A Quick Look at Ariba's Results -- Notes From the Earnings Call

I'm in the process of listening to Ariba's earnings call (always a good gauge of the overall market) and plan to report on a number of the specifics early next week, along with the recent quarterly -- and yearly -- performance of Ariba competitors including Emptoris, Basware and Hubwoo (all of which also came out with results this week). In short, regarding Ariba, most of the news appears solid, if not decent. Ariba slightly beat expectations if you discount special items and there even appears to be glimmers of hope on the horizon on the consulting front -- Ariba bombed out in sourcing consulting last year relative to some competitors -- as well. Here are some basic numbers quoted verbatim from their press release:

- Total revenues of $85.7 million
- GAAP EPS of $0.03 and non-GAAP EPS of $0.19 per fully-diluted share
- Subscription software revenue of $41.2 million, up 15% year-over-year
- 12-month subscription software backlog of $139 million, up 10% year-over-year
- Cash flow from operations of $10.5 million, ending cash and investments of $199.5 million
- On-demand deals up 76% year-over-year

On the call, Bob Calderoni, Ariba's CEO, tried to tie some general trends in business at the moment (e.g., relying more on supply partners) to Ariba's growth and SaaS traction. And Bob raised the competitive mantra as he so often does, citing two takeaway wins from SAP and Oracle, including a "multi-year source to pay win with a global transportation company" who was "a large Oracle shop 'frustrated with custom configured solutions'". He also cited the case of a financial services provider, who was another "suite win," in this case over SAP. This company ripped out "SAP EBP" and went with Ariba for "sourcing and software services, P2P and invoicing and dynamic discounting to optimize cash management."

Now, in Oracle's and SAP's defense, they both can cite competitive wins over Ariba as well (as can Emptoris, BravoSolution, Zycus and many other competitors). But Ariba does appear to be proving out that it's capable of larger-scale P2P SaaS deployments (something I and others were skeptical on last year, especially in situations where significant back-end integration to multiple systems was required). On the call, Bob noted that the "Ariba network was a key driver in P2P deals” and Ariba counted “16 network deals for the second sequential quarter." Bob noted that he believes the network “business has the potential to grow 20-30% long term” and while Ariba originally forecast 15% growth for the current fiscal year, they are now forecasting growth in the “15-20%” range. Moreover, “increased spend and transaction volumes will allow [Ariba] to reach the high-end of the range [20-30%] in fiscal 2011.” In other words, Ariba is guiding up for the network. Here are a few additional tidbits I wrote down on the network: $5.8 million in supplier revenue, $3.9 in buyer revenue (for the quarter, I believe). There were 71,100 “buying relationships” via the network and 14,900 charging relationships (where Ariba profited from the transactions).

Ariba's SaaS business saw a “good number of deals close to a million dollars” and an “uptick from what we had been seeing last year. Regarding consulting, the revenue bump was not the result of gain-share deals. In Ariba’s words, the “Sourcing piece of the business is weaker than consulting and implementation, but sourcing will start flattening out and hopefully by second half of year see some sequential improvement.” Going forward in 2010, expect to see a greater increase in sales and marketing, especially in sales headcount, which will be “trending up”. And expect additional investment in what Ariba is terming “Project Discovery” which is their attempt at beating MFG.com at the open RFX and sourcing game. There's no revenue to speak of in this area yet, but you can bank on the fact it will ultimately be, at least in part, a supplier paid model (at least in Spend Matters’ view).

Stay tuned for further analysis of Ariba's quarter next week. I'll add my 2 cents into what Ariba reported, including general trends I'm seeing in the market from a buying, pricing and adoption perspective. One of the ironies I'll share is that Ariba, considered by many to be the ten ton gorilla of the space, is coming in as one of the price leaders in many deals as well. My, how fast things can change ...

Disclosure: Ariba is a current consulting client, as are many of their competitors, including other companies mentioned in this column. I am a former employee of FreeMarkets, which was acquired by Ariba. I consulted with both organizations leading up to the deal closure and in post-merger areas in 2004. I no longer hold stock in Ariba or any of its software competitors, directly or indirectly.

- Jason Busch