<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2000
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: 000-26579
_________________
TIBCO SOFTWARE INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0449727
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3165 Porter Drive, Palo Alto, Ca 94304
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (650) 846-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 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, $0.001 par
value, as of October 6, 2000 was 194,430,703.
<PAGE>
TIBCO SOFTWARE INC
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item Page No.
----- --------
<S> <C>
Item 1 Financial Statements:
Condensed Consolidated Balance Sheets as of August 31, 2000 and November 30,
1999 (Unaudited)........................................................................ 3
Condensed Consolidated Statements of Operations for the three-months and the
nine-months ended August 31, 2000 and August 31, 1999 (Unaudited)....................... 4
Condensed Consolidated Statements of Cash Flows for the nine-months ended
August 31, 2000 and August 31, 1999 (Unaudited)......................................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited)........................ 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................................. 11
Item 3 Quantitative and Qualitative Disclosures about Market Risk.............................. 18
PART II - OTHER INFORMATION
Item 1 Legal Proceedings....................................................................... 19
Item 2 Changes in Securities and Use of Proceeds............................................... 19
Item 3 Defaults Upon Senior Securities......................................................... 19
Item 4 Submission of Matters to a Vote of Security Holders..................................... 19
Item 5 Other Information....................................................................... 19
Item 6 Exhibits and Reports on Form 8-K........................................................ 19
Signatures.............................................................................. 20
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIBCO SOFTWARE INC.
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
August 31, November 30,
2000 1999
---------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................... $ 218,440 $ 13,681
Short-term investments.............................................. 386,578 76,126
Accounts receivable, net............................................ 65,630 38,599
Accounts receivable from related parties, net....................... 5,920 3,886
Other current assets................................................ 9,384 5,031
-------------- ---------
Total current assets........................................... 685,952 137,323
Property and equipment, net........................................... 20,895 10,423
Other assets.......................................................... 19,778 1,171
Goodwill and acquired intangibles, net................................ 25,992 30,721
-------------- ------------
$ 752,617 $ 179,638
-------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 5,658 $ 7,501
Accrued liabilities................................................. 55,855 21,128
Deferred revenue.................................................... 26,499 13,091
-------------- ------------
Total current liabilities...................................... 88,012 41,720
-------------- ------------
Stockholders' equity:
Common stock........................................................ 193 181
Additional paid-in capital.......................................... 702,724 182,939
Unearned stock-based compensation................................... (7,409) (8,083)
Accumulated other comprehensive income (loss)....................... 12,337 (24)
Accumulated deficit................................................. (43,240) (37,095)
-------------- ---------
Total stockholders' equity..................................... 664,605 137,918
-------------- ------------
$ 752,617 $ 179,638
============== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
TIBCO SOFTWARE INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------
August 31, August 31, August 31, August 31,
2000 1999 2000 1999
----------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
License revenue:
Non-related parties........................... $ 42,365 $ 8,239 97,149 $ 22,906
Related parties............................... 6,147 4,917 16,406 12,308
----------- ---------- ----------- ----------
Total license revenue........................ 48,512 13,156 113,555 35,214
----------- ---------- ----------- ----------
Service and maintenance revenue:
Non-related parties........................... 17,918 10,238 47,331 25,567
Related parties............................... 783 642 2,337 2,326
----------- ---------- ----------- ----------
Total service and maintenance revenue........ 18,701 10,880 49,668 27,893
----------- ---------- ----------- ----------
Total revenue............................. 67,213 24,036 163,223 63,107
Cost of revenue..................................... 16,585 9,738 43,700 25,978
----------- ---------- ----------- ----------
Gross profit........................................ 50,628 14,298 119,523 37,129
----------- ---------- ----------- ----------
Operating expenses:
Research and development...................... 14,879 7,032 38,840 18,943
Sales and marketing........................... 25,437 8,093 61,550 21,022
General and administrative.................... 4,557 1,756 11,390 5,291
Amortization of stock-based compensation...... 7,980 2,021 27,543 5,429
Amortization of goodwill and acquired
Intangibles.............................. 1,562 -- 4,686 --
----------- ---------- ----------- ----------
Total operating expenses..................... 54,415 18,902 144,009 50,685
----------- ---------- ----------- ----------
Loss from operations................................ (3,787) (4,604) (24,486) (13,556)
Interest and other income, net...................... 8,816 675 16,509 668
Realized gain on equity investments................. 1,832 -- 1,832 --
============ =========== =========== ==========
Net Income(loss).................................... $ 6,861 $ (3,929) $ (6,145) $ (12,888)
============ =========== =========== ==========
Net Income(loss) per share:
Basic.......................................... 0.04 (0.03) (0.03) (0.16)
============ =========== =========== ==========
Weighted average common shares outstanding..... 187,088 113,365 182,136 79,458
============ =========== =========== ==========
Net Income (loss) per share:
Diluted....................................... $ 0.03 $ (0.03) $ (0.03) $ (0.16)
============ =========== =========== ==========
Weighted average common shares outstanding..... 222,558 113,365 182,136 79,458
============ =========== =========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
TIBCO SOFTWARE INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------
August 31, August 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................................... $ (6,145) $ (12,888)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization................................... 3,002 1,343
Amortization of goodwill and other intangibles.................. 4,729 --
Amortization of unearned compensation........................... 27,543 5,429
Changes in assets and liabilities:
Accounts receivable........................................... (28,108) (10,192)
Accounts receivable from related parties...................... (957) (970)
Other assets.................................................. (8,960) (1,463)
Accounts payable.............................................. (1,843) 2,345
Accrued liabilities........................................... 34,727 6,323
Deferred revenue.............................................. 13,408 2,411
--------- ---------
Net cash provided (used) by operating activities............ 37,396 (7,662)
--------- ---------
Cash flows from investing activities:
Deposits held by related parties.................................. -- 15,423
Purchases of investments.......................................... (364,341) (110,384)
Sales and maturities of investments............................... 73,636 --
Purchases of property and equipment............................... (13,474) (8,065)
Purchases of private equity investments........................... (17,000) --
Investments pledged as security for letter of credit.............. (5,000) --
--------- ---------
Net cash provided (used) by investing activities............ (326,179) (103,026)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock......................... 492,928 126,485
--------- ---------
Net cash provided by financing activities................... 492,928 126,485
--------- ---------
Effect of exchange rate changes on cash............................ 614 --
--------- ---------
Net change in cash and cash equivalents............................ 204,759 15,797
Cash and cash equivalents at beginning of period................... 13,681 547
--------- ---------
Cash and cash equivalents at end of period......................... $ 218,440 $ 16,344
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
TIBCO SOFTWARE INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by TIBCO Software Inc. (the "Company" or "TIBCO") in accordance
with the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with such rules and
regulations. In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company,
and its results of operations and cash flows. These financial statements should
be read in conjunction with the annual audited consolidated financial statements
and notes as of and for the year ended November 30, 1999 included in the
Company's Form 10-K filed with the Securities and Exchange Commission on
February 25, 2000.
For purposes of presentation, the Company has indicated the third quarter
of fiscal 2000 and 1999 as ending on August 31, 2000 and August 31, 1999,
respectively; whereas, in fact the Company's third fiscal quarters ended on the
Friday nearest to the end of August.
The results of operations for the three months and nine months ended August
31, 2000 are not necessarily indicative of the results that may be expected for
the year ending November 30, 2000 or any other future interim period, and the
Company makes no representations related thereto.
In June 1999, the Company's Board of Directors approved a one-for-two
reverse stock split of Company's outstanding shares which became effective on
July 13, 1999 and in January 2000, the Company's Board of Directors effected a
three-for-one stock split payable in the form of a dividend of two additional
shares of the Company's common stock for every share owned by stockholders which
became effective on February 18, 2000. All share and per share data have been
adjusted to retroactively reflect these splits.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
$3.6 million due from related parties at November 30, 1999 that was
included in accounts receivable, net in the prior period consolidated financial
statements has been reclassified to accounts receivable from related parties,
net, to conform to the current year presentation.
2. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
August 31, November 30,
2000 1999
--------- ------------
<S> <C> <C>
Accounts receivable, net:
Accounts receivable................................. $ 65,916 $ 35,519
Unbilled fees and services.......................... 9,290 5,313
--------- ------------
75,206 40,832
Less: Allowances for doubtful accounts,
returns and discounts......................... (3,656) (2,233)
--------- ------------
$ 71,550 $ 38,599
========= ============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
August 31, November 30,
2000 1999
--------- ------------
<S> <C> <C>
Property and equipment, net:
Equipment........................................... $ 15,246 $ 10,289
Furniture and fixtures.............................. 1,901 515
Leasehold improvements.............................. 9,259 4,420
--------- ------------
26,406 15,224
Less: Accumulated depreciation and amortization..... (5,511) (4,801)
--------- ------------
$ 20,895 $ 10,423
========= ============
Accrued liabilities:
Compensation and employee related................... $ 46,313 $ 13,201
Expenses............................................ 9,542 7,927
--------- ------------
$ 55,855 $ 21,128
========= ============
</TABLE>
3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investment securities with original
maturities of three months or less to be cash equivalents. Management
determines the appropriate classification of marketable securities at the time
of purchase and evaluates such designation as of each balance sheet date. To
date, all marketable securities have been classified as available-for-sale and
are carried at fair value with unrealized gains and losses, if any, included as
a component of accumulated other comprehensive loss in stockholders' equity.
Interest, dividends and realized gains and losses are included in interest and
other income. Realized gains and losses are recognized based on the specific
identification method.
4. REVENUE RECOGNITION
Effective in fiscal 1999, the Company adopted Statement of Position ("SOP")
97-2, "Software Revenue Recognition" and its related amendments. SOP 97-2
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions and supercedes the previous
guidance provided by SOP 91-1. The adoption of SOP 97-2 did not have a material
impact on the Company's consolidated financial position or results of
operations.
License revenue consists principally of revenue earned under software
license agreements. License revenue is generally recognized when a signed
contract or other persuasive evidence of an arrangement exists, the software has
been shipped or electronically delivered, the license fee is fixed or
determinable, and collection of the resulting receivable is probable. When
contracts contain multiple elements wherein vendor specific objective evidence
exists for all undelivered elements, the Company accounts for the delivered
elements in accordance with the "Residual Method" prescribed by SOP 98-9. Any
maintenance revenue included in these arrangements is recognized ratably over
the term of the arrangement. Revenue from subscription license agreements, which
include software, rights to future products and maintenance, is recognized
ratably over the term of the subscription period. Revenue on shipments to
resellers is recognized when the products are sold by the resellers to the end-
user customer.
Service revenue consists primarily of revenue received for implementation
of system solutions, on-site support, consulting and training. Service revenue
is generally recognized as the services are performed or on the percentage-of-
completion method of accounting, depending on the nature of the project. Under
the percentage-of-completion method, revenue recognized is that portion of the
total contract price equal to the ratio of costs expended to date to the
anticipated
7
<PAGE>
final total costs, based on current estimates of the costs to complete the
project. To the extent that these arrangements include license fees which can be
determined based on vendor specific evidence of fair value, such fees are
recorded as license revenue based on the percentage-of-completion ratio. If the
total estimated costs to complete a project exceed the total contract amount,
indicating a loss, the entire anticipated loss would be recognized currently.
Maintenance revenue consists of fees for providing software updates and
technical support for software products (post-contract support or "PCS").
Maintenance revenue is recognized ratably over the term of the agreement.
Payments received in advance of services performed are recorded as deferred
revenue. Allowances for estimated future returns and discounts are provided for
upon recognition of revenue.
5. COMPREHENSIVE INCOME (LOSS)
Comprehensive loss includes foreign currency translation gains and losses
and other unrealized investment gains and losses that have been previously
excluded from net loss and reflected instead in equity. A summary of
comprehensive income and loss is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------- ------------------------------------
August 31, August 31, August 31, August 31,
2000 1999 2000 1999
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss)..................... $ 6,861 $ (3,929) $ (6,145) $ (12,888)
Translation gain...................... 591 -- 614 --
Unrealized gain (loss) on investments. 12,338 -- 11,747 --
-------------- ------------- ------------ ------------
Comprehensive income (loss). $ 19,790 $ (3,929) $ 6,216 $ (12,888)
============== ============= ============ ============
</TABLE>
6. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is calculated in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under
the provisions of SFAS No. 128 and SAB 98, basic net income or loss per share is
computed by dividing the net income or loss available to common stockholders for
the period by the weighted average number of common shares outstanding during
the period. Diluted net income or loss per share is computed by dividing the net
income or loss for the period by the weighted average number of common and
potential common shares outstanding during the period if their effect is
dilutive. Potential common shares are comprised of common stock subject to
repurchase and incremental shares of common stock issuable upon the exercise of
stock options and upon the conversion of convertible preferred stock.
8
<PAGE>
Reconciliation between basic and diluted net income (loss) per share is as
follows for the three and nine month periods ended August 31, 2000 and 1999 (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ----------------------------------
August 31, August 31, August 31, August 31,
2000 1999 2000 1999
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net income (loss)................................. $ 6,861 $ (3,929) $ (6,145) $ (12,888)
============= ============= ============= ============
Weighted-average common shares used to compute
Basic net income (loss) per share............... 187,088 113,365 182,136 79,458
Effect of dilutive securities:
Common stock equivalents...................... 31,172 -- -- --
Common stock subject to repurchase............ 4,298 -- -- --
Weighted-average common shares used to compute ------------- ------------- ------------- ------------
diluted net income (loss) per share........... 222,558 113,365 182,136 79,458
============= ============= ============= ============
Net income (loss) per share - basic........... $ 0.04 $ (0.03) $ (0.03) $ (0.16)
============= ============= ============= ============
Net income (loss) loss per share - diluted.... $ 0.03 $ (0.03) $ (0.03) $ (0.16)
============= ============= ============= ============
</TABLE>
The following table sets forth potential weighed average common shares that are
not included in the diluted net income (loss) per share calculation above
because to do so would be anti-dilutive for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- -----------------------------------
August 31, August 31, August 31, August 31,
2000 1999 2000 1999
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Preferred stock............................... -- 46,674 -- 70,011
Common stock subject to repurchase............ -- 6,213 -- 6,162
Stock options................................. 596 26,565 353 23,493
------------- ------------- -------------- -------------
596 79,452 353 99,666
============= ============= ============== =============
</TABLE>
9
<PAGE>
7. RELATED PARTY TRANSACTIONS
The Company has entered into commercial transactions with Cisco Systems,
Inc., a principal stockholder of the Company, and with Reuters Group PLC,
including both its wholly owned and partially owned subsidiaries (collectively,
"Reuters"), a majority stockholder of the Company in fiscal 2000 and 1999.
The Company recognized $6.2 million and $5.6 million in revenue from
Reuters in the third fiscal quarter of 2000 and 1999, respectively and $15.8 and
$12.5 for the nine-month periods ended August 31, 2000 and 1999, respectively.
In addition, the Company paid Reuters $1.0 million in royalties and commissions
in the third quarter of fiscal 2000.
The Company recognized $0.8 million and $3.0 million in revenue from Cisco
Systems, Inc. in the three-month period and the nine-month period ended August
31, 2000, respectively.
8. SUBSEQUENT EVENT
On September 5, 2000, TIBCO completed the acquisition of privately-held
Extensibility, Inc. ("Extensibility") located in Chapel Hill, North Carolina,
whose product line provides solutions for the development and deployment of XML-
enabled e-business applications. TIBCO issued approximately 829,000 shares of
common stock to shareholders of Extensibility in the stock-for-stock
transaction, which will be accounted for as a purchase. The purchase price of
approximately $104 million will be allocated to the acquired assets, in-process
technology, goodwill and other intangibles during the fourth quarter of 2000.
The Company will record a one-time non-cash charge for in-process research and
development which will be recorded in the fourth quarter of 2000 as well as non-
cash charges for deferred compensation and the amortization of goodwill and
other intangibles. In addition, the Company will recognize in future periods
non-cash charges for deferred compensation and the amortization of goodwill and
other intangible assets.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions identify such forward-looking statements. These forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those indicated in the forward-looking
statements. Factors that could cause actual results to differ materially from
those predicted, in particular a forward-looking statement, is identified in
footnote (1) to the following discussion. Additional factors which
could cause actual results to differ materially include those set forth in the
following discussion, and, in particular, the risks discussed below under the
subheading "Factors that May Affect Operating Results." Unless required by law,
the Company undertakes no obligation to update publicly any forward-looking
statements.
OVERVIEW
We develop and market eBusiness infrastructure software products that
enable businesses to link internal operations, business partners and customer
channels in real time. We are the successor to a portion of the business of
Teknekron Software Systems, Inc. Teknekron developed software, known as the TIB
technology, for the integration and delivery of market data, such as stock
quotes, news and other financial information, in trading rooms of large banks
and financial services institutions. In 1992, Teknekron expanded its development
efforts to include solutions designed to enable complex and disparate
manufacturing equipment and software applications--primarily in the
semiconductor fabrication market--to communicate within the factory environment.
Teknekron was acquired by Reuters in 1994. Following the acquisition, continued
development of the TIB technology was undertaken to expand its use in the
financial services markets. In January 1997, our company, TIBCO Software Inc.,
was established as an entity separate from Teknekron.
We were formed to create and market software product solutions for use in
the integration of business information, processes and applications in diverse
markets and industries outside the financial services sector. In connection with
our establishment as a separate entity, Reuters transferred to us certain assets
and liabilities related to our business and granted to us a royalty-free license
to the intellectual property incorporated into some of our current software
products. Reuters also assigned to us license and service contracts primarily
within the manufacturing and energy markets.
We recognize license revenue when a signed contract or other persuasive
evidence of an arrangement exists, the software has been shipped or
electronically delivered, the license fee is fixed or determinable, and
collection of the resulting receivable is probable. When contracts contain
multiple elements wherein vendor specific objective evidence exists for all
undelivered elements, we account for the delivered elements in accordance with
the "Residual Method" prescribed by SOP 98-9. Any maintenance revenue included
in these arrangements is recognized ratably over the term of the arrangement.
Revenue from subscription license agreements, which include software, rights to
future products and maintenance, is recognized ratably over the term of the
subscription period. Revenue on shipments to resellers is recognized when the
products are sold by the resellers to the end-user.
We recognize service revenue as the services are performed or on the
percentage-of-completion method of accounting, depending on the nature of the
project. Under the percentage-of-completion method, revenue recognized is that
portion of the total contract price equal to the ratio of costs expended to date
to the anticipated final total cost, based on current estimates of the cost to
complete the project. To the extent that these arrangements include license
fees, such fees are recorded as license revenue based on the percentage-of-
completion ratio. If the total estimated cost to complete a project exceeds the
total contract amount, indicating a loss, the entire anticipated loss would be
recognized currently.
Our distributors generally pay us negotiated royalties on their sales of
our products. Reuters distributes our products to customers in the financial
services market segment. Through December 2001, Reuters must pay us product fees
based on a percentage of the revenue it derives from the sale of licenses and
maintenance for our products. Under our license agreement with Reuters, minimum
guaranteed product fees will be $18.0 million in calendar 2000 and $20.0 million
in calendar 2001. We will recognize revenue in the amount of these guaranteed
product fees ratably over the contractual
11
<PAGE>
period. In any period where actual product fees exceed the minimum guaranteed
product fees for the year, the actual product fees and cumulative minimum
guaranteed product fees will be recognized as revenue.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data as a percent of revenue:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ----------------------------------
August 31, August 31, August 31, August 31,
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue:
License...................................... 72.2% 54.7% 69.6% 55.8%
Service and maintenance...................... 27.8 45.3 30.4 44.2
-------------- -------------- -------------- --------------
Total revenue............................. 100.0 100.0 100.0 100.0
Cost of revenue.................................... 24.7 40.5 26.8 41.2
-------------- -------------- -------------- --------------
Gross profit....................................... 75.3 59.5 73.2 58.8
-------------- -------------- -------------- --------------
Operating expenses:
Research and development..................... 22.1 29.3 23.8 30.0
Sales and marketing.......................... 37.8 33.7 37.7 33.3
General and administrative................... 6.8 7.3 7.0 8.4
Amortization of stock-based compensation..... 11.9 8.4 16.9 8.6
Amortization of goodwill and acquired
intangibles................................. 2.3 -- 2.9 --
-------------- -------------- -------------- --------------
Total operating expenses................... 80.9 78.7 88.3 80.3
-------------- -------------- -------------- --------------
Loss from operations............................... (5.6) (19.2) (15.1) (21.5)
Interest and other income (expense), net........... 15.8 2.8 11.2 1.1
-------------- -------------- -------------- --------------
Net income (loss).................................. 10.2 (16.4) (3.9) (20.4)
============== ============== ============== ==============
</TABLE>
REVENUE
Total Revenue. Total revenue increased 179.6% to $67.2 million for the
three months ended August 31, 2000 from $24.0 million for the same period of the
prior year. Total revenue increased 158.6% to $163.2 million for the nine-month
period ended August 31, 2000 from $63.1 million in the same period of the prior
year. Total revenue increased primarily due to an increase in sales of our
products and services to both new and existing customers. Reuters accounted for
approximately 9% and 23% of total revenue for the third fiscal quarter in 2000
and 1999, respectively. Cedel Global Services accounted for approximately 10% of
our revenue for the nine-month period ended August 31, 1999.
License Revenue. License revenue increased 268.7% to $48.5 million for the
three-months ended August 31, 2000 from $13.2 million for the same period of the
prior year. License revenue increased 222.5% to $113.6 million for the nine-
month period ended August 31, 2000 from $13.2 million in the same period of the
prior year. These increases were due primarily to the increased volume of sales
from a broader suite of products. License revenue was 72.2% and 54.7% of total
revenue for the third fiscal quarter of 2000 and 1999, respectively, and 69.6%
and 55.8% of total revenue for the nine-month periods ended August 31, 2000 and
1999, respectively. The growth in license revenue as a percentage of total
revenue reflects our strategy of pursuing a license-driven business model, the
increasing acceptance of our products in key vertical markets such as
telecommunications, energy and manufacturing and the expansion of our
relationships with systems integrators which effectively leverages our direct
sales of software products.
Service and Maintenance Revenue. Service and maintenance revenue increased
71.9% to $18.7 million for the three-months ended August 31, 2000 from $10.9
million for the same period of the prior year. Service and maintenance revenue
increased 78.0% to $49.7 million for the nine-month period ended August 31, 2000
from $27.9 million for the same period of the prior year. Service and
maintenance revenue was 27.8% and 45.3% of total revenue in the third
12
<PAGE>
quarter of fiscal 2000 and 1999, respectively, and was 30.4% and 44.2% of total
revenue for the nine-month periods ended August 31, 2000 and 1999, respectively.
The increases in service and maintenance revenue in absolute dollars were
primarily due to the additional maintenance revenue related to the growth in
license revenue.
COST OF REVENUE
Cost of revenue consists primarily of salaries and third-party contractor
and associated expenses principally related to providing project architecture,
design and system integration services and, to a lesser extent, the cost of
providing maintenance and customer support services. The majority of our cost of
revenue is directly related to our service revenue. Cost of revenue increased
70.3% to $16.6 million for the three-months ended August 31, 2000 from $9.7
million for the same period of the prior year. Cost of revenue increased 68.2%
to $43.7 million for the nine-month period ended August 31, 2000 from $26.0
million for the same period of the prior year. Cost of revenue was 24.7% and
40.5% of total revenue in the third quarter of fiscal 2000 and 1999,
respectively, and was 26.8% and 41.2% for the nine-month periods ended August
31, 2000 and 1999, respectively. The increase in cost of revenue, in absolute
dollars, was primarily due to the cost of the increased personnel and related
costs associated with the delivery of professional services and maintenance as
well as the additional technical staff to support our growing installed base of
customers. The decrease in cost of revenue as a percentage of total revenue was
due primarily to the increase in growth in license revenue as a percentage of
total revenue.
OPERATING EXPENSES
Research and Development Expenses. Research and development expenses
consist primarily of salaries, commissions and related costs associated with the
development of our products. Research and development expenses increased 111.6%
to $14.9 million for the three-months ended August 31, 2000 from $7.0 million
for the same period of the prior year. Research and development expenses
increased 105.0% to $38.8 million for the nine-month period ended August 31,
2000 from $18.9 million for the same period of the prior year. These increases
were due primarily to increases in our development staff as we continued to
expand our product offerings and upgrade the performance of existing products.
Research and development expenses were 22.1% and 29.3% of total revenue in the
third quarter of fiscal 2000 and 1999, respectively and were 23.8% and 30.0% for
the nine-month periods ended August 31, 2000 and 1999, respectively. The
decrease in research and development expenses as a percent of revenue is due to
the rapid increase in revenue. We believe that continued investment in research
and development is critical to attaining our strategic objectives and, as a
result, we expect that spending on research and development will continue to
increase in absolute dollars for the foreseeable future.
Sales and Marketing Expenses. Sales and marketing expenses consist
primarily of personnel and related costs of our direct sales force and marketing
staff and the cost of marketing programs, including advertising, trade shows,
promotional materials and customer conferences. Sales and marketing expenses
increased 214.3% to $25.4 million for the three-months ended August 31, 2000
from $8.1 million for the same period of the prior year. Sales and marketing
expenses increased 192.8% to $61.6 million for the nine-month period ended
August 31, 2000 from $21.0 million for the same period of the prior year. Sales
and marketing expenses were 37.8% and 33.7% of total revenue in the third
quarter of fiscal 2000 and 1999, respectively and were 37.7% and 33.3% for the
nine-month periods ended August 31, 2000 and 1999, respectively. These increases
resulted primarily from increased salaries, benefits, commissions, facilities
and travel costs for sales personnel associated with the expansion of our
domestic and international sales force dedicated to selling our expanding family
of products. We intend to continue to increase staff in our direct sales
organization and to develop product marketing and branding campaigns and,
accordingly, expect that sales and marketing expenditures will continue to
increase substantially in absolute dollars.
General and Administrative Expenses. General and administrative expenses
consist primarily of personnel and related costs for general corporate
functions, including executive, legal, finance, accounting, human resources and
13
<PAGE>
information systems. General and administrative expenses increased 159.5% to
$4.6 million for the third quarter of fiscal 2000 from $1.8 million for the same
period of the prior year. General and administrative expenses increased 115.3%
to $11.4 million for the nine-month period ended August 31, 2000 from $5.3
million for the same period of the prior year. General and administrative
expenses were 6.8% and 7.3% of total revenue for the third quarter of fiscal
2000 and 1999, respectively and were 7.0% and 8.4% for the nine-month periods
ended August 31, 2000 and 1999, respectively. The increases in dollar terms
were primarily a result of increased personnel and related costs and other
outside services associated with building our general and administrative
infrastructure. We believe that general and administrative expenses will
increase in absolute dollars as we invest in our infrastructure necessary to
support a larger, more global organization.
Amortization of Stock-based Compensation. Amortization of stock-based
compensation expense was $8.0 million and $2.0 million in the third quarter of
fiscal 2000 and 1999, respectively. For the nine-month periods ended August 31,
2000 and August 31, 1999, amortization of stock-based compensation expense was
$27.5 million and $5.4 million, respectively. The increase was due primarily to
charges associated with stock options granted to consultants.
In connection with the grant of stock options to employees and non-employee
directors, we have recorded aggregate unearned compensation of $27.2 million,
representing the difference between the deemed fair value of our common stock at
the date of grant and the exercise price of such options. Such amount is
presented as a reduction of stockholders' equity and amortized over the vesting
period of the applicable option. We expect to amortize $1.1 million, $3.4
million, $1.9 million, $0.9 million and $0.1 million of unearned stock-based
compensation for the remainder of fiscal 2000 and in fiscal 2001, 2002, 2003 and
2004, respectively, in connection with stock options granted to employees and
non-employee directors.
Stock-based compensation expense related to stock options granted to
consultants is recognized as earned, using the multiple option method as
prescribed by FASB Interpretation No. 28. At each reporting date, we re-value
such stock-based compensation using the Black-Scholes option pricing model. As a
result, the stock-based compensation expense will fluctuate as the fair market
value of our common stock fluctuates. As of August 31, 2000, we expect to
amortize stock-based compensation expense of $7.7 million, $21.3 million, $6.3
million and $2.9 million for the remainder of fiscal 2000 and in fiscal 2001,
2002 and 2003, respectively, in connection with stock options granted to
consultants, assuming no change in the underlying value of our common stock.
Acquired in-process research and developments. We expect to incur a
non-cash charge for acquired in-process research and development in the
fourth quarter of fiscal 2000 in connection with our acquisition of
Extensibility, Inc.
Amortization of goodwill and acquired intangibles. Amortization of goodwill
and acquired intangibles of $1.6 million and $4.7 million for the three and nine
month periods ended August 31, 3000, respectively, relates to the acquisition of
substantially all of the assets of InConcert, Inc which was completed in
November 1999.
We will recognize additional amounts in the fourth quarter of 2000 and in
future periods for non-cash charges for deferred compensation and the
amortization of goodwill and other intangible assets as a result of our
acquisition of Extensibility, Inc.
14
<PAGE>
Interest and other Income, Net. Interest and other income (expense), net,
includes interest and other miscellaneous income and expense items. Other
income, net, was $8.8 million and $16.5 million for the three-month and nine-
month ended August 31, 2000, respectively, compared to interest and other
income, net, of $675,000 and other income expense, net, of $668,000,
respectively, for the same periods in the prior years. The increase in fiscal
2000 was due primarily to interest income earned from our investments, which
increased significantly as a result of the investment of the proceeds from our
initial public offering in July 1999 and our secondary offering in March 2000.
Realized gain on equity investments. In the third quarter of fiscal 2000,
we recorded a book gain of $1.8 million as a result of a change in ownership in
a Company in which we have an equity investment.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 2000, the Company had cash, cash equivalents and investments
of $605.0 million, which represents an increase of $515.2 million from November
30, 1999.
Net cash provided by operations for the nine months ended August 31, 2000
was $37.4 million compared to net cash used by operations of $7.7 million for
the comparable period of the prior year. Cash provided by operating activities
for the nine months ended August 31, 2000 resulted primarily from the increase
in accrued liabilities, deferred revenue and the increase in the amortization of
goodwill and unearned compensation, offset by the increases in accounts
receivable and other assets.
Net cash used by investing activities for the nine months ended August 31,
2000 was $326.2 million compared to cash used by investing activities of $103.0
million for the same period in 1999. Cash used by investing activities resulted
primarily from the net purchase of short-term investments of $290.7 million,
capital expenditures of $13.4 million and private equity investments of $17.0
million. Capital expenditures were primarily related to the installation of
computer hardware and software as well as capital expenditures related to office
facilities.
Cash flow from financing activities of $492.9 million resulted primarily
from the proceeds from issuance of common stock in a secondary offering
completed in March of 2000, and to a lesser extent from the exercise of stock
options and stock purchases under our Employee Stock Purchase Plan. We currently
believe that for the remainder of fiscal 2000, capital expenditures for computer
and communication equipment, furniture and leasehold improvements will be
approximately $8 million./1/
We believe that our current cash and investment balances and cash flow from
operations will be sufficient to meet our working capital and capital
expenditure requirements for at least the next twelve months. We may also
utilize cash to acquire or invest in complementary businesses or to obtain the
right to use complementary technologies.
FACTORS THAT MAY AFFECT OPERATING RESULTS
We have a history of losses and we expect future losses, and if we do not
achieve and sustain profitability our business will suffer and our stock price
may decline
Although our revenue has increased in recent quarters, we may not be able
to sustain our growth or obtain sufficient revenue to achieve and sustain
profitability. We incurred net losses of approximately $6.1 million and $12.9
million in the first three quarters of fiscal 2000 and 1999, respectively. As of
August 31, 2000, we had an accumulated deficit of approximately $43.2 million.
/1/ This is a forward-looking statement. Factors that could affect the magnitude
of our capital expenditures for the remainder of fiscal 2000 include the strains
placed on our resources by the rapid growth of our operations, particularly our
continuing need to establish new facilities; and financial and operational
problems that could be caused by our acquisition strategy. See "Factors that May
Affect Operating Results" for a more detailed discussion of these factors.
15
<PAGE>
We have invested significantly in building our sales and marketing
organization and in our technology research and development. We expect to
continue to spend substantial financial and other resources on expanding our
direct sales and marketing activities and developing and introducing
enhancements to our existing products and new software products. As a result, we
need to generate significant revenue to achieve and maintain profitability. We
expect that our sales and marketing expenses, our research and development
expenses and our general and administrative expenses will continue to increase
in absolute dollars. We intend to continue to increase staff in our direct sales
organization and to develop product marketing and branding campaigns and,
accordingly, expect that sales and marketing expenditures will continue to
increase substantially in absolute dollars.
Our future revenue is unpredictable, and we expect our quarterly operating
results to fluctuate, which may cause our stock price to decline
Period-to-period comparisons of our operating results may not be a good
indication of our future performance. Moreover, our operating results in some
quarters may not meet the expectations of stock market analysts and investors.
In that event, our stock price would likely decline. As a result of our limited
operating history and the evolving nature of the markets in which we compete, we
may have difficulty accurately forecasting our revenue in any given period. In
addition to the factors discussed elsewhere in this section, a number of factors
may cause our revenue to fall short of our expectations or cause fluctuations in
our operating results, including:
. the announcement or introduction of new or enhanced products or services by
our competitors;
. the amount and timing of operating costs and capital expenditures relating
to the expansion of our operations; and
. the capital and expense budgeting decisions of our customers.
In addition, our quarterly operating results have historically been subject to
variations throughout the year due to a general slow-down in our sales in the
summer months, particularly in Europe. Specifically, we generally experience
relatively lower revenue in our third fiscal quarter. These seasonal variations
in our operating results may lead to fluctuations in our results of operations
from quarter to quarter throughout the year.
There can be no assurance that any of our customers will continue to purchase
our products in the future
We do not have long-term contracts with any of our customers. There can be
no assurance that any of our customers will continue to purchase our products in
the future. As a result, a customer that generates substantial revenue for us in
one period may not be a source of revenue in subsequent periods.
Our licensing and distribution relationship with Reuters places limitations on
our ability to conduct our business
We have a significant relationship with Reuters for licensing and
distribution. Our relationship with Reuters involves limitations and
restrictions on our business, as well as other risks, described below.
Reuters has access to the intellectual property used in our products, and
could use the intellectual property to compete with us. We license the
underlying TIB messaging technology incorporated into some of our important
products from Reuters. We do not own this technology. Reuters is not restricted
from using the TIB technology to produce products that compete with our
products, and it can grant limited licenses to the TIB technology to others who
may compete with us. In addition, we must license all the intellectual property
and products we create through December 2011 to Reuters. This will place Reuters
in a position to more easily develop products that compete with our product
offerings.
We must rely on Reuters and other distributors to sell our products in the
financial services market, and they may not be successful in doing so. Under our
agreements with Reuters, we are restricted from selling our products and
providing consulting services directly to companies in the financial services
market and major competitors of Reuters, and from using the TIB technology we
license from Reuters to develop products specifically for use by these
companies. Accordingly, we must rely on Reuters and other third-party resellers
and distributors to sell our products to these companies. Substantially all of
our revenue from sales in the financial services market, excluding sales to
Cedel Global
16
<PAGE>
Services, consists of product fees paid to us by Reuters. Although Reuters is
the preferred distributor of our products in the financial services market and
is required to pay us guaranteed minimum product fee payments until the end of
2001, Reuters has no contractual obligation to distribute our products to
financial services customers. Reuters and other distributors may not be
successful in selling our products into the financial services market, or they
may elect to sell competitive third-party products into that market, either of
which may adversely affect our revenue in that market.
Our relationship with Reuters restricts our ability to earn revenue from
sales in the financial services market. Under the license agreement, Reuters is
required to pay us product fees based on a percentage of its revenue from sales
of our products in the financial services market, excluding products that are
embedded in any Reuters' products. These product fees may be materially less
than the product fees we could obtain from other distributors or resellers in
the financial services market. In addition, when we sell our products into the
financial services market through third-party distributors other than Reuters,
Reuters receives a share of our license revenue.
Our license agreement with Reuters imposes practical restrictions on our
ability to acquire other companies. The license agreement places no specific
restrictions on our ability to acquire companies with all or part of their
business in the financial services market. However, under the terms of the
license agreement, we are prohibited from bundling or combining our products
that are based on licensed technology with an acquired company's products and
services and then selling the bundled or combined products directly to financial
services companies. This prohibition could prevent us from realizing potential
synergies with companies we acquire.
The market for eBusiness infrastructure software may not grow as quickly as we
anticipate, which would cause our revenues to fall below expectations
The market for eBusiness infrastructure software is relatively new and
evolving. We earn a substantial portion of our revenue from sales of our
eBusiness infrastructure software, including application integration software,
and related services. We expect to earn substantially all of our revenue in the
foreseeable future from sales of these products and services. Our future
financial performance will depend on continued growth in the number of
organizations demanding software and services for application integration,
eBusiness and information delivery and seeking outside vendors to develop,
manage and maintain this software for their critical applications. Many of our
potential customers have made significant investments in internally developed
systems and would incur significant costs in switching to third-party products,
which may substantially inhibit the growth of the market for eBusiness
infrastructure software. If this market fails to grow, or grows more slowly than
we expect, our sales will be adversely affected.
Our acquisition strategy could cause financial or operational problems
Our success depends on our ability to continually enhance and broaden our
product offerings in response to changing technologies, customer demands, and
competitive pressures. To this end, we may acquire new and complementary
businesses, products or technologies, and we may use some of the proceeds of
this offering to do so. We do not know if we will be able to complete any
acquisitions or that we will be able to successfully integrate any acquired
business, operate them profitably, or retain their key employees. For example,
we completed the acquisition of substantially all of the assets of InConcert,
Inc. in November 1999 and the acquisition of Extensibility, Inc. in September
2000. Integrating Extensibility or any other newly acquired business,
product or technology could be expensive and time-consuming, could disrupt our
ongoing business, and could distract our management. We may face competition for
acquisition targets from larger and more established companies with greater
financial resources. In addition, in order to finance any acquisitions, we might
need to raise additional funds through public or private financings. In that
event, we could be forced to obtain equity or debt financing on terms that are
not favorable to us and, in the case of equity financing, that results in
dilution to our stockholders. If we are unable to integrate Extensibility or any
other newly acquired entity, product or technology effectively, our business,
financial condition and operating results would suffer. In addition, any
amortization of goodwill or other assets or other charges resulting from the
costs of acquisitions could harm our operating results.
17
<PAGE>
Our investment strategy could cause financial or operational problems
As of August 31, 2000 we had invested $17.0 million in companies with
complementary technologies or products or which provide us with access to
additional vertical markets and customers, and we plan to continue making such
investments in the future. The companies in which we invest are often at early
stages of development, and no public market exists for their securities at the
time of our investment. These investments may not result in any meaningful
commercial benefit to us, and our investments could lose all or a significant
part of their value. Moreover, in certain circumstances, these investments could
subject us to restrictions imposed by the Investment Company Act of 1940. We
might have to take actions, including buying, refraining from buying, selling or
refraining from selling securities when we would otherwise not wish to, in order
to avoid registration under the Investment Company Act of 1940.
Our stock price may be volatile, which could cause investors to lose all or part
of their investments in our stock
The stock market in general, and the stock prices of technology companies
in particular, have recently experienced volatility which has often been
unrelated to the operating performance of any particular company or companies.
If market or industry-based fluctuations continue, our stock price could decline
regardless of our actual operating performance and investors could lose all or
part of their investments.
The rapid growth of our operations could strain our resources and cause our
business to suffer
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We are increasing the scope of our operations and we have
recently increased our headcount substantially, both domestically and
internationally. Our growth has placed and will continue to place a significant
strain on our management systems, infrastructure and resources. We expect that
we will need to continue to improve our financial and managerial controls,
reporting systems and procedures. We will also need to expand, train and manage
our workforce worldwide. We believe that general and administrative expenses
will increase in absolute dollars. Furthermore, we expect that we will be
required to manage an increasing number of relationships with various customers
and other third parties. Failure to expand any of the foregoing areas
efficiently and effectively could interfere with the growth of our business as a
whole .
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest in marketable securities in accordance with our investment
policy. The primary objectives of our investment policy is to preserve
principal, maintain proper liquidity to meet operating needs and maximize
yields. Our investment policy specifies credit quality standards for our
investments and limits the amount of credit exposure to any single issue, issuer
or type of investment. The maximum allowable duration of a single issue is 2.5
years and the maximum allowable duration of the portfolio is 1.3 years.
At August 31, 2000 we had an investment portfolio of fixed income
securities totaling $386.6 million, excluding those classified as cash and cash
equivalents. Our investments consist primarily of bank and finance notes,
various government obligations, asset-backed securities and equity investments
in other public companies. These securities are classified as available-for-sale
and are recorded on the balance sheet at fair market value with unrealized gains
or losses reported as a separate component of stockholders' equity. Unrealized
losses are charged against income when a decline in fair market value is
determined to be other than temporary. The specific identification method is
used to determine the cost of securities sold. Gains and losses on marketable
securities are included in net interest income when realized.
We develop products in the United States and sell throughout the world. As
a result, our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
A majority of sales are currently made in U.S. dollars, and to customers within
the United States, however, a strengthening of the dollar could make our
products less competitive in foreign markets.
18
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit
-------
Number Description
------ -----------
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended August 31, 2000
19
<PAGE>
SIGNATURES
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.
TIBCO SOFTWARE INC.
By: /s/ Paul G. Hansen
----------------------------
Paul G. Hansen
Executive Vice President, Finance and Chief
Financial Officer
By: /s/ Ginger M. Kelly
----------------------------
Ginger M. Kelly
Corporate Controller and Chief Accounting
Officer
Date: October 13, 2000
20
