a quarterly release cycle for new features and functionality. In the first six months of 2014, product revenues from all public cloud deployments, including Jive Cloud, represented 67.2% of total product revenues compared to 62.9% in the first six months of 2013. With the release of Jive Cloud and the increase in overall adoption by enterprises 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 majority 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 six months of 2014 compared to 77.2% in the first six months of 2013. We are continuing to focus on strengthening our direct sales presence and channel partners internationally, and we anticipate the percentage of our revenues generated outside of the United States will increase in the future.

On May 1, 2014, we announced a strategic partnership with Cisco Systems, Inc. The partnership combines our enterprise collaboration platform with Cisco's real-time communication technologies like WebEx and Jabber. As part of this agreement, Cisco and its reseller network will resell our solutions as a fully integrated part of Cisco's collaboration products, as well as providing joint go-to-market and product engineering initiatives to drive additional adoption and innovation. We do not expect this partnership to have a significant impact on 2014 results of operations.

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 2013 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 six months of 2014, there were no significant changes in our critical accounting policies or estimates from those reported in our 2013 Annual Report on Form 10-K, which was filed with the SEC on March 3, 2014.

New Accounting Pronouncements

See Note 12 of the Condensed Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q for a discussion of new accounting pronouncements.


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Non-GAAP Key Metrics

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

The following tables set forth a reconciliation of total revenues to short-term billings and total revenues to total billings, respectively (dollars in thousands):

Short-Term Billings



                                             Three Months Ended June 30,          Dollar
                                                2014                2013          Change         % Change
Total revenues                             $       43,375        $   35,242      $   8,133            23.1 %
Deferred revenue, current, end of period          116,134            96,794         19,340            20.0 %
Less: deferred revenue, current,
beginning of period                              (113,454 )         (90,186 )      (23,268 )          25.8 %

Short-term billings                        $       46,055        $   41,850      $   4,205            10.0 %


                                              Six Months Ended June 30,           Dollar
                                                2014                2013          Change         % Change
Total revenues                             $       84,404        $   69,094      $  15,310            22.2 %
Deferred revenue, current, end of period          116,134            96,794         19,340            20.0 %
Less: deferred revenue, current,
beginning of period                              (112,432 )         (87,698 )      (24,734 )          28.2 %

Short-term billings                        $       88,106        $   78,190      $   9,916            12.7 %

Total Billings



                                                 Three Months Ended June 30,           Dollar
                                                    2014                2013           Change          % Change
Total revenues                                 $       43,375        $   35,242       $   8,133             23.1 %
Deferred revenue, end of period                       143,578           128,115          15,463             12.1 %
Less: deferred revenue, beginning of period          (146,150 )        (121,405 )       (24,745 )           20.4 %

Billings                                       $       40,803        $   41,952       $  (1,149 )           (2.7 )%


                                                  Six Months Ended June 30,            Dollar
                                                    2014                2013           Change          % Change
Total revenues                                 $       84,404        $   69,094       $  15,310             22.2 %
Deferred revenue, end of period                       143,578           128,115          15,463             12.1 %
Less: deferred revenue, beginning of period          (147,337 )        (117,047 )       (30,290 )           25.9 %

Billings                                       $       80,645        $   80,162       $     483              0.6 %

We monitor total billings and short-term billings, both non-GAAP measures, 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 these non-GAAP measures offer valuable supplemental information regarding the performance of our business, and they will help investors better understand the sales volumes and performance of our business.

Our use of total billings and short-term billings have limitations as analytical tools, and should not be considered in isolation or as a substitute for total revenues or an analysis of our results as reported under GAAP. Some of these limitations are:

total billings and short-term billings are not substitutes for total revenues, as billings are recognized when invoiced, while revenue is primarily recognized ratably over the contract term;

total 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;

short-term billings can include fees paid for license terms greater than 12 months in prior periods that were previously recorded on our Consolidated Balance Sheets as a component of non-current deferred revenue and were reclassified in the current period as deferred revenue, current and therefore does not always reflect billings that occurred in the period;


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changes to the composition of current period total billings and short-term billings may impact the correlation of current period total billings and short-term billings to future period revenues;

total billings and short-term 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 total billings or short-term 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 total billings and short-term billings to be significant performance measures and leading indicators of future recognized revenue based on our business model of billing for subscription licenses annually and recognizing the resulting 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 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 total billings; but only the amount that will be recognized as revenue in the following 12 month period would be included in short-term billings until the portion of the total billings beyond 12 months is subsequently reclassified from non-current deferred revenue to deferred revenue, current in a future period. However, if the customer elects to be invoiced annually for a multi-year contract, only the amount billed for the 12-month period will be included in both total and short-term billings. The portion of subscription terms under contract and not yet invoiced is considered backlog and is not reflected on our Consolidated Balance Sheets as deferred revenue.

Billings for consulting services can occur on either a time and materials or fixed fee basis. Billings for time and materials contracts typically occur on a bi-weekly basis as the services are delivered. Billings for fixed fee contracts are typically billed 100% at the beginning of the contract or 50% upon either signing or initiation of the project and 50% upon completion of the project.

The increases in short-term billings in the periods presented were primarily driven by increased upsell of our products to existing customers, the addition of new customers and an increase in billings for professional services.

The increase in total billings in the six-month period ended June 30, 2014 compared to the same period in 2013 was due to increased upsell of our products to existing customers and the addition of new customers being offset by a decrease in the amount of billings generated from customers electing multi-year terms where the full amount was billed up front. Total billings decreased in the three-month period ended June 30, 2014 compared to the same period in 2013, due to an increase of customers electing annual payment terms compared to customers electing multi-year terms where the full amount was billed up front.

Jive 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 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 Platform customers is a leading indicator of our future revenues, billings and upsell opportunities.


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Our Jive Platform customer count was as follows:

As of June 30, 2014 2013 Change % Change Jive Platform customer count 903 848 55 6.5 %

Our product revenues grew by 22.8% in the first six months of 2014 compared to the first six months of 2013. Our product revenues have grown at a faster rate than our customer count as we have realized greater upsell with our existing customers.

Components of Results of Operations

Revenues

We generate revenues primarily in the form of software subscription fees and professional services for strategic consulting, upgrade services, 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 license fees for our platform, our revenues include fees for sales of modules, premium support offerings, additional users and page views. While subscription-based licenses make up the substantial majority of our product revenues, in certain 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, embedded in the total license fee, 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 for all of our undelivered elements, including support and professional services. When professional services are sold on a standalone basis, the contract revenue is recognized as the services are delivered. 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 expense 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. Additionally, we expect professional services gross margin to continue to be negative throughout 2014 as we are in the process of transitioning our professional services organization focus to strategic consulting, user adoption and enablement.


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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. As of June 30, 2014 we have capitalized a total of $8.1 million of internally developed computer software costs. We anticipate that we will begin amortizing our internally-developed software in the fourth quarter of 2014.

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 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.

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,
except per share amounts):



                                                Three Months Ended               Three Months Ended
                                                June 30, 2014(1)(2)              June 30, 2013(1)(2)
Revenues:
Products                                     $    39,037          90.0 %      $    31,559          89.5 %
Professional services                              4,338          10.0 %            3,683          10.5 %

Total revenues                                    43,375         100.0 %           35,242         100.0 %
Cost of revenues:
Products                                          10,835          25.0 %            9,540          27.1 %
Professional services                              5,805          13.4 %            4,215          12.0 %

Total cost of revenues                            16,640          38.4 %           13,755          39.0 %

Gross profit:
Products                                          28,202          65.0 %           22,019          62.5 %
Professional services                             (1,467 )        (3.4 )%            (532 )        (1.5 )%

Total gross profit                                26,735          61.6 %           21,487          61.0 %
Operating expenses:
Research and development                          12,991          30.0 %           13,749          39.0 %
Sales and marketing                               21,658          49.9 %           20,480          58.1 %
General and administrative                         6,514          15.0 %            6,081          17.3 %

Total operating expenses                          41,163          94.9 %           40,310         114.4 %

Loss from operations                             (14,428 )       (33.3 )%         (18,823 )       (53.4 )%
Other income (expense), net                         (145 )        (0.3 )%            (148 )        (0.4 )%

Loss before provision for (benefit from)
income taxes                                     (14,573 )       (33.6 )%         (18,971 )       (53.8 )%
Provision for (benefit from) income taxes             57           0.1 %           (1,191 )        (3.4 )%

Net loss                                     $   (14,630 )       (33.7 )%     $   (17,780 )       (50.5 )%

. . .
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