Less-than-expected Red Ink for Ariba

e-Procurement pioneer reports net loss, but new CEO cautiously optimistic on future

Sunnyvale, CA  October 24, 2001  e-Procurement software provider Ariba today reported a slightly smaller-than-expected net loss for its fourth fiscal quarter ending September 30. But the company predicted challenging times ahead in the current uncertain economy.

"We reported a solid quarter despite the soft economic environment and the unexpected and tragic events in September," said Bob Calderoni, Ariba's president and CEO, in a statement. Calderoni ascended to his current posts from his position as chief financial officer on October 17, taking over from Ariba founder Keith Krach, who stayed on as chairman of the board.

Ariba reported $62.6 million in revenues and a net loss, excluding certain charges, of $27.7 million, or $0.11 per share, for its fourth quarter, beating the First Call consensus estimate of a loss of $0.13 per share. For the same quarter of last year, the company had reported a net loss of $1.1 million, or $0.00 per share.

Net loss on a GAAP basis for the past quarter was $224.3 million, or $0.89 per share, against a loss of $339.3 million, or $1.50 per share, for the same period last year.

Fiscal year 2001 revenues were $408.8 million, up 47 percent against the previous year, when the company saw $279.0 million in revenues. Net loss for the 2001 fiscal year, excluding certain charges, was $88.1 million, or $0.36 per share, compared to a net loss of $29.5 million, or $0.15 per share.

Net loss on a GAAP basis for the past year was $2.68 billion, or $10.96 per share, versus a loss of $792.8 million, or $4.10 per share, for the previous year.

In an interview following his appointment as CEO last week, Calderoni sounded an cautiously upbeat note for Ariba's prospects, saying that while times were tough in the software business, the company already had taken steps to instill the fiscal discipline necessary to lead Ariba into the black next year. He reaffirmed that view in the Ariba statement today, saying: "Because we quickly responded to the early signs of the changing economic climate and took the necessary steps, our focus now is entirely on customers and our strategy for growth. Our revenues are in line with our original forecast, our cash remains strong at $294 million, and we are well positioned for future profitability."

In the interview, Calderoni stressed his prior CFO experience at technology companies, including IBM and Apple. "I was with some organizations that went through some very, very difficult times, and I know what it takes to turn around companies," Calderoni said. He also said, as a past CFO, he would have good insight into the issues that financial and purchasing executives were facing at Ariba's potential clients.

Despite the focus on controlling costs, the CEO said today that he did not expect additional layoffs on top of the 700 employees let go shortly after Calderoni joined the company as CFO in April.

Scott Alaniz, vice president and financial and supply chain analyst at the Little Rock, Ark.-based investment firm Stephens Inc., characterized the news coming out of Ariba as "very positive." He said that the appointment of Ariba's former CFO to be CEO was a good move for a company not previously known for its cost discipline. "You need that type of skill set making the executive decisions," the analyst said.

Ariba closed 49 deals during the past quarter, about evenly split between new and existing customers, Calderoni said in a conference call to discuss the company's financial results. New Ariba deals signed during the quarter included 7-Eleven, Asahi Beer, Caltex, The Home Depot, Parmalat and Sun Chemical.

"Many of our new and existing customers recognize that effectively managing corporate spend is critical for improving their bottom line," Calderoni said in the Ariba statement. "Our very practical, clear direction to help customers manage their entire spend lifecycle is resonating with leading companies around the world."

During the past quarter, Ariba announced its sourcing solution for direct and indirect materials, although the company continues to promote its e-procurement platform as a way for enterprises to cut purchasing costs. Ariba also plans an upcoming release of an analytics product, Ariba Spend Management, designed to provide a "dashboard" for CFOs and chief purchasing officers, showing total spend and where opportunities for reduced costs lie among commodities and suppliers.

Alazin suggested that Ariba appears to be betting its future on its new sourcing product, "and the good news is that they are in better shape financially and have just as much...customer momentum as most of the pure sourcing software providers that are privately owned." Still, Alaniz said that while Ariba's prospects for survival are good, the company's fate could depend to some extent on the duration of the current slowdown in spending on information technology.

Ariba rival Commerce One last week reported revenues of $81 million and a net loss of $119 million, or $0.45 per share, for the past quarter, compared to $113 million and $61 million, or $0.37 per share, for the same quarter in 2000.

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