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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 0-20725
SIEBEL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3187233
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1855 South Grant Street
San Mateo, CA 94402
(Address of principal executive offices, including zip code)
(415) 295-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
The number of shares outstanding of the registrant's common stock, par value
$.001 per share, as of May 7, 1997, was 34,202,329.
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SIEBEL SYSTEMS, INC.
FORM 10-Q
For the Quarterly Period Ended March 31, 1997
Table of Contents
Page
----
Part I. Financial Information
Item 1. Financial Statements
a) Consolidated Balance Sheets
as of March 31, 1997 and December 31, 1996 3
b) Consolidated Statements of Operations
for the three months ended March 31, 1997 and 1996 4
c) Consolidated Statements of Cash Flows
for the three months ended March 31, 1997 and 1996 5
d) Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
2
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Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
SIEBEL SYSTEMS, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
March 31, December 31,
1997 1996
--------- ---------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 22,205 $ 22,671
Short-term investments 50,557 49,716
Accounts receivable, net 13,486 12,855
Deferred income taxes 1,067 1,067
Prepaids and other 4,190 4,258
--------- ---------
Total current assets 91,505 90,567
Property and equipment, net 8,093 8,310
Other assets 635 624
--------- ---------
Total assets $ 100,233 $ 99,501
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 601 $ 3,107
Accrued expenses 8,945 6,768
Income taxes payable 1,522 2,018
Deferred revenue 4,732 6,212
--------- ---------
Total current liabilities 15,800 18,105
Deferred income taxes 205 205
--------- ---------
Total liabilities 16,005 18,310
Shareholders' equity:
Common stock; $.001 par value;
100,000 shares authorized;
34,111 and 33,604 shares issued and
outstanding, respectively 34 34
Additional paid-in capital 77,352 77,359
Notes receivable from stockholders (508) (508)
Deferred compensation (749) (1,035)
Retained earnings 8,099 5,341
--------- ---------
Total stockholders' equity 84,228 81,191
--------- ---------
Total liabilities and stockholders' equity $ 100,233 $ 99,501
========= =========
See accompanying notes to consolidated financial statements.
3
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SIEBEL SYSTEMS, INC.
Consolidated Statements of Operation
(In thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
------------------------
1997 1996
-------- --------
Revenues:
Software $ 16,561 $ 4,402
Maintenance, consulting and other 2,924 307
-------- --------
Total revenues 19,485 4,709
Cost of revenues:
Software 113 26
Maintenance, consulting and other 1,601 343
-------- --------
Total cost of revenues 1,714 369
-------- --------
Gross margin 17,771 4,340
Operating expenses:
Product development 2,580 986
Sales and marketing 9,367 2,553
General and administrative 1,983 590
-------- --------
Total operating expenses 13,930 4,129
-------- --------
Operating income 3,841 211
Other income, net 607 119
-------- --------
Income before income taxes 4,448 330
Income tax expense 1,690 132
-------- --------
Net income $ 2,758 $ 198
======== ========
Net income per share $ 0.07 $ 0.01
======== ========
Shares used in net income per share computation 39,531 33,717
======== ========
See accompanying notes to consolidated financial statements.
4
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SIEBEL SYSTEMS, INC.
Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Three Months Ended
March 31,
------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net income $ 2,758 $ 198
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Compensation related to stock options 61 43
Depreciation and amortization 652 125
Loss on disposal of property and equipment 299 -
Provision for doubtful accounts 97 -
Changes in operating assets and liabilities:
Accounts receivable (728) (46)
Prepaids and other 68 42
Accounts payable (2,506) 313
Accrued expenses 2,177 (180)
Income taxes payable (436) (303)
Deferred revenue (1,480) (692)
-------- --------
Net cash provided by (used in)
operating activities 962 (500)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (734) (1,268)
Purchase of short-term investments (4,044) -
Maturities of short-term investments 3,203 -
Other assets (11) (5)
-------- --------
Net cash used in investing activities (1,586) (1,273)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 158 127
Proceeds from issuance of preferred stock - 12
-------- --------
Net cash provided by financing activities 158 139
-------- --------
Change in cash and cash equivalents (466) (1,634)
Cash and cash equivalents, beginning of period 22,671 11,391
-------- --------
Cash and cash equivalents, end of period $ 22,205 $ 9,757
======== ========
Supplemental disclosure of cash flows information:
Cash paid for income taxes $ 1,251 $ 385
======== ========
Tax benefit from exercise of stock options $ 60 $ -
======== ========
See accompanying notes to consolidated financial statements.
5
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SIEBEL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
on substantially the same basis as the audited consolidated financial
statements, and in the opinion of management include all adjustments, consisting
only of normal recurring adjustments, necessary for their fair presentation. The
interim results presented are not necessarily indicative of results for any
subsequent quarter or for the year ending December 31, 1997.
For information as to the significant accounting policies followed by the
Company and other financial and operating information, see the Company's Annual
Report on Form 10-K, filed with the Securities and Exchange Commission on March
7, 1997 (the "Form 10-K"). These consolidated financial statements should be
read in conjunction with the consolidated financial statements included in that
Annual Report.
2. Net Income Per Share
Net income per share is computed based on the weighted average number of common
and preferred shares outstanding and is adjusted for shares issuable upon the
exercise of stock options (unless antidilutive) using the treasury stock method.
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No.
128 requires the presentation of basic earnings per share ("EPS") and, for
companies with potentially dilutive securities, such as options, diluted EPS.
SFAS No. 128 is effective for annual and interim periods ending after December
15, 1997. Had SFAS No. 128 been effective for the quarter ended March 31, 1997,
basic EPS and diluted EPS would have been $0.08 and $0.07 per share,
respectively.
3. Cash and Cash Equivalents, and Short-Term Investments
The Company considers all highly liquid investments with an original maturity of
90 days or less to be cash equivalents. Short-term investments generally consist
of highly liquid municipal securities with original maturities in excess of 90
days.
The Company has classified its investments in certain debt and equity securities
as "available for sale." Such investments are carried at fair value, with gross
unrealized gains and losses reported as a separate component of stockholders'
equity. As of March 31, 1997, gross unrealized gains and losses have not been
material.
March 31, December 31,
(In thousands) 1997 1996
------------------------------------------------------------------
(unaudited)
Certificates of deposit $ 1,325 $ 1,325
Municipal securities 49,232 48,391
------------------------------------------------------------------
$ 50,557 $ 49,716
------------------------------------------------------------------
6
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4. Accrued Expenses
March 31, December 31,
(In thousands) 1997 1996
------------------------------------------------------------------
(unaudited)
Bonuses $ 1,271 $ 1,672
Commissions 2,221 1,846
Vacation 549 388
Sales tax 393 513
Employee stock purchase plan 787 -
Other 3,724 2,349
------------------------------------------------------------------
$ 8,945 $ 6,768
------------------------------------------------------------------
7
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED HEREIN AND
UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--RISK FACTORS" IN THE COMPANY'S ANNUAL REPORT ON FORM
10-K. ANY SUCH FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE SUCH
STATEMENTS ARE MADE AND THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE
THE RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS.
Overview
Siebel Systems, Inc. is an industry leading provider of enterprise-class sales
and marketing information software systems. The Company designs, develops,
markets, and supports Siebel Enterprise Applications, a leading
Internet-enabled, object oriented client/server application software product
family designed to meet the sales and marketing information system requirements
of even the largest multi-national organizations.
The Company currently expects that license revenues from Siebel Enterprise
Applications will continue to account for a substantial majority of the
Company's revenues for the remainder of 1997 and for the foreseeable future. As
a result, factors adversely affecting the pricing of or demand for Siebel
Enterprise Applications could have a material adverse effect on the Company's
business, operating results and financial condition. Most of the Company's
revenues to date have been derived from one-time license fees from customers who
have received a perpetual license to the Company's products. The Company's
remaining revenues are primarily attributable to lower margin maintenance and
other revenues, including training revenues.
A relatively small number of customers account for a significant percentage of
the Company's license revenues. For the fiscal year ended 1996 and the first
three months of 1997, sales to the Company's ten largest customers accounted for
55% and 78% of total revenues, respectively. The Company expects that licenses
of its products to a limited number of customers will continue to account for a
large percentage of revenue for the foreseeable future. The license of the
Company's software products is often an enterprise-wide decision by prospective
customers and generally requires the Company to provide a significant level of
education to prospective customers regarding the use and benefits of the
Company's products. In addition, the implementation of the Company's products
involves a significant commitment of resources by prospective customers and is
commonly associated with substantial reengineering efforts which may be
performed by the customer or third-party system integrators. The cost to the
customer of the Company's product is typically only a portion of the related
hardware, software, development, training and integration costs of implementing
a large-scale sales and marketing information system. For these and other
reasons, the sales and implementation cycles associated with the license of the
Company's products is often lengthy (ranging to date from between two and
twenty-four months from initial contact to product implementation) and is
subject to a number of significant delays over which the Company has little or
no control. Given these factors and the expected customer concentration, the
loss of a major customer or any reduction or delay in sales to or
implementations by such customers could have a material adverse effect on the
Company's business, operating results, and financial condition.
As of March 31, 1997, many of the Company's customers were in the pilot phase of
implementation of Siebel Enterprise Applications. Several of the Company's
customers have completed a significant portion of their enterprise-wide
development and deployment of Siebel Enterprise Applications, however, many have
only recently commenced such development and deployment. As a result, the
Company's products are currently being used by only a limited number of sales
professionals. If any of the Company's customers are not able to customize and
deploy Siebel Enterprise Applications successfully and on a timely basis to the
number of anticipated users, the Company's reputation could be significantly
damaged, which could have a material adverse effect on the Company's business,
operating results and financial condition.
8
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The Company markets its products in the United States through its direct sales
force and internationally through its sales force and a distributor in Japan.
International revenues accounted for 11% and 26% of total revenues in the
fiscal year ended 1996 and the first three months of 1997, respectively. The
Company is increasing its international sales force and is seeking to establish
distribution relationships with appropriate strategic partners and expects
international revenues will account for a substantial portion of total revenues
in the future. As a result, failure to cost-effectively maintain or increase
international sales could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company's limited operating history makes the prediction of future operating
results difficult. Prior growth rates in the Company's revenue and net income
should not be considered indicative of future operating results. Future
operating results will depend upon many factors, including the demand for the
Company's products, the level of product and price competition, the length of
the Company's sales cycle, the size and timing of individual license
transactions, the delay or deferral of customer implementations, the Company's
relationships with systems integrators, the Company's success in expanding its
direct sales force, indirect distribution channels and customer support
organization, the timing of new product introductions and product enhancements,
the mix of products and services sold, levels of international sales, activities
of and acquisitions by competitors, the timing of new hires, changes in foreign
currency exchange rates, the ability of the Company to develop and market new
products and control costs and the ability to attract and retain key personnel.
There can be no assurance that any of the Company's business or strategies will
be successful or that the Company will be able to sustain profitability on a
quarterly or annual basis.
The Company's sales generally reflect a relatively high amount of revenue per
order. The loss or delay of individual orders, therefore, can have a significant
impact on the revenues and quarterly results of the Company. The timing of
license revenue is difficult to predict because of the length of the Company's
sales cycle, which to date has ranged from two to eighteen months from initial
contact to the execution of a license agreement. Because the Company's operating
expenses are based on anticipated revenue trends and because a high percentage
of the Company's expenses are relatively fixed, a delay in the recognition of
revenue from a limited number of license transactions could cause significant
variations in operating results from quarter to quarter and could result in
losses. To the extent such expenses precede, or are not subsequently followed
by, increased revenues, the Company's operating results would be materially
adversely affected. As a result of these and other factors, revenues for any
quarter are subject to significant variation, and the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
It is likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock would likely be adversely affected.
To date, the Company has not experienced significant seasonality of operating
results. The Company expects that future revenues for any period may be affected
by the fiscal or quarterly budget cycles of its customers.
Results of Operations
Revenues
- --------
Software. License revenues increased to $16,561,000 for the three months ended
- --------
March 31, 1997 from $4,402,000 for the three months ended March 31, 1996 and
decreased as a percentage of total revenues from 93% in the fiscal 1996 period
to 85% in the fiscal 1997 period. License revenues increased in absolute dollar
amount during these periods from the respective prior year periods due to an
increase in the number of licenses of Siebel Enterprise Applications (primarily
Siebel Sales Enterprise) to new and existing customers. This increase in the
number of licenses was primarily due to continued demand by new and previous
customers for products in the Siebel Enterprise Applications family, both in the
United States and internationally, and, to a lesser degree, continued expansion
of the Company's direct sales organization. The decrease in license revenues as
a percentage of total revenues was primarily due to the inclusion of a
maintenance component in most of the Company's license agreements and
maintenance renewals from products licensed in prior periods.
9
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Maintenance, Consulting and Other. Maintenance, consulting and other revenues
- ---------------------------------
increased to $2,924,000 for the three months ended March 31, 1997 from $307,000
for the three months ended March 31, 1996 and increased as a percentage of total
revenues from 7% in the fiscal 1996 period to 15% in the fiscal 1997 period.
These increases in absolute dollar amount and as a percentage of total revenues
were due to the widespread licensing of products to customers pursuant to
agreements with a maintenance component, maintenance renewals from products
licensed in prior periods and a customer obtaining implementation services
through the Company. The Company expects that maintenance, consulting and
other revenues will continue to increase in absolute dollar amount as a
maintenance component is standard in the Company's license agreements. These
revenues are expected to remain the same or increase as a percentage of total
revenues.
Cost of Revenues
- ----------------
Software. Cost of software license revenues includes product packaging,
- --------
documentation and production. Cost of license revenues through March 31, 1997
have averaged less than 1% of software license revenues. All costs incurred in
the research and development of software products and enhancements to existing
products have been expensed as incurred, and, as a result, cost of license
revenues includes no amortization of capitalized software development costs.
Maintenance, Consulting and Other. Cost of maintenance, consulting and other
- ---------------------------------
revenues consists primarily of personnel, facility and systems costs incurred in
providing customer support. Cost of maintenance and other revenues aggregated
$1,601,000 for the three months ended March 31, 1997 and $343,000 for the three
months ended March 31, 1996 and increased from 7% of total revenues in the
fiscal 1996 period to 8% in the fiscal 1997 period. These increases reflect the
effect of fixed costs resulting from the Company's expansion of its
maintenence and support organization and due to a customer obtaining
implementation services through the Company. The Company expects that
maintenance, consulting and other costs will continue to increase in absolute
dollar amount as the Company expands its customer support organization to meet
anticipated customer demands in connection with product implementation. These
costs are expected to remain the same or increase as a percentage of total
revenues.
Operating Expenses
- ------------------
Product Development. Product development expenses include expenses associated
- -------------------
with the development of new products, enhancements of existing products and
quality assurance activities, and consist primarily of employee salaries,
benefits, consulting costs and the cost of software development tools. Product
development expenses increased to $2,580,000 for the three months ended March
31, 1997 from $986,000 for the three months ended March 31, 1996. These expenses
generally decreased, as a percentage of total revenues, to approximately 13% for
the first quarter of 1997 from approximately 21% for the first quarter of
1996. The increases in the dollar amount of product development expenses were
primarily attributable to costs of additional personnel in the Company's product
development operations. The Company anticipates that it will continue to devote
substantial resources to product development. The Company expects
product development expenses increase in absolute dollar amount but
remain at a similar percentage of total revenues as the first quarter of
1997.
Sales and Marketing. Sales and marketing expenses consist primarily of salaries,
- -------------------
commissions and bonuses earned by sales and marketing personnel, field office
expenses, travel and entertainment and promotional expenses. Sales and marketing
expenses increased to $9,367,000 for the three months ended March 31, 1997 from
$2,553,000 for the three months ended March 31, 1996. These expenses decreased,
as a percentage of total revenues, to approximately 48% in the first quarter of
1997 from approximately 54% for the first quarter of 1996. The increases in the
dollar amount of expenditures on sales and marketing reflect primarily the
hiring of additional sales and marketing personnel and, to a lesser degree,
costs associated with expanded promotional activities. The Company expects that
sales and marketing expenses will continue to increase in absolute dollar amount
as the Company continues to expand its sales and marketing efforts, establishes
additional sales offices in the United States and internationally and increases
promotional activities. These expenses are expected to remain at a similar
percentage of total revenues as the first quarter of 1997.
10
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General and Administrative. General and administrative expenses consist
- --------------------------
primarily of salaries and occupancy costs for administrative, executive and
finance personnel. These expenses increased to $1,983,000 for the three months
ended March 31, 1997 from $590,000 for the three months ended March 31, 1996.
These expenses decreased as a percentage of total revenues to approximately 10%
in the first quarter of 1997 from approximately 13% in the first quarter of
1996. The increases in the absolute dollar amount of general and administrative
expenses were primarily due to increased staffing and associated expenses
necessary to manage and support the Company's increased scale of operations. The
Company believes that its general and administrative expenses will continue to
increase in absolute dollar amount as a result of the continued expansion of the
Company's administrative staff and facilities to support growing operations and
the expenses associated with being a public company. The Company anticipates
that its general and administrative expenses as a percentage of total revenues
should remain at a similar percentage as the first quarter of 1997.
Other Income, Net
- -----------------
Other income, net is primarily comprised of interest income earned on the
Company's cash and cash equivalents and short-term investments and short-term
investment balances during the last four quarters.
Provision for Income Taxes
- --------------------------
Income taxes have been provided at an effective rate of approximately 38%,
which is comprised primarily of federal and state taxes. The Company accounts
for income taxes in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes."
Net Income
- ----------
The Company had net income (after provision for income taxes) of $2,758,000 for
the three months ended March 31, 1997 compared to net income of $198,000 for the
three months ended March 31, 1996. Net income per share increased to $0.07 per
share in the first quarter of 1997 from $0.01 in the comparable period in 1996.
Net income increased as a percentage of total revenues from 4% in the three
months ended March 31, 1996 to 14% in the three months ended March 31, 1997.
Liquidity and Capital Resources
- -------------------------------
The Company's cash, cash equivalents and short-term investments increased to
$72,762,000 as of March 31, 1997 from $72,387,000 as of December 31, 1996,
representing approximately 73% of total assets. This increase was primarily
attributable to net income and an increase in accrued expenses,
partially offset by decreases in accounts payable and deferred revenue
and purchases of property and equipment.
The Company currently has commitments for capital expenditures of $1.7 million
related to purchases of property and equipment, primarily computer workstations
used for product development, demonstration and customer support purposes.
The Company believes that the anticipated cash flows from operations, cash, cash
equivalents and short-term investments, will be adequate to meet its cash needs
for working capital and capital expenditures for at least the next twelve
months.
Factors Affecting Operating Results
- -----------------------------------
Limited Operating History. The Company commenced operations in July 1993 and
- -------------------------
shipped version 1.0 of Siebel Sales Enterprise in April 1995 and version 2.2 of
Siebel Service Enterprise in December 1996. The Company has only a limited
operating history, and its prospects must be evaluated in light of the risks and
uncertainties encountered by a company in its early stage of development. The
new and evolving markets in which the Company
11
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operates make these risks and uncertainties particularly pronounced. To address
these risks, the Company must, among other things, successfully implement its
sales and marketing strategy, respond to competitive developments, attract,
retain, and motivate qualified personnel, continue to develop and upgrade its
products and technologies more rapidly than its competitors, and commercialize
its products and services incorporating these enhanced technologies. The Company
expects to continue to devote substantial resources to its product development
and sales and customer support and, as a result, will need to generate
significant quarterly revenues to achieve and maintain profitability. The
Company's limited operating history makes it difficult to predict accurately
future operating results. There can be no assurance that any of the Company's
business strategies will be successful or the Company will be profitable in any
future quarter or period.
Reliance on Andersen Consulting and Other Relationships; Dependence on System
- -----------------------------------------------------------------------------
Integrators. The Company has established strategic relationships with a number
- -----------
of organizations that it believes are important to its worldwide sales,
marketing and support activities and the implementation of its products. The
Company believes that its relationships with such organizations provide
marketing and sales opportunities for the Company's direct sales force and
expand the distribution of its products. These relationships also assist it in
keeping pace with the technological and marketing developments of major software
vendors, and, in certain instances, provide it with technical assistance for its
product development efforts. In particular, the Company has established a
non-exclusive strategic relationship with Andersen Consulting, a principal
stockholder of the Company. In the first three months of 1997, approximately 55%
of the revenues of the Company were derived from customers for which Andersen
Consulting had been engaged to provide system integration services. Any
deterioration of the Company's relationship with Andersen Consulting could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company has relationships with Itochu
Corporation and Itochu Techno-Science Corporation, among others. The failure by
the Company to maintain its existing relationships, or to establish new
relationships in the future, could have a material adverse effect on the
Company's business, results of operations and financial condition. The Company's
customers and potential customers frequently rely on Andersen Consulting, as
well as other third-party system integrators to develop, deploy and/or manage
Siebel Enterprise Applications. If the Company is unable to train adequately a
sufficient number of system integrators or, if for any reason such integrators
do not have or devote the resources necessary to facilitate implementation of
the Company's products or if such integrators adopt a product or technology
other than Siebel Enterprise Applications, the Company's business, operating
results and financial condition could be materially and adversely affected.
Limited Deployment. The Company first shipped Siebel Sales Enterprise version
- ------------------
1.0 in April 1995 and first shipped Siebel Service Enterprise version 2.2 in
December 1996. As of March 31, 1997, many of the Company's customers were in the
pilot phase of implementing the Company's software. There can be no assurance
that enterprise-wide deployments by such customers will be successful. The
Company's customers frequently contemplate the deployment of its products
commercially to large numbers of sales and marketing personnel, many of whom
have not previously used application software systems, and there can be no
assurance of such end-users' acceptance of the product. The Company's products
are being deployed on a variety of computer hardware platforms and used in
connection with a number of third-party software applications and programming
tools. Such deployment presents significant technical challenges, particularly
as large numbers of sales personnel attempt to use the Company's product
concurrently. If any of the Company's customers are not able to customize and
deploy Siebel Enterprise Applications successfully and on a timely basis to the
number of anticipated users, the Company's reputation could be significantly
damaged, which could have a material adverse effect on the Company's business,
operating results and financial condition. In addition to revenues from new
customers, the Company expects that a significant percentage of any future
revenues will be derived from sales to existing customers. However, such
customers are not contractually committed in all cases to purchase additional
licenses. If existing customers have difficulty further deploying Siebel
Enterprise Applications or for any other reason are not satisfied with Siebel
Enterprise Applications, the Company's business, operating results and financial
condition could be materially and adversely affected.
Competition. The market for the Company's products is intensely competitive,
- -----------
subject to rapid change and significantly affected by new product introductions
and other market activities of industry participants. The Company's products are
targeted at the emerging market for sales and marketing information systems, and
the Company faces competition primarily from customers' internal information
technology departments and systems
12
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integrators, as well as from other application software providers that offer a
variety of products and services to address this market. Many of the Company's
customers and potential customers have in the past attempted to develop sales
and marketing information systems, in-house either alone or with the help of
systems integrators and there can be no assurance that the Company will be
able to compete successfully against such internal development efforts.
The Company relies on a number of systems consulting and systems integration
firms for implementation and other customer support services, as well as
recommendations of its products during the evaluation stage of the purchase
process, particularly Andersen Consulting. Although the Company seeks to
maintain close relationships with these service providers, many of them have
similar, and often more established, relationships with the Company's
competitors. If the Company is unable to develop and retain effective, long-term
relationships with these third parties, the Company's competitive position could
be materially and adversely affected. Further, there can be no assurance that
these third parties, many of which have significantly greater resources than the
Company, will not market software products in competition with the Company in
the future or will not otherwise reduce or discontinue their relationships with
or support of the Company and its products.
A large number of personal, departmental and other products exist in the sales
automation market. Some of the Company's current and potential competitors and
their products include Symantec (ACT!), Borealis Corporation (Arsenal), Brock
International (Brock Activity Manager), Early Cloud & Co. (CallFlow), Clarify,
Inc. (Clear-Sales), IMA (EDGE), Marketrieve Company (Marketrieve PLUS), Oracle
Corporation (Oracle Sales Manager), SaleSoft (PROCEED), Pivotal Software, Inc.
(Relationship), SalesBook Systems (SalesBook), SalesKit Software Corporation
(SalesKit), Scopus Technology, Inc. (SalesTeam), Aurum (SalesTrak), Sales
Technologies (SNAP for Windows), Saratoga Systems (SPS for Windows) and The
Vantive Corporation (Vantive Sales). Some of these competitors have longer
operating histories, significantly greater financial, technical, marketing and
other resources, significantly greater name recognition and a larger installed
base of customers than the Company. In addition, many competitors have
well-established relationships with current and potential customers of the
Company. As a result, these competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products, than
can the Company.
It is also possible that new competitors or alliances among competitors may
emerge and rapidly acquire significant market share. The Company also expects
that competition will increase as a result of consolidation in the software
industry. Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which could materially adversely affect
the Company's business, operating results and financial condition. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially and adversely affect its business, operating results
and financial condition.
Management of Growth; Dependence upon Key Personnel. In the event that the
- ---------------------------------------------------
significant growth of the Company's revenues continues, such growth may place a
significant strain upon the Company's management systems and resources. The
Company's ability to compete effectively and to manage future growth, if any,
will require the Company to continue to improve its financial and management
controls, reporting systems and procedures on a timely basis and expand, train
and manage its employee work force. There can be no assurance that the Company
will be able to do so successfully. The Company's failure to do so could have a
material adverse effect upon the Company's business, operating results and
financial condition. The Company's future performance depends in significant
part upon the continued service of its key technical, sales and senior
management personnel, particularly Thomas M. Siebel, the Company's Chairman and
Chief Executive Officer, none of whom has entered into an employment agreement
with the Company. The loss of the services of one or more of the Company's
executive officers could have a material adverse effect on the Company's
business, operating results and financial condition. The Company's future
success also depends on its continuing ability to attract and retain highly
qualified technical, customer support, sales and managerial personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to retain its key technical, sales and managerial
employees or that it can attract, assimilate or retain other highly qualified
technical, sales and managerial personnel in the future.
13
<PAGE>
International Operations. The Company's sales are primarily to large
- ------------------------
multi-national companies. To service the needs of such companies, both
domestically and internationally, the Company must provide worldwide product
support services. As a result, the Company has expanded and intends to continue
to expand its international operations and enter additional international
markets, which will require significant management attention and financial
resources and could adversely affect the Company's operating margins and
earnings, if any. Revenues from international sales accounted for approximately
26% of the Company's total revenues in the first three months of 1997. The
Company believes that in order to increase sales opportunities and profitability
it will be required to expand its international operations. The Company has
committed and continues to commit significant management time and financial
resources to developing direct and indirect international sales and support
channels. There can be no assurance, however, that the Company will be able to
maintain or increase international market demand for Siebel Enterprise
Applications. To the extent that the Company is unable to do so in a timely
manner, the Company's international sales will be limited, and the Company's
business, operating results and financial condition could be materially and
adversely affected.
The growth in the Company's revenues from international sales is expected to
continue to subject a portion of the Company's revenues to the risks associated
with international sales, including foreign currency fluctuations, economic or
political instability, shipping delays and various trade restrictions, any of
which could have a significant impact on the Company's ability to deliver
products on a competitive and timely basis. Future imposition of, or significant
increases in the level of, customs duties, export quotas or other trade
restrictions, could have an adverse effect on the Company's business, financial
condition and results of operations. As the Company develops an international
sales force, it expects to be more directly subject to foreign currency
fluctuations. To the extent such direct sales are denominated in foreign
currency, any such fluctuation may adversely affect the Company's business,
financial condition and results of operations. Finally, the laws of certain
foreign countries do not protect the Company's intellectual property rights to
the same extent as do the laws of the United States.
14
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is engaged in certain legal proceedings as disclosed in the
Company's Annual Report on Form 10-K. There were no significant changes to these
legal proceedings in the three months ended March 31, 1997.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
(3) 3.3 Restated Certificate of Incorporation of the Registrant, as amended.
(1) 3.4 Bylaws of the Registrant.
(1)(3) 4.1 Reference is made to Exhibits 3.3 and 3.4.
(1) 4.2 Specimen Stock Certificate.
(1) 4.3 Restated Investor Rights Agreement, dated December 1, 1995, between the Registrant and
certain investors, as amended April 30, 1996 and June 14, 1996.
(3) 10.1 Registrant's 1996 Equity Incentive Plan, as amended.
(3) 10.2 Registrant's Employee Stock Purchase Plan, as amended.
(1) 10.3 Form of Indemnity Agreement to be entered into between the Registrant and its officers and directors.
(4) 10.4 Registrant's Deferred Compensation Plan, dated January 10, 1997.
(1)(2) 10.6 Master Alliance Agreement, dated March 17, 1995, between the Registrant and Andersen Consulting LLP.
(1) 10.9 Assignment Agreement, dated September 20, 1995, by and between the Registrant and
Thomas M. Siebel.
(1) 10.10 Lease Agreement, dated June 4, 1996, by and between the Registrant and Crossroad
Associates and Clocktower Associates.
(5) 11.1 Statement Regarding Computation of Net Income Per Share.
(5) 27.1 Financial Data Schedule.
</TABLE>
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 333-03751), as amended.
(2) Confidential treatment has been granted with respect to portions of this
exhibit.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-8 (No. 333-07983), as amended.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
(5) Filed herewith.
(b) Reports on Form 8-K
None.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIEBEL SYSTEMS, INC.
Date: May 14, 1997 By: /s/ Howard H. Graham
--------------------------------
Howard H. Graham
Senior Vice President Finance
and Administration
and Chief Financial Officer
16
<PAGE>
EXHIBIT 11.1
SIEBEL SYSTEMS, INC.
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1997 1996
------- -------
<S> <C> <C>
Net income $ 2,758 $ 198
======= =======
Weighted average number of shares outstanding
Common stock 33,981 16,717
Preferred stock, as if converted -- 9,814
Number of common stock equivalents as a result of
stock options outstanding using the
treasury stock method 5,550 1,078
Number of common stock issued and stock options
granted in accordance with SAB No. 83 -- 6,108
------- -------
Shares used in net income per share computation 39,531 33,717
======= =======
Net income per share $ 0.07 $ 0.01
======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 22,205 22,671
<SECURITIES> 50,557 49,716
<RECEIVABLES> 13,486 12,855
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 91,505 90,567
<PP&E> 8,093 8,310
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 100,233 99,501
<CURRENT-LIABILITIES> 15,800 18,105
<BONDS> 0 0
0 0
0 0
<COMMON> 34 34
<OTHER-SE> 84,194 81,157
<TOTAL-LIABILITY-AND-EQUITY> 100,233 99,501
<SALES> 16,561 4,402
<TOTAL-REVENUES> 19,485 4,709
<CGS> 1,714 369
<TOTAL-COSTS> 13,930 4,129
<OTHER-EXPENSES> (607) (119)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 4,448 330
<INCOME-TAX> 1,690 132
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,758 198
<EPS-PRIMARY> .07 .01
<EPS-DILUTED> .07 .01
</TABLE>
