Updated from April 15 Siebel Systems ( SEBL), which preannounced results at the high end of guidance earlier this month, said after the bell Thursday that software sales increased 13% year over year and first-quarter earnings came in six times higher than low levels from a year ago. Siebel's guidance for the second quarter projected the first year-over-year increase in total revenue in eight quarters. But its shares were still recently down 40 cents, or 3.4%, at $11.26. "It's very clear that this
information technology recovery that we're seeing is very fragile," CEO Tom Siebel said in a post-close conference call. "There's still geopolitical dislocation. There's quite a bit of uncertainty out there. "There's no telling what could happen in this world," he added. Still, Siebel said revenue should range from $340 million to $365 million in the second quarter, up from $333.3 million a year ago. License revenue -- a measure of new software sales -- should range from $120 million to $140 million and earnings should range from 6 to 8 cents a share, Siebel said. A year ago the maker of customer relationship management software earned 2 cents a share. The guidance straddled analyst estimates calling for second-quarter earnings of 7 cents a share on $352.3 million in revenue. But it was maintenance revenue guidance that may have been weighing on the stock, FTN Midwest Research analyst Trip Chowdhry said Thursday. The company said maintenance revenue would range from $112 million to $118 million, compared to $114.9 million in the first quarter. But if license revenue is going up, maintenance revenue should also increase, Chowdhry said. That's because new customers typically sign new maintenance agreements, which entitle them to updates and support. The fact that maintenance revenue is expected to be roughly flat sequentially means there's heavy negotiating on price with customers, Chowdhry said. "That tells me pricing power doesn't exist," said Chowdhry, who has a neutral rating on Siebel. "I think that's the reason the stock must be selling off." (His firm doesn't do investment banking.) Dahlman Rose Weiss analyst Rob Tholemeier made a similar argument, and also suggested the maintenance line may be indicative of broader weakness in the customer relationship management (CRM) software field. "It's very likely the lackluster maintenance number would be a sign of people deciding they're going to find alternate methods of solving the CRM function rather than continuing to run software," he said. Rather than buying CRM software from Siebel, firms may be contracting out functions like a help desk to another company or buying products such as salesforce automation from enterprise software makers that sell other software as well, Tholemeier said. (His firm hasn't done any banking with Siebel.) For the first quarter, San Mateo, Calif.-based Siebel posted a first-quarter profit of $31.7 million, or 6 cents a share, under generally accepted accounting principles. That compared to net income of $4.6 million, or a penny a share, in the same period a year earlier. On April 2, Siebel said earnings would range from $27 million to $30 million, or 5 to 6 cents a share, compared to guidance calling for 4 to 5 cents a share. The latest Wall Street consensus estimate gathered by Thomson First Call predicted Siebel would earn 5 cents a share on $329.2 million in revenue in the just-completed first quarter. In line with the company's preannouncement, first-quarter revenue totaled $329.3 million, the higher end of its guided range of $315 million to $335 million. However, that represented a 1% decline from a year ago, when revenue rang in at $332.8 million. In a note earlier this month, DRW's Tholemeier pointed out this decline was off an easy comparison from a year ago, when Siebel cited war jitters and the weak economy for a top- and bottom-line miss. (His firm hasn't done any banking with the company and he doesn't own the stock.) License revenue totaled $126.8 million, in line with the company's preannouncement, representing a 13% jump from a year ago and exceeding the company's guidance of $110 million to $125 million.
The one weak spot in the first quarter was service revenue which totaled $87.6 million, just shy of management guidance of $90 million to $95 million. Siebel blamed the weakness on the number of holidays during the quarter, but JMP Securities analyst Pat Walravens pointed out in a note that management should have known how many billing days there would be in the quarter when it provided its guidance. (He has a market perform rating on Siebel and his firm hasn't done any banking with the company.) Siebel said the company expects service revenue to improve going forward, ranging from $95 million to $107 million in the second quarter. In addition to the license revenue increase, cost cuts were also partly responsible for the first-quarter earnings jump. Operating expenses fell $25 million, or 12%, to $180.5 million in the first quarter compared to a year ago. Headcount fell by 150 employees from the prior quarter, to 4,822. Siebel's new hosted OnDemand service, which takes on IPO-bound rival Salesforce.com, closed 229 deals in the first quarter. On the post-close conference call, CFO Ken Goldman took the unusual move of addressing the issue of stock options, which Siebel has become known for distributing generously to employees. "We are looking at options very carefully," Goldman said. "We are looking at all actions that would help us mitigate that cost to the extent we might have to expense it in the future." Goldman's comments came as tech companies face the increasingly likely requirement that they expense employee stock options. He noted that Siebel incurred $180 million in expenses last year for employee stock options, although the majority of outstanding options remain out of the money.