Ariba (ARBA)

Q3 2011 Earnings Call

July 28, 2011 5:00 pm ET

Executives

Bob Calderoni - Chairman, Chief Executive Officer and Member of Equity Incentive Committee

Ahmed Rubaie - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

John Duncan - Director of IR and Corporate Finance

Analysts

Stan Zlotsky - Deutsche Bank AG

Jeffrey Rhee - Craig-Hallum Capital Group LLC

Peter Goldmacher - Cowen and Company, LLC

Richard Williams - Cross Research LLC

Lauren Choi

Lauren Ye - JP Morgan Chase & Co

Bradley Sills - Barclays Capital

Gregory Dunham - Crédit Suisse AG

Presentation

Operator

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Greetings, and welcome to the Ariba Third Quarter Fiscal Year 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Duncan, Senior Director and Investor Relations for Ariba. Thank you. Mr. Duncan, you may begin.

John Duncan

Good afternoon, and welcome, everyone to Ariba's conference call to discuss the results for the third quarter of fiscal year 2011. In today's call, we'll make reference to supplemental presentation slides with our prepared remarks. To access these slides, please log on to the Investor Relations section of our website at www.ariba.com. Our speakers for the call today are Bob Calderoni, our Chairman and Chief Executive Officer; and Ahmed Rubaie, our Chief Financial Officer.

For those on the call accessing the supplemental presentation, please now advance to Slide 2. Before we begin, I will read the Safe Harbor statement. Statements that may be made on this call on the supplemental slides that are not historical facts may be forward-looking statements, including statements regarding the company's or management's intentions, hopes, beliefs, plans, expectations or strategies for the future.

These statements are subject to various risks and uncertainties and actual results could differ materially from the company's current expectations. These risks and uncertainties that are discussed in the company's SEC filings, including our most recent quarterly report on Form 10-Q filed on May 6, 2011, for the quarter ended March 31, 2011.

During the course of this call, we will reference historical non-GAAP financial measures. The management reviews non-GAAP financial information in evaluating Ariba's historical and projected financial performance and believes that it may assist investors in assessing its ongoing operations.

The presentation of this additional information is not meant to be considered in isolation or as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. For a reconciliation of historical non-GAAP to GAAP financial measures, please see the earnings press release and supplemental analysis on the Investor Relations section of our website at www.ariba.com or our Form 8-K filed this afternoon.

In addition, we will reference certain forward-looking non-GAAP financial information, including fiscal year 2011 revenues, expenses and net income. We are unable to reconcile this forward-looking non-GAAP financial information to corresponding forward-looking GAAP measures because we are unable to estimate without unreasonable efforts certain forward-looking GAAP revenue, expense and other income items.

At this time, I would like to turn the call over to Ahmed Rubaie to review the financial highlights for the quarter.

Ahmed Rubaie

Thanks, John. Good afternoon, everyone, and thank you for joining us today. I am pleased to report Ariba delivered another very solid quarter with strong growth of momentum on all fronts, and particularly our network business. We exceeded our revenue outlook once again, with strength in both the Ariba and Quadrem parts of our business. We also hit the top end of our EPS guidance, while continuing to invest in the business for future growth.

Now let me walk you through the highlights of the third quarter. As a reminder, all results on today's call only refer to continuing operations. Additionally, and but for specific comments, we will not separate our Quadrem results as we are quickly integrating them into our business.

Please turn to Slide 3. We had another strong bookings quarter and annualized Subscription Software backlog increased to $186 million from $183 million last quarter, representing a 32% year-over-year total growth with organic growth at 23%. As a reminder, typically Q3 backlog is seasonally flat to only slightly up. While the selling more P2P or invoice automation deals, we see increasing validation of the market moving to automated business collaboration with the Ariba as a formidable business commerce network.

I have said to you a couple of quarters ago that I will continue enhancing our metrics as we continue the journey of becoming more of a network company with on-demand solution offerings. And today, I'm going to enhance our network trailing 12 months volumes metric. Historically, we had used purchase order volumes as the basis for this metric. This number rose to $186 billion, up from $180 billion last quarter, representing a 22% year-over-year growth.

Today, we are increasingly capturing more e-invoices that don't have a few associated with them, and this also generates supplier fees. Including non-PO e-invoices, our network volumes were $193 billion for the trailing 12 months, and were up 23% year-over-year. We see e-invoice automation as the key growth area, which will enable us to capture even more of our customers spend, including more complex non-PO spend categories such as business services.

In conclusion, going forward, we will focus on total spend throughput included non-PO e-invoices.

Please turn to Slide 4. Our Subscription Software revenue for the quarter was $76.4 million, up 74% year-over-year and up 27% organically, which was well ahead of our guidance. Within this number, Network revenue was $37.2 million, up 249% year-over-year including 63.5% organic growth.

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