Siebel Systems, Inc.

Siebel Systems, Inc.

July 26, 2005 16:25 ET

Siebel Systems Reports Financial Results for the Quarter Ended June 30, 2005

SAN MATEO, Calif.--(CCNMatthews - Jul 26, 2005) -

Siebel Systems, Inc. (NASDAQ:SEBL), a leading provider of customer-facing solutions, today announced financial results which were in-line with preliminary financial results presented on July 7, 2005, for the quarter ended June 30, 2005.

Financial Results for the Second Quarter of 2005

Total revenues for the second quarter of 2005 were $313.6 million. License revenues were $78.3 million. Maintenance revenues were $122.8 million. Services and other revenues were $112.5 million.

Including the impact of $74.1 million in restructuring and other charges, GAAP operating loss and operating margin for the second quarter of 2005 were $(71.3) million and (22.7)%, respectively. GAAP pre tax loss for the second quarter of 2005 was $(55.6) million. GAAP net loss, net margin and net loss per share for the second quarter of 2005 were $(50.0) million, (15.9)% and $(0.10) per share, respectively. The effective tax rate for GAAP net loss in the second quarter of 2005 was a benefit of 10%.

Non-GAAP Financial Results for the Second Quarter of 2005(1)

Excluding the impact of the restructuring and other charges, non-GAAP operating income and operating margin for the second quarter of 2005 were $2.8 million and 0.9%, respectively. Non-GAAP pre tax income for the second quarter of 2005 was $18.4 million. Non-GAAP net income, net margin and net income per share for the second quarter of 2005 were $0.7 million, 0.2% and $0.00 per share, respectively. The effective tax rate for non-GAAP net income in the second quarter of 2005 was an expense of 96%, which differs from the effective tax rate for GAAP net loss in the second quarter and first quarter of 2005 due to the modest amount and geographic source of pre tax income and certain fixed tax expenses that do not vary with pre tax income.

Balance Sheet at June 30, 2005

The Company's cash, cash equivalents, and short-term investments were $2.242 billion as of June 30, 2005. The Company generated $60.6 million of cash in the quarter, which was offset by a $15.1 million outlay related to the Company's acquisition of edocs, Inc., resulting in a net $45.5 million increase in cash from the end of the first quarter. Deferred revenue was $331.4 million as of June 30, 2005. Days sales outstanding in accounts receivable were 60 days for the second quarter of 2005.

"I've made a commitment to shareholders to improve Siebel's financial performance over time and we are taking the necessary steps to achieve this goal," said George T. Shaheen, Chief Executive Officer of Siebel Systems. "Although we've made some progress, we still have more work to do. We have recently acted to improve our license sales execution, including reorganizing the Americas sales force, appointing a new Chief Marketing Officer, simplifying sales compensation, refocusing on business development, management and closure practices, and streamlining contract execution. We have reduced our cost structure, took additional restructuring actions at the end of the quarter, and aim to drive future costs down further. We have made significant strides with Siebel CRM OnDemand. In July, we released Siebel Component Assembly, built on industry standard service oriented architectures, on schedule and made our first multi-million dollar sale. We have added to and reorganized our management team to accelerate our progress and I am encouraged by the new leadership talent we continue to attract to Siebel. I am confident we have the assets it takes to return the Company to predictable and sustainable growth, including an unparalleled array of best of breed CRM solutions. I am committed to doing whatever it takes to improve our revenue generation, better align our costs to our business, and increase our profitability over time."

Other Quarterly Highlights

Over 3.4 Million Users Deployed: In the second quarter of 2005, Siebel Systems deployed approximately 240,000 additional live CRM users. With more than 3.4 million total live CRM users and over 4,000 customer engagements, Siebel Systems believes it has several times more live users than its key competitors combined.

Select Wins: In the second quarter of 2005, Siebel Systems concluded software licensing agreements with 79 new customers and 216 existing customers. These select wins included Astra Zeneca UK Ltd, MCI Worldcom Network Services, Inc., The U.S. Department of Health and Human Services' Centers for Medicare and Medicaid, Merck Sharpe & Dohme (Australia) Pty Ltd, Raiffeisenbank Austria d.d, Royal Caribbean Cruises, Ltd., and Telecom Italia SpA.

Siebel 7.8 Momentum: At the beginning of the second quarter, Siebel Systems announced the latest version of its industry-leading CRM solutions suite Siebel 7.8. Siebel 7.8 includes significant new and enhanced features -- including advanced order management and embedded analytics capabilities -- that enable companies to increase sales and service velocity by enabling more efficient and effective product, pricing and promotions management across multiple channels. During the second quarter, EDS went live on Siebel 7.8 and approximately 60 additional customers are targeting deployments of or upgrades to Siebel 7.8 before year end. Some key accounts include the American Red Cross, BT, Nissan Motors of North America, and UBS AG.

Siebel CRM OnDemand Momentum: For the second quarter of 2005, Siebel CRM OnDemand total contract value grew 86% quarter over quarter and 249% year over year to $20.0 million. Total subscribers increased 19% or over 6,460 users quarter over quarter to 39,668 users. Siebel Systems introduced Siebel CRM OnDemand Release 8, the fifth release in the last twelve months, with enhanced team collaboration and sophisticated segmentation for targeted marketing. During the second quarter, Siebel CRM OnDemand was also recognized by Nucleus Research with their highest score in the OnDemand CRM Market ROI Scorecard(2).

Recent Management Additions: Subsequent to quarter end, Stan Tims joined the Company as Group Vice President Products, Planning and Operations. His responsibilities will include completing the Company's current product focus and rationalization initiative as well as streamlining the Company's product planning, development and release process. Mr. Tims has more than 23 years of technology industry experience. Most recently, he was Vice President of Marketing and Business Development at Movaris, Vice President of Corporate Marketing at TIBCO Software, and Venture Partner and General Partner with TL Ventures. Previously, he held executive and senior management roles with Apple Computer, Cunningham Communication (now CitigateCunningham), Hewlett-Packard, Motorola, Oracle and Tivoli (now IBM).

Independent Industry Analyst Recognition and Awards

Forrester: According to The Forrester Wave: Enterprise CRM Suites Q2 2005 report(3), Siebel Systems was recognized as a leader and received the highest score in all three evaluation categories -- current offering, strategy, and market presence. Forrester cited Siebel Systems as the top-rated vendor in multiple key categories, including breadth of offering, industry adaptation, technology, corporate and product strategy, and installed base.

Nucleus Research: Nucleus Market ROI Scorecards compare vendors' ROI scores and provide insights on key themes impacting ROI in a particular market segment. Siebel Systems earned the highest score in a Nucleus Research ROI Scorecard for the Enterprise CRM Market.(4) In a separate report, Siebel earned the highest score in a Nucleus Research On-Demand CRM Market ROI Scorecard(2).

IDC: Subsequent to quarter end, Siebel Systems was recognized as the global market share leader in the CRM applications market by IDC, based on vendor reported and observed trends, 2004 license and maintenance revenues, and in-depth vendor surveys and analysis.(5) According to IDC, Siebel Systems captured 10.7 percent of the worldwide CRM applications software market in 2004 compared to the closest competitor, which captured a 6.8 percent market share.

About Siebel Systems

Siebel Systems is a leading provider of customer-facing solutions that deliver demonstrable business results and long-term competitive advantage. Siebel's multichannel offerings allow organizations to intelligently manage and coordinate all customer interactions across the Web, contact center, field sales/service force, branch/retail network, and indirect and partner distribution channels. Siebel solutions draw upon the company's best-in-class capabilities in customer relationship management (CRM), business intelligence, and customer data integration and can be deployed as licensed software or as a hosted service. Siebel solutions are tailored to the unique needs of 23 industries and incorporate industry-specific business processes, best practices, and business insight. They are the product of more than $2 billion in R&D investments and reflect over 11 years of experience with more than 4,000 organizations. Together with its extensive global network of alliance partners, Siebel provides the people, process, and technology expertise critical in driving business value from the deployment of customer-facing solutions. Over 3.4 million users worldwide in organizations of all sizes depend on Siebel solutions to deliver dramatic improvements in how they identify, acquire, retain, and serve customers. For more information, visit

For more information on Siebel Systems solutions and services, please visit our Web site: CRM -; OnDemand Solutions -; Industry CRM -; Call Center & Service -; Sales Force Automation -; Marketing Automation -; Business Intelligence -; Integration Solutions -; CRM Services -

Except for the historical information contained herein, this press release contains forward-looking statements that involve risk or uncertainties. Future operating results of Siebel Systems may differ from the results discussed or forecasted in the forward-looking statements due to factors that include, but are not limited to, risks associated with customer relations, such as the availability of Siebel Systems' products and services, customer implementation of products and services, relationships with customers, third-party vendors and systems integrators, concentration of revenues in a relatively small number of customers, existence of errors or defects in products, ability to successfully manage growth, significant current and expected additional competition and the need to continue to expand product distribution and services offerings. Further information on potential factors that could affect the financial results of Siebel Systems are included in Siebel Systems' Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and its other filings with the Securities and Exchange Commission, which are available at Siebel Systems assumes no obligation to update the information in this press release.

Siebel is a trademark of Siebel Systems, Inc. and may be registered in certain jurisdictions. All other product and company names mentioned are the property of their respective owners and are mentioned for identification purposes only.

(1) The Company historically uses the non-GAAP financial measures of income discussed herein to evaluate internally and to report results of its business. The Company believes that these measures best allow its management and investors to understand its activities and potential activities with customers. The Company believes that inclusion of these non-GAAP financial measures provides consistency and comparability with past reports of financial results, as well as comparability to similar companies in the Company's industry, most of which present the same non-GAAP financial measures to investors.

The non-GAAP financial measures used in the Company's earnings press release exclude pre-tax restructuring and other charges of $74 million incurred in the quarter ended June 30, 2005. Included in the restructuring and other charges are (i) $61 million related to the consolidation of leased facilities and the sale and write-off of certain fixed assets; (ii) $6 million related to employee severance arrangements; and (iii) $7 million related to CEO transition costs incurred early in the second quarter. The Company believes that providing specific financial information on the costs of such expenses, as well as providing non-GAAP income measures that exclude the charges, best allows investors to understand both the costs and benefits of the restructuring and other measures and the Company's ongoing business activities during the quarter.

The company believes that its non-GAAP financial measures provide an additional tool for investors to evaluate ongoing operating results and trends. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measure as detailed herein. The following is a reconciliation of certain non-GAAP measures to their most comparable GAAP measures (in thousands, except earnings per share and margins):

Operating Net Earnings
Income Operating Income Net (Loss)
(Loss) Margin (Loss) Margin Per
($K) ($K) Share
--------- -------- --------- ------- --------
GAAP Measure $(71,306) (22.7)% $(50,008) (15.9)% $(0.10)
--------- -------- --------- ------- --------
Restructuring and
Other Charges $74,075 23.6% $74,075 23.6% $0.14
Associated income
tax benefit - - (23,329) (7.4)% (0.04)
--------- -------- --------- ------- --------
adjustments $74,075 23.6% $50,746 16.2% $0.10

Non-GAAP Measure $2,769 0.9% $738 0.2% $0.00
--------- -------- --------- ------- --------
--------- -------- --------- ------- --------

(2) Scorecard; On-Demand CRM Market, Nucleus Research, Inc., Wellesley, Massachusetts, May 2005.

(3) The Forrester Wave: Enterprise CRM Suites, Q2 2005, William Band (with Erin Kinikin, John Ragsdale, and Jessica Harrington), July 13, 2005.

(4) Scorecard; Enterprise CRM Market, Nucleus Research, Inc., Wellesley, Massachusetts, May 2005.

(5) IDC "Worldwide CRM Applications 2004 Vendor Shares: Let the Games Begin," by Mary Wardley, July 2005


Consolidated Balance Sheets
(In thousands, except per share data)

December 31, March 31, June 30,
2004 2005 2005
----------- ----------- -----------

Current assets:
Cash and cash equivalents $ 560,377 $ 545,340 $ 567,081
Short-term investments 1,686,111 1,650,936 1,674,660
----------- ----------- -----------

Total cash, cash
equivalents and short-
term investments 2,246,488 2,196,276 2,241,741

Accounts receivable, net 293,527 254,951 207,594
Deferred income taxes 17,542 22,542 19,810
Prepaids and other 53,894 34,396 35,873
----------- ----------- -----------

Total current assets 2,611,451 2,508,165 2,505,018

Property and equipment, net 83,908 78,568 67,453
Goodwill 208,306 286,886 282,946
Intangible assets, net 23,004 42,693 38,759
Other assets 36,937 33,757 32,412
Deferred income taxes 123,828 116,487 116,487
----------- ----------- -----------

Total assets $3,087,434 $3,066,556 $3,043,075
----------- ----------- -----------
----------- ----------- -----------

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable $ 10,048 $ 18,522 $ 21,861
Accrued expenses 346,672 266,652 287,062
Restructuring obligations 30,639 29,953 38,800
Deferred revenue 357,223 365,979 331,436
----------- ----------- -----------

Total current liabilities 744,582 681,106 679,159

Restructuring obligations, less
current portion 75,227 67,354 110,476
Other long-term liabilities,
less current portion 20,981 24,506 24,146
----------- ----------- -----------

Total liabilities 840,790 772,966 813,781
----------- ----------- -----------

Stockholders' equity:
Common stock; $0.001 par
value; 2,000,000 shares
authorized; 508,953, 516,095
and 521,365 shares issued and
outstanding, respectively 509 516 521
Additional paid-in capital 1,635,652 1,723,011 1,737,968
Deferred compensation (2,993) (13,150) (11,559)
Accumulated other
comprehensive income 70,541 44,277 26,478
Retained earnings 542,935 538,936 475,886
----------- ----------- -----------

Total stockholders'
equity 2,246,644 2,293,590 2,229,294
----------- ----------- -----------

Total liabilities and
stockholders' equity $3,087,434 $3,066,556 $3,043,075
----------- ----------- -----------
----------- ----------- -----------


Consolidated Statements of Operations
(In thousands, except per share data)

Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2004 2005 2004 2005
--------- --------- --------- ---------
Software license $ 94,829 $ 78,328 $221,628 $153,306
Professional services,
maintenance and other 206,230 235,269 408,718 459,229
--------- --------- --------- ---------

Total revenues 301,059 313,597 630,346 612,535
--------- --------- --------- ---------

Cost of revenues:
Software license 2,837 3,882 6,044 7,780
Professional services,
maintenance and other 108,050 120,844 216,264 233,808
--------- --------- --------- ---------

Total cost of revenues 110,887 124,726 222,308 241,588
--------- --------- --------- ---------

Gross margin 190,172 188,871 408,038 370,947
--------- --------- --------- ---------

Operating expenses:
Product development 76,127 73,148 148,760 147,865
Sales and marketing 78,552 86,146 164,950 178,420
General and administrative 27,645 26,808 49,344 52,426
Restructuring and
other charges (1,006) 74,075 (435) 74,567
Purchased in-process
product development 6,000 - 6,000 10,890
--------- --------- --------- ---------

Total operating expenses 187,318 260,177 368,619 464,168
--------- --------- --------- ---------

Operating income (loss) 2,854 (71,306) 39,419 (93,221)

Other income, net 9,797 15,669 21,552 31,432
--------- --------- --------- ---------

Income (loss) before
income taxes 12,651 (55,637) 60,971 (61,789)

Income taxes (benefit) 5,130 (5,629) 22,470 (7,782)
--------- --------- --------- ---------

Net income (loss) $ 7,521 $(50,008) $ 38,501 $(54,007)
--------- --------- --------- ---------
--------- --------- --------- ---------

Diluted net income (loss)
per share $ 0.01 $ (0.10) $ 0.07 $ (0.10)
--------- --------- --------- ---------
--------- --------- --------- ---------

Shares used in diluted share
computation 541,543 518,681 543,972 515,822
--------- --------- --------- ---------
--------- --------- --------- ---------

Basic net income (loss)
per share $ 0.01 $ (0.10) $ 0.08 $ (0.10)
--------- --------- --------- ---------
--------- --------- --------- ---------

Shares used in basic share
computation 504,114 518,681 502,621 515,822
--------- --------- --------- ---------
--------- --------- --------- ---------


Condensed Consolidated Statements of Cash Flows
(In thousands)

Six Months Ended
June 30,
---------- -----------
2004 2005
---------- ----------

Cash flows from operating activities:
Net income (loss) $ 38,501 $ (54,007)
Adjustments to reconcile net income (loss)
to net cash provided by operating
Write-off of property and equipment
abandoned in restructurings - 2,616
Write-off of purchased in-process
product development 6,000 10,890
Depreciation and amortization 66,727 44,293
Tax benefit from exercise of stock options 4,800 51,379
Deferred income taxes (929) (156)
Recovery of doubtful accounts and
sales returns (1,000) -
Other, net (304) (1,702)
Changes in operating assets and
Accounts receivable 62,191 99,257
Prepaids and other (190) 21,413
Accounts payable and accrued
expenses (1,084) (71,192)
Restructuring obligations (29,756) 42,458
Deferred revenue 30,407 (34,472)
---------- ----------

Net cash provided by operating
activities 175,363 110,777
---------- ----------

Cash flows from investing activities:
Purchases of short-term investments,
net of sales (63,087) (608)
Purchases of property and equipment, net (5,075) (4,073)
Purchase consideration for acquired
businesses, net of cash received (74,909) (108,138)
Other, net - 4,769
---------- ----------

Net cash used in investing
activities (143,071) (108,050)
---------- ----------

Cash flows from financing activities:
Proceeds from issuance of common stock, net
of repurchases 41,260 37,768
Repayments of capital lease obligations (6,605) (4,081)
---------- ----------

Net cash provided by financing
activities 34,655 33,687
---------- ----------

Effect of exchange rate fluctuations (8,402) (29,710)
---------- ----------

Change in cash and cash equivalents 58,545 6,704
Cash and cash equivalents, beginning of period 546,542 560,377
---------- ----------

Cash and cash equivalents, end of period $ 605,087 $ 567,081
---------- ----------
---------- ----------

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