ARBA Ariba, Inc. (MM)

Ariba, Inc. (Nasdaq:ARBA), the leading spend management solutions provider, today announced results for the first quarter of fiscal year 2010 ended December 31.

Quarterly Financial and Operational Highlights:

• Total revenues of $85.7 million
• GAAP EPS of $0.03 and non-GAAP EPS of $0.19 per fully-diluted share
• Subscription software revenue of $41.2 million, up 15% year-over-year
• 12-month subscription software backlog of $139 million, up 10% year-over-year
• Cash flow from operations of $10.5 million, ending cash and investments of $199.5 million
• On-demand deals up 76% year-over-year

“As evidenced by our strong first quarter results, Ariba is delivering solutions that meet customer demands for fast results, low risk and more variable cost structures,” said Bob Calderoni, Chairman and CEO, Ariba. “Customers are increasingly turning to Ariba for their business needs and our solutions are helping to drive their recovery.”

Results for the First Quarter of Fiscal Year 2010

Revenue:

Total revenues for the first quarter of fiscal year 2010 were $85.7 million, as compared to $86.1 million for the first quarter of fiscal year 2009. Subscription and maintenance revenues for the quarter were $58.4 million, as compared to $54.1 million for the first quarter of fiscal year 2009. Within subscription and maintenance revenues, subscription software revenue was $41.2 million for the first quarter of fiscal year 2010, as compared to $35.9 million for the first quarter of fiscal year 2009. Services and other revenues were $27.3 million, as compared to $32.0 million for the first quarter of fiscal year 2009.

Earnings Per Share:

Net income for the first quarter of fiscal year 2010 was $2.2 million, or $0.03 per fully-diluted share as compared to net income for the first quarter of fiscal year 2009 of $3.4 million, or $0.04 per fully-diluted share. Net income for the first quarter of fiscal year 2010 included charges of $1.4 million for amortization of intangible assets and $13.5 million for stock-based compensation. Excluding these items, Non-GAAP net income for the quarter was $17.2 million, or $0.19 per diluted share.

Balance Sheet and Cash:

Total cash, investments and restricted cash were $199.5 million at December 31, 2009, up $4.1 million from September 30, 2009. Net cash flow from operations for the three months ended December 31, 2009 was $10.5 million, as compared to $10.8 million for the three months ended December 31, 2008. Accounts receivable, on an average days-sales-outstanding basis, were 21 days for the first quarter of fiscal year 2010, as compared to 29 days for the first quarter of fiscal year 2009, and down two days from the previous quarter. Total deferred revenues were $119.5 million at December 31, 2009, up $9.0 million from September 30, 2009.

Customer Acquisition and Transactions for the Quarter:

During the quarter, 248 companies of all sizes purchased Ariba solutions, including: Avon Products, Inc., Brocade Communications Systems, Inc., Coach, Inc., ConocoPhillips Company, Pfizer Inc., PTT Public Limited Company, The Royal Bank of Scotland Group plc, Sempra Energy and Tyco International Ltd. Ariba added 30 new customers in the first quarter of fiscal year 2010 and closed 11 transactions over $1 million, including six deals with a software component of greater than $1 million. On-demand product deals totalled 192.

Conference Call Information

Ariba will hold a conference call today at 5:00 p.m. ET / 2:00 p.m. PT to discuss its results for the first quarter of fiscal year 2010. To join the call, please dial (877) 407-8031 in the United States and Canada, or (201) 689-8031 if calling internationally. The conference call also will be webcast live and can be accessed on the investor relations section of the company’s website at www.ariba.com.

A replay of the conference call will be available for two weeks by calling (877) 660-6853 in the United States and Canada or (201) 612-7415 internationally and entering account number: 286 and conference ID number: 341721.

About Ariba, Inc.

Ariba, Inc. is the leading provider of on-demand spend management solutions. Our mission is to transform the way companies of all sizes, across all industries, and geographies operate by delivering software, service, and network solutions that enable them to holistically source, contract, procure, pay, manage, and analyze their spend and supplier relationships. Delivered on demand, our enterprise-class offerings empower companies to achieve greater control of their spend and drive continuous improvements in financial and supply chain performance. More than 1,000 companies, including more than half of the companies on the Fortune 500, use Ariba solutions to manage their spend from sourcing and orders through invoicing and payment. For more information, visit www.ariba.com

Copyright © 1996 – 2010 Ariba, Inc.

Ariba, the Ariba logo, AribaLIVE, SupplyWatch, Ariba.com, Ariba.com Network and Ariba Spend Management. Find it. Get it. Keep it. are registered trademarks of Ariba, Inc. Ariba Spend Management, Ariba. This is Spend Management, Ariba Solutions Delivery, Ariba Analysis, Ariba Buyer, Ariba Category Management, Ariba Category Procurement, Ariba Contract Compliance, Ariba Contracts, Ariba Contract Management, Ariba Contract Workbench, Ariba Data Enrichment, Ariba eForms, Ariba Invoice, Ariba Payment, Ariba Sourcing, Ariba Spend Visibility, Ariba Travel and Expense, Ariba Procure-to-Pay, Ariba Workforce, Ariba Supplier Network, Ariba Supplier Connectivity, Ariba Supplier Performance Management, Ariba Content Procurement, Ariba PunchOut, Ariba QuickSource, PO-Flip, Ariba Spend Management Knowledge Base, Ariba Ready, Ariba Supply Lines, Ariba Supply Manager, Ariba LIVE, It’s Time for Spend Management and Supplier Lifecycle Management are trademarks or service marks of Ariba, Inc. All other brand or product names may be trademarks or registered trademarks of their respective companies or organizations in the United States and/or other countries.

Ariba Safe Harbor

Safe Harbor Statement under the Private Securities Litigation Reform Act 1995: Information and announcements in this release involve Ariba's expectations, beliefs, hopes, plans, intentions or strategies regarding the future and are forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this release are based upon information available to Ariba as of the date of the release, and we assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. Factors that could cause or contribute to Ariba's operating and financial results to differ materially from current expectations include, but are not limited to: the impact of the credit crises on Ariba’s results of operations and financial condition; delays in development or shipment of new versions of Ariba's products and services; lack of market acceptance of Ariba's existing or future products or services; inability to continue to develop competitive new products and services on a timely basis; introduction of new products or services by major competitors; the ability to attract and retain qualified employees; difficulties in assimilating acquired companies, long and unpredictable sales cycles and the deferrals of anticipated orders; declining economic conditions, including the impact of a recession; inability to control costs; changes in the company's pricing or compensation policies; significant fluctuations in our stock price; the outcome of and costs associated with pending or potential future regulatory or legal proceedings; the impact of our acquisitions, including the disruption or loss of customer, business partner, supplier or employee relationships; and the level of costs and expenses incurred by Ariba as a result of such transactions. Factors and risks associated with its business, including a number of the factors and risks described above, are discussed in Ariba's Form 10-K filed with the SEC on November 25, 2009.

    Ariba, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited; in thousands)  

December 31,2009

September 30,2009 ASSETS Current assets: Cash and cash equivalents $ 127,333 $ 130,881 Short-term investments 16,813 12,169 Accounts receivable, net 19,666 19,660 Prepaid expenses and other current assets   12,084     11,235   Total current assets 175,896 173,945   Property and equipment, net 13,965 14,418 Long-term investments 26,118 23,155 Restricted cash, less current portion 29,241 29,241 Goodwill 406,507 406,507 Other intangible assets, net 16,229 17,660 Other assets   3,199     3,245   Total assets $ 671,155   $ 668,171     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,802 $ 7,758 Accrued compensation and related liabilities 16,273 29,010 Accrued liabilities 18,168 17,010 Restructuring obligations 16,921 17,964 Deferred revenue   111,315     101,172   Total current liabilities 170,479 172,914   Deferred rent obligations 13,560 14,539 Restructuring obligations, less current portion 27,815 31,098 Deferred revenue, less current portion 8,177 9,288 Other long-term liabilities   5,985     6,281   Total liabilities   226,016     234,120     Stockholders' equity: Common stock 179 179 Additional paid-in capital 5,198,060 5,189,566 Accumulated other comprehensive loss (3,319 ) (3,688 ) Accumulated deficit   (4,749,781 )   (4,752,006 ) Total stockholders' equity   445,139     434,051   Total liabilities and stockholders' equity $ 671,155   $ 668,171     Ariba, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited; in thousands, except per share data)    

Three Months EndedDecember 31,

2009 2008 Revenues:

Subscription and maintenance

$ 58,373 $ 54,081 Services and other   27,298   32,006   Total revenues   85,671   86,087     Cost of revenues: Subscription and maintenance 12,674 11,648 Services and other 19,462 19,798 Amortization of acquired technology and customer intangible assets   1,327   1,388   Total cost of revenues   33,463   32,834   Gross profit   52,208   53,253     Operating expenses: Sales and marketing 28,302 27,577 Research and development 11,146 10,904 General and administrative 10,697 11,603 Insurance reimbursement - (7,527 ) Amortization of other intangible assets 104 210 Restructuring and integration costs   -   1,701   Total operating expenses   50,249   44,468     Income from operations 1,959 8,785 Interest and other income (expense), net   321   (5,016 ) Income before income taxes 2,280 3,769 Provision for income taxes   55   342     Net income $ 2,225 $ 3,427     Net income loss per share - basic $ 0.03 $ 0.04 Net income loss per share - diluted $ 0.03 $ 0.04 Weighted average shares - basic 85,161 80,947 Weighted average shares - diluted 88,262 84,044   Ariba, Inc. and Subsidiaries Cash Flows (Unaudited; in thousands)     Three Months EndedDecember 31, 2009 2008 Operating activities: Net income $ 2,225 $ 3,427 Adjustments to reconcile net income to net cash provided by operating activities: Provision for doubtful accounts 46 131 Depreciation 1,839 1,946 Amortization of intangible assets 1,431 1,598

Other-than-temporary impairment of long-term investments

499 1,414 Stock-based compensation 13,523 9,526 Restructuring costs - 1,701 Changes in operating assets and liabilities: Accounts receivable (52 ) 2,814 Prepaid expense and other assets (889 ) 1,307 Accounts payable 79 (2,483 ) Accrued compensation and related liabilities (12,815 ) (6,711 ) Accrued liabilities (85 ) (755 ) Deferred revenue 9,030 2,626 Restructuring obligations (4,326 ) (5,706 )     Net cash provided by operating activities   10,505     10,835     Investing activities: Purchases of property and equipment (1,386 ) (2,253 ) Purchases of investments, net of sales (7,631 ) 726    

Net cash used in investing activities

  (9,017 )   (1,527 )   Financing activities: Proceeds from issuance of common stock, net 27 45 Repurchase of common stock (5,056 ) (678 )     Net cash used in financing activities   (5,029 )   (633 )   Effect of exchange rates on cash and cash equivalents (7 ) 66   Net change in cash and cash equivalents (3,548 ) 8,741   Cash and cash equivalents at beginning of period 130,881 86,804     Cash and cash equivalents at end of period $ 127,333   $ 95,545    

Non-GAAP Financial Measures

The accompanying press release dated January 28, 2010 contains non-GAAP financial measures. The following table reconciles the non-GAAP financial measures in the press release to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures include non-GAAP revenues, non-GAAP cost of revenues, gross profit, operating expenses, income from operations, net income and net income per share amounts.

Non-GAAP financial measures should not be considered as a substitute for, or superior to, GAAP financial measures, which should be considered as the primary financial metrics for evaluating our financial performance. Significantly, non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles. Instead, they are based on subjective determinations by management designed to supplement our GAAP financial measures. They are subject to a number of important limitations and should be considered only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For example, our non-GAAP financial measures have the effect of excluding a purchase accounting adjustment, costs and expenses from our operating results that should be properly considered under a system of accrual accounting. In addition, our non-GAAP financial measures differ from GAAP measures with the same names, may vary over time and may differ from non-GAAP financial measures with the same or similar names used by other companies. Accordingly, investors should exercise caution when evaluating our non-GAAP financial measures.

Despite these limitations, we believe our non-GAAP financial measures provide meaningful supplemental information about our operating results, primarily because they exclude a purchase accounting adjustment and costs and expenses that we do not believe are indicative of the ongoing operating performance of our business and our senior management. Although these items should properly be considered in our GAAP financial measures, we believe they should be excluded when evaluating our current operating performance. The non-GAAP financial measures disclosed in the accompanying press release are used by our Board of Directors and senior management to evaluate our current operating performance, are used in evaluating the performance of our senior management, and are used in our budget and planning processes. We believe that our non-GAAP financial measures are helpful to investors by facilitating comparisons of our current and prior operating results and by facilitating comparisons of our operating results with those of other software companies.

Ariba, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Operating Results (Unaudited; in thousands, except per share data)       The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP operating results for the period indicated below:  

Three Months EndedDecember 31, 2009

Three Months EndedDecember 31, 2008

Revenue reconciliation:

GAAP revenue $ 85,671 $ 86,087 Purchase accounting adjustment   -     355   Total non-GAAP revenues $ 85,671   $ 86,442       Three Months EndedDecember 31, 2009 Three Months EndedDecember 31, 2008

Expense reconciliation:

GAAP revenue $ 85,671 $ 86,087 Less: GAAP net income   2,225     3,427   Total GAAP expenses 83,446 82,660   Amortization of intangible assets (1,431 ) (1,598 ) Stock-based compensation (13,523 ) (9,526 ) Restructuring and integration - (1,701 ) Other-than-temporary decline in long-term investment   -     (1,414 ) Total non-GAAP operating expenses $ 68,492   $ 68,421       Three Months EndedDecember 31, 2009 Three Months EndedDecember 31, 2008

Net income reconciliation:

GAAP net income $ 2,225 $ 3,427 Purchase accounting adjustment - 355 Amortization of intangible assets 1,431 1,598 Stock-based compensation 13,523 9,526 Restructuring and integration - 1,701 Other-than-temporary decline in long-term investment   -     1,414   Non-GAAP net income $ 17,179   $ 18,021       Three Months EndedDecember 31, 2009 Three Months EndedDecember 31, 2008

Net income per share reconciliation:

GAAP net income per share - basic $ 0.03 $ 0.04 Purchase accounting adjustment - 0.00 Amortization of intangible assets 0.02 0.02 Stock-based compensation 0.16 0.12 Restructuring and integration - 0.02

Other-than-temporary decline in long-term investment

  -     0.02   Non-GAAP net income per share - basic $ 0.20   $ 0.22     Non-GAAP net income per share - diluted $ 0.19 $ 0.21   Weighted average shares - basic 85,161 80,947 Weighted average shares - diluted 88,262 84,044

Discussion of Specific Items Excluded From Non-GAAP Financial Measures

Our non-GAAP financial measures include a purchase accounting adjustment related to deferred revenues and generally exclude costs and expenses for (i) amortization of intangible assets related to acquisitions, (ii) stock-based compensation, (iii) restructuring and integration and (iv) other-than-temporary impairment of long-term investments. We exclude these items because we believe they are not closely related to the ongoing operating performance of our business and the performance of our senior management and are generally excluded from our budget and planning process. In addition to these reasons, we believe our non-GAAP financial measures are also helpful to investors by facilitating comparisons of our operating results over different time periods and by facilitating comparisons of our financial performance with that of other companies. In addition, except for costs and expenses related to restructuring and integration, these items are non-cash items that do not affect cash flows.

(1) Purchase accounting adjustment - deferred revenue. As announced on December 17, 2007, Ariba acquired Procuri, Inc. In accordance with the fair value provisions of EITF 01-3, Accounting in a Business Combination for Deferred Revenue of an Acquiree, acquired deferred revenue of approximately $4.5 million was recorded on the opening balance sheet, which was approximately $5.9 million lower than the historical carrying value. Although this purchase accounting requirement has no impact on the Company's business or cash flow, it adversely impacts the Company's reported GAAP revenue primarily for the first twelve months post- acquisition. In order to provide investors with financial information that facilitates comparison of both historical and future results, the Company has provided non-GAAP financial measures which exclude the impact of the purchase accounting adjustment. The Company believes that this non-GAAP financial adjustment is useful to investors because it allows investors to (a) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making and (b) compare past and future reports of financial results of the Company as the revenue reduction related to acquired deferred revenue will not recur when related subscription terms are renewed in future periods.

(2) Amortization of Acquired Intangible Assets. In accordance with GAAP, we amortize intangible assets acquired in connection with acquisitions over the estimated useful lives of the assets. We exclude these amortization costs in our non-GAAP financial measures because they (i) result from prior acquisitions, rather than the ongoing operating performance of our business, and (ii) absent additional acquisitions, are expected to decline over time as the remaining carrying amounts of these assets are amortized. We believe excluding these costs helps investors compare our financial performance with that of other companies with different acquisition histories. However, as with impairment charges, we recognize that amortization costs provide a helpful measure of the financial impact and performance of prior acquisitions and consider our non-GAAP financial measures in conjunction with our GAAP financial results that include amortization costs.

(3) Stock-Based Compensation Expenses. We exclude stock-based compensation expense associated with stock options and stock granted to employees and non-executive directors in our non-GAAP financial measures. While stock-based compensation is a significant component of our expenses, we believe that investors wish to be able to exclude the effects of stock-based compensation expense in comparing our financial performance with that of other companies.

(4) Restructuring and integration. We recorded restructuring related to lease abandonment accruals and/(or) severance and related benefits in the three months ended December 31, 2008. We exclude this from our non-GAAP financial measures because it is unrelated to our ongoing operations and is significantly impacted by factors outside our control. We believe excluding restructuring and integration helps investors compare our operating performance with that of other companies. We recognize, however, that restructuring and integration will impact cash flows and that we and investors should carefully consider the impact of these costs on future cash flows.

(5) Other-than-temporary impairment of long-term investments. We recorded an other-than temporary impairment of a long-term investment in the three months ended December 31, 2008. We exclude this from our non-GAAP financial measures because it is unrelated to our ongoing operations. We believe excluding the other-than-temporary impairment helps investors compare our operating performance with that of other companies. We recognize, however, that the other-than-temporary impairment may impact cash flows and that we and investors should carefully consider the impact of these costs on future cash flows.