甲骨文 (ORCL) 2005 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the SeeBeyond actual first-quarter results conference call.

At this time, all participants are in listen only mode.

Later, we will conduct a question-and-answer session.

Please note that this conference is being recorded.

Now, I would like to turn the call over to Ms. Andrea Williams, Vice President of Investor Relations.

Ms. Williams, you may begin.

Thank you, operator.

Good afternoon, everyone.

Thanks for participating in SeeBeyond's first-quarter 2005 results conference call.

With us today are Jim Demetriades, CEO of SeeBeyond;

Carv Moore, President and COO; and Barry Plaga, Chief Financial Officer.

Following management's comments, we will open up the call for questions.

I would now like to read the Safe Harbor disclaimer and other securities law related statements.

The following conference call includes statements that are not historical in nature, and as such are intended to be forward-looking statements for purposes of the Safe Harbor provided by the Securities Litigation Reform Act.

These statements, including those related to estimated revenue; earnings per share; and operating expense levels for the second quarter and the full year of 2005; estimated operating margin levels for the fourth quarter of 2005; the Company's success in achieving its goals of controlling costs, growing license revenue, improving operating margin, and insuring customer success; the expected level of future customer demand; the Company's expressions of optimism about its 2005 prospects; and the expectations of future growth in SeeBeyond's businesses related to specific products are all statements based on SeeBeyond's current expectations, current assumptions, estimates, and projections, its industry, and its future prospects.

The Company would like to remind you that these statements are predictions, and that actual events and results may differ materially from those forward-looking statements based on certain risks.

These include, market acceptance of our products and services; risks relating to customer adoption of/and sales efforts behind the Company's SeeBeyond ICAN Suite 5; the discretionary decision to release new versions of existing SeeBeyond products; release of competitive products; and changes in the mix of product and service revenue, among other factors.

The forward-looking statements contained in today's earnings release and earnings conference call are also subject to other risks and uncertainties, including those more fully described in the Company's filings with the SEC, including its annual report filed on Form 10-K for the year ended December 31, 2004, and its quarterly reports on Forms 10-Q.

The Company does not undertake to update any forward-looking statement.

Please note as well that on this call we will discuss historical financials and other statistical information regarding our business and operations.

Some of this information is included in today's press release, which we have posted on our website and furnished to the SEC on Form 8-K.

The remainder of this information will be available on our website by accessing a replay of this call.

Now, I would like to turn the call over to Carv Moore, President and COO.

Thank you, Andrea, and welcome everyone to our first-quarter 2005 results conference call.

Here are the highlights of SeeBeyond's results.

In the first quarter, we had total revenue of 37.3 million, with a GAAP net loss of $0.03 per share.

Our license revenue was 13.7 million, an increase of 26% year-over-year.

We ended the first quarter of 2005 with approximately 73.6 million in cash, or approximately $0.86 cents per share.

Obviously, we were disappointed by our first-quarter revenue results, and as we discussed on our preannouncement call on April 4, we saw significant delay in contracts and procedures at the very end of the first quarter.

We also experienced weakness in the North American sales operation during the first quarter, and we have taken decisive action to improve sales execution.

Currently, all regions of worldwide sales report directly to me, and I have taken direct stewardship of the North American team, and will work to improve its accountability, forecasting ability, sales effectiveness at the rep level, as well as focus on improving alliance contribution in North American.

I am confident that we can move beyond the challenges in the first quarter and show improvement in sales execution worldwide in 2005.

Now all of that being said, we continue to see strong contribution from our existing customer base, and also excellent new customer wins in the first quarter.

Q1 saw a record number of 44 new customers.

SeeBeyond also booked three seven-figure transactions in Q1, which is also a very strong metric when compared to the fourth quarter of 2004 when we booked four seven-figure transactions.

Some great companies that purchased SeeBeyond's software in the first quarter were Blue Cross Blue Shield of Massachusetts;

Department of Human Services, Victoria, Australia;

Dun & Bradstreet;

EDS;

Lombardier Informatica, Menlo Logistics;

Pfizer;

Phoenix Wealth Management;

Robert Wood Johnson;

Healthcare Corps (ph);

Sydney Water Corp.; the University of Chicago; and Baylor University.

So to close, although we did not achieve our guidance revenue and EPS targets in the first quarter, we remain focused on controlling costs, growing license revenue, achieving our operating margin goals, and insuring our customers' success with ICAN 5.

Now, I will turn the call over to James Demetriades, our CEO, for a look at some exciting recent developments.

Thanks, Carv.

Well, the quarter was certainly disappointing.

We took very swift action at the close of the quarter to better align the sales teams with Carv.

From the perspective of our pipeline of opportunities, our growth in the number of new customers in the last quarter, and the types of deals we are competing for, I am excited about Q2 and the rest of the year.

Another important development that makes me excited about Q2 and the rest of the year is that the recent Gartner findings on SeeBeyond ICAN 5 Suite were just released.

Last week Gartner named SeeBeyond for the second year in a row to the Leaders Quadrant for Integration Technology.

And SeeBeyond was again ranked as a leader in the Gartner Application Integration Suite Magic Quadrant.

We were for the second year in a row placed furtherest to the right on the x-axis of this quadrant, which measures a completeness of vision with respect to the requirements and conditions that Gartner uses to characterize the integration of middleware market.

Our movement was, I think, very significant and very, very positive.

And to me this says that our place in the market is very strong, unique, and that we continue to have a right vision to succeed.

With improved sales execution, I believe that we can take the Company to the next level of growth.

During the first quarter, we also saw solid momentum in healthcare, which has always been a strong vertical for SeeBeyond.

We unveiled several new composite applications to enable clinical transformation in the healthcare industry, including solutions for claims lifecycle management and patient bed management.

On a customer front, Hill Physicians Medical Group leveraged SeeBeyond to launch the largest private online electronic medical record demployment in the United States.

In addition, the Cleveland Clinic Foundation seamlessly transitioned its clinical interfaces to the ICAN 5 platform and leveraged our technology to enable its e-prescribing solution, which was discussed at some length by the President of the United States.

This was unveiled at the largest health care show of the year, and is seen by many organizations as a key to reducing medication errors, improving patient care, and reducing health care operational inefficiencies.

So healthcare and the development of many more composite applications in the finance, insurance and retail verticals are some of the exciting opportunities awaiting us in 2005.

We look forward to updating you on our progress with the development of other vertical-based solutions for composite applications in the next few quarters.

With that, I would like to turn the call over to Barry to review the financials.

Barry?

Thanks, Jim.

Today I'm going to cover our operating results for the first quarter of 2005, and then I will follow up with a discussion of our forward-looking guidance.

We recorded first quarter 2005 revenue of $37.3 million, exceeding our preannounced range of 36 to 37 million.

Our total license revenue for Q1 increased 26% year-over-year to 13.7 million, or 37% of our total revenue.

Our international revenue represented 42% of total revenue for Q1, with Europe representing 30% of total revenue, and Asia Pacific, 12%.

The top three license verticals for Q1 2005 were healthcare, representing 32%; manufacturing at 30%, and the financial services insurance vertical, representing 22% of total license revenue.

On top on top of that we saw energy and utilities at 7%, and government at 3%.

SeeBeyond had no single customer during the quarter that represented over 10% of total revenues.

And we had three license deals greater than $1 million during the quarter.

During Q1, our strategic partners' consulting and software influenced approximately 33% of our license revenue.

CSC, EDS, Fujitsu and First Consulting Group were our top strategic partners during Q1 based on license revenue influence.

Repeat license revenue in Q1 2005, which is license revenue from pre-existing customers, was 67%.

Services revenue for the first quarter was $9.7 million, and maintenance revenue for the fourth quarter was 13.9 million.

Overall, gross profit for Q1 was 70% among, which was down sequentially from 76% in the fourth quarter of 2004, due to the decrease in license in the revenue mix.

For Q1 '05 services and maintenance marge was 55%, up from 54% in the December quarter.

Total operating expenses in Q1 were 28.9 million, down from 31.7 million in the fourth quarter of 2004.

Research and development expense decreased slightly in Q1 to 10 million from 10.1 million in Q4.

Sales and marketing expenses decreased to 13.7 million in Q1 from 16.2 million in Q4, as Q4 included discretionary marketing costs for our annual user conference, as well as the higher commission rate and fourth quarter sales accelerators.

General and administrative expense decreased to 5.2 million in Q1 from 5.4 million in Q4.

On a GAAP basis, net loss for the quarter ending March 31, 2005 was 2.6 million, or a loss of $0.03 per share versus a loss of 5.8 million, or $0.07 loss per share in the prior year's first quarter.

As of December 31, 2005 (ph), we had 85.8 million shares outstanding.

Turning to the balance sheet total cash and cash equivalents was 73.6 million as of March 31, and total cash increased during the quarter by approximately $500,000.

Total net receivables at the end of the quarter were 32.4 million.

And our DSO at the end of the quarter was 78 days versus 76 days at the end of Q4.

Deferred revenue decreased approximately 1.5 million during Q1 to 35.0 million.

And this decrease is due primarily to the timing of maintenance renewals.

And looking at the cash flow statement, cash used by operations in the first quarter was approximately 1.1 million, while capital expenditures totaled $73,000 during Q1.

Now, I would like to look at and discuss guidance.

I would like to remind you that this guidance is forward-looking information, and is subject to risks and uncertainties, including those identified in our SEC filings, and those mentioned earlier during this call.

We at SeeBeyond remain optimistic about our prospects in 2005.

SeeBeyond expects to achieve total revenue in the range of 37 to $42 million in the second quarter, and earnings per share in the range of a net loss of $0.03 to a net income of $0.02 per share.

We remain focused on earnings and controlling costs, and we will manage our expenses accordingly so that we may achieve the operating margin target we set at the beginning of the year, which was to achieve a 10% or better operating margin goal in Q4 of 2005.

So with that, I would like to open the call now to questions.

(OPERATOR INSTRUCTIONS) David Rudow, Piper Jaffray.

You know, so of the changes you made to the sales force, is that specific in the U.S.?

And then how disruptive do you think it will be to the pipeline closing deals in this quarter and through the balance of the year?

This is Carv.

Thanks for the question.

Yes, specific on the U.S., the changes made in the North American commercial team.

As you know, we actually have two parallel executives in the U.S., one for healthcare and one for commercial.

As far as the disruption into the pipeline, we'd completed a prep level review a week ago in the quarter, and feel very good about continuity on the deals that we are tracking -- the pipeline is also, as well as the increase in pipeline we are seeing.

Do you expect any changes at the layer below the head of the commercial teams at all?

Not at this time.

But we are constantly looking at accountability and forecasting sales effectiveness.

But the group is very focused on Q2 now.

And the main goal right now is we want to get them up to this 70% of the sales force posting revenues each quarter, which is a metric that I have internally here.

And what was the productivity of the U.S. sales force in Q1, then?

Basically, you are looking at 45%, so we have room to move there.

And do you expect to hire a new head of sales sometime, or will you just assume that role for however long it might be?

I am going to be assuming that role for for the foreseeable future.

And we will make that decision as we move down the road here and see how we are doing, both with the sales force and other conditions.

Are there any challenges that you could foresee for yourself, maybe stretching your time too thin by assuming that role in the short term?

I think that is always a factor.

But clearly, the team that I have, I am pretty pleased with them.

And it is a senior group.

I have also got some other operational executives that are helping me on non-field-related areas to free up that bandwidth for me to focus on sales this quarter.

But the healthcare side -- the head of the healthcare team -- fine, everything is stable there?

Right.

Okay.

And then just on the environment, kind of the weakness coming at the end of the Q1, how has April started?

Granted, we won't know until June 30 probably how the ended quarter up, but how does it looks so far?

And are customer concerns around holding back on budgets, is that just kind of a temporary difference or is it something that we should assume for the balance of the your?

Now, at this point, I think it is hard to say, as we are here in the third -- the fourth week of April.

But we are not hearing anything on our early opportunities for the quarter about budgets being shut down or closed or tightened at this point.

Of course, we won't know until June 30 exactly how that plays out.

But we have a pretty strong pipeline of opportunities that are built into that guidance.

And we will see just in terms of what the market conditions look like this quarter, we are being a little cautious here as we open up, and we will see how things progress.

What are your assumptions on Q2 guidance, more of the same?

Are you giving yourself a little more cushion than you did last quarter?

I think we are definitely giving ourselves more cushion and leeway.

We have looked at a combination of factors, our existing pipeline, our split deals that moved from Q1 to hopefully Q2, and looked at some of our larger deals to examine what the risks and probabilities up on those, given the new Sarbane Oxley side (ph) off requirements, etc., that the deals have enough runway to close.

And then just looking at taking into effect -- maybe the overall market conditions of -- there might be a little uncertainty out there, so we have given ourselves a wider band to achieve in.

At the same time, we are also very focused on reduction of cost and ensuring that we can minimize any kind of downside to the revenue model through our entire earnings model.

A couple of interesting conundrums in our results were that we had 44 net new customers in the quarter, and we had several deals over $1 million that we are closing within our existing base.

But I think what we were seeing is that many of these new customers are dipping their foot in, or even perhaps their toe into the pool, instead of jumping in completely.

And I think that is just kind of reflective of the overall business climate.

I mean, people are -- we have come up with an ICAN now and it is in hundreds of sites -- a whole new way of building software.

And I think people are becoming more and more interested, so the number of customers has increased, yet they are starting off slowly.

They want to see it and work with it for a bit before they move forward.

So I think that is part of our conservative nature here to take that into account.

And are the deal sizes -- because of deals sizes, I would imagine your ASPs came down, obviously?

Yes, they did during the quarter, around $300,000 plus and that size.

And we are looking at what that means overall going forward here as new customers buy.

You know, how much -- what are those first bites going to look like?

Are customers just buying smaller deals and pricing is stable, or is it a combination of smaller deals and pressure on the pricing side too?

If you include existing customers -- this is Jim -- our pricing was around $700,000 or 600 something I think for commercial -- $630,000 for commercial.

So you guys -- has the price discounting increased at all, or more pressure there over the last even 6 months, or is it still about the same?

I think it's about the same.

Yes.

Gary Abbott, Merriman Curhan Ford.

A couple of questions.

First, can we dig down into the profiles of the sales force today -- how many people you have in North America, worldwide?

And how many of those people did Thor hire directly?

Well, we have 68 worldwide; approximately 21 in North America commercial.

We ended the quarter with 6 in healthcare.

And then the balance was in the rest of the GOs.

I don't have an actuate number as to how many were hired by Thor, but a large percentage -- we went through about a third of that in -- two-thirds of that in '03 and '04.

And really, the Regional Vice Presidents are responsible for the line hires of the reps, not necessarily GO leader.

So it is the Regional Vice Presidents who have been driving a lot of the hiring.

And no one is leaving at that retail Vice President level.

Do you feel like that obviously, there is two issues.

There is stability and productivity.

So it's sounds to me like -- at least sort of listening to what you are saying about guidance, you feel like you have got stability.

Within the low productivity reps presumably you would turn those guys over or they have been turned over.

Is that an accurate way to think about it?

Yes and yes.

Can you give us some sense as to -- well, presumably, you have told them they are leaving, so how many people have you forcibly turned over for low productivity -- whatever, since you reported the quarter -- since the quarter ended?

It's around 5 or 6%.

It is not a huge number at this point, because we are going to see just how pipelines develop over the course of the next quarter, what those other poor performers -- and we have them on plan (multiple speakers).

Yes, there is a very, very high visibility on this now.

Okay.

As far as the performance out of Europe is concerned, it looks like 42% of total revenue is not a terrible number.

But kind of given where North America was, if it would have hit plan, presumably Europe would have been a lower percentage.

Was there anything going on over there?

Was it weak economies or -- I hate to say why didn't Europe do better, but that is the question?

Yes, we thought generally Europe was going to do better.

They had some slippage at the end of the quarter to close here in Q2.

But overall their pipelines and their level of activity remained strong.

We didn't really see anything from a -- so much a business environment over there saying things are slowing down.

We still have a very good and healthy business there in all the territories within Europe.

So I think that they will catch that up in Q2.

And we are looking at North America to be around 55% of overall revenues, and international 40 to 45%.

So with the bulk of that coming from Europe.

On the large deals that slipped, were they skewed to Europe, or were they --?

They were some of the smaller ones.

The bigger ones were skewed to North American.

Okay.

If I asked the same questions sort by vertical -- this was the most concentrated sort of vertical quarter that you have had in a long time.

Is there sort of a reason that all the other verticals -- you have the sort of 10 percenters didn't show up this quarter.

Is that is represented by the law of small numbers -- if you had closed three deals in transportation, for example, that didn't close?

Is that what we are dealing with, or is there anything going on in the other verticals -- your attention, your expertise?

No, I think it was just the way the numbers fell this quarter.

I don't seat anything in those other verticals.

We have got good activity going on in retail through the energy and utilities area (multiple speakers).

Special services.

So -- our three main verticals, healthcare, manufacturing and financial services/insurance, the bulk of our deals are somewhat centered around that.

And we have strong performance or strong presence in all those other verticals.

So I think it was just timing.

Speaking of retail, obviously, Oracle buys Retek, you guys have a long-standing partnership or installed base that collates to those guys, is that good, bad, indifferent?

Is there anything that comes out of that?

Yes.

This is Jim.

We are not sure yet because the deal hasn't closed.

The Retek employees do not know.

The bottom line is what we have been told is it is business as usual until they hear otherwise.

So we think that clearly, both organizations are working close together.

And we actually closed several deals in the quarter.

So we closed, I think, like three or four new customers with Retek last quarter, despite their being bought.

So I think there is definite activity to go.

I think I have got my rosy colored glasses on.

Worst-case scenario business goes to zero.

What's the best case scenario?

It stays the same.

It stays the same.

Oracle starts reselling it?

That's exactly right.

As we all know, Oracle does not have a solution in this area, certainly nothing like what we offer.

And that is certainly a possibility, and it is something that the Retek people are recommending.

Tim, your line is open for a question.

Just getting straight to the point, can you update us on the status of some of those key deals that slipped into the current quarter from last quarter, like how many have already closed?

We are still actively engaged in those deals that went out of the quarter.

None of them have closed at this time.

Is the current June quarter pipeline weighted towards higher number of larger deals than your previous quarters?

Just kind of looking for the level of risk around big deals in the June quarter.

I don't think it is.

I think we have got three or four seven-figure deals that are in the midst of -- should close here in Q2, which is typically our average.

But earlier in the quarter, I would say (indiscernible) later it seems like.

Okay.

Can you give us some sense on how many of those large deals in the pipeline for the current June quarter are ELA (ph) renewals, or -- just trying to get a sense on how risky those deals are?

Half of them, roughly.

Okay.

And then lastly, in terms of some of the difficulties that you guys face when you are trying to pursue and close the larger deals out there, what would you say is typically the biggest obstacle that you face?

Is it simply extended approval process that gets lengthier like it happened in the March quarter?

And then also how much of the fact that you are a much smaller player versus TIBCO and IBM factor into you guys having difficulty in the sense of getting invited and also closing those large enterprise deals?

And whether or not you guys are seeing improvement in terms of the buyers' attitude in this regard over the past year or not?

I just want to get some sense around that.

I think in terms of what are we seeing in large deals, it is the approval process that causes of the most problems, especially for deals over seven digits.

We're also finding that a lot of our customers are feeling their way as well through the process and new round approvals as they go to that level.

I would add that in terms of activity, though, certainly we had have some challenges in the last quarter because people had new purchasing processes in place for large, corporate entities that they didn't even know about.

We had a couple of times.

And then the other thing I would add is that the number of net new names, and the quality of those new names that we have for Q2, are better than we have seen since 2002.

So we are really -- what I am interested in and I am just very fascinated by it is in fact our ranking in things like that Gartner Magic Quadrant moves quite substantially to the right in terms of completeness in vision.

And in fact, it is very differentiating, I think.

And a lot of companies -- in fact over 100 companies alone came by our booth at the Gartner show after that was announced.

And I think that that should be reflected, not only in this quarter's numbers, but throughout the rest of the year.

The fact that we are getting attention because our product is very different than TIBCO or webMethods or SAP or anybody else who is in this space right now.

And Gartner is saying that openly.

Okay, great.

That sounds very positive.

Hey, Barry, real quick, how should we model taxes going forward?

Similar to where they were in Q1 at a couple hundred thousand dollars a quarter.

Okay.

In conclusion, I would like to thank everybody for participating in today's call.

Thank you again for joining us.

And we look forward to talking to you again next quarter.

So, Andrea?

Thanks, everyone.

I would like to remind you that this call will be available for replay from tonight at 8:00 Eastern, 5:00 Pacific, until April 27 at midnight Eastern, 9:00 Pacific.

That replay is 877-213-9653 domestic and 630-652-3041 international.

Access code for the replay is 11469271.

In addition, following the conclusion of this call, a rebroadcast will also be available on our website, www.SeeBeyond.com.

Thank you very much.

Thank you, ladies and gentlemen.

This does conclude today's teleconference.

Thank you for participating.

You may now disconnect.