Ariba (ARBA)

Q4 2011 Earnings Call

October 27, 2011 5:00 pm ET


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


Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Stan Zlotsky - Deutsche Bank AG, Research Division

Saurabh Paranjape

Lauren Choi

Steven R. Koenig - Longbow Research LLC

Richard T. Williams - Cross Research LLC



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Greetings, and welcome to the Ariba Fourth Quarter and Full-Year 2011 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. John Duncan, Head of Investor Relations. 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 fourth quarter and full-year, 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

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 are discussed in the company's SEC filings, including our most recent quarterly report on Form 10-Q filed on August 5, 2011 for the quarter ended June 30, 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 an 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 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. So that's 2012 revenue, 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 has delivered a very strong finish to the year in all fronts, not to mention a solid foundation for a tremendous growth journey yet to come.

We exceeded the top end of our expectations, both for the quarter and the full year on revenue, EPS and operating cash flow for our annualized and TCR subscription backlog, as well as network volumes and participation rose strongly.

Three years ago, I used to tell you that we will someday cross the bridge from an applications business with a network to a network business with applications. Today, I declare that we have crossed the bridge, and equally as important, we are now operating with a much simpler business model that is poised for continued growth momentum.

Our recent acquisition of b-process, together with Quadrem expands the reach and global capabilities of Ariba's network and solidifies our position, as the world's largest and fastest growing trading community.

Let me recap the fiscal year. Our Subscription Software revenue grew to $275.7 million which was above the top end of our guidance, up 58% year-over-year and up 27% organically. Since our call, a year ago today, we focused on execution and kept raising the number each quarter. From start to finish, we increased total sub software revenue by $25 million organically. Of course the impressive part of the journey is that network revenue was $119.7 million, up 192% year-over-year and up 622% organically.

Non-GAAP EPS for the year was $0.81, again above the top end of our guidance and this is after incremental investments of approximately $0.25. As a reminder, these investments have been focused primarily on the front-end of the business and innovation. We expect to continue bearing fruit of top-line acceleration as you will see in a few minutes when we talk about Q1 and fiscal year '12.

For the year, we generated approximately $97.4 million of operating cash flow which was also above the top end of our guidance range. This translates into an operating cash flow margin of approximately 22% for the year. Including lease loss of $18.3 million which is 15 months from expiration, our fiscal year net operating cash flow was $79.1 million.

As I said in our Analyst Day in early September, we are very pleased with our progress in simplifying our business model and growing our network, both organically and inorganically. As we exit the year, our higher-margin subscription revenue has increased to approximately 66% of the mix and on its way to reaching 70%.

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