Licensing Drives Siebels Earnings Boost

The CRM software maker cut operating expenses by $25 million year-over-year and saw a strong growth in license revenue; CEO says 'quite a bit of uncertainty' remains in IT.

Siebel Systems Inc.s earnings surged in the first quarter of 2004, boosted by an increase in license revenue.

The San Mateo, Calif.-based market leader in customer relationship management (CRM) software cut operating expenses by more than $25 million compared with the same period last year to report a profit of $31.7 million, up from $4.6 million in the first quarter of 2003.

License revenues at Siebel climbed to $126.8 million, up from $112.1 million in the same period last year. But total revenues fell, if only slightly, from $332.8 million to $329.3 million year-over-year. Siebels total revenues have dropped year-over-year for 11 straight quarters, though license revenues—considered a better indication of the health of a software companys business—reversed that trend.

"We saw strong license-revenue growth," said Tom Siebel, president and CEO of the company. "If we were to look at the big picture, were very pleased with our results. We had good execution around the globe; the product family is comporting itself very competitively in the marketplace. Were very gratified by the results we were able to realize."

Siebel closed 29 deals worth more than $1 million in the quarter and three deals worth more than $5 million. Its hosted Siebel CRM OnDemand service signed up 229 new customers in the quarter—its first full quarter of operation—ranging in size from two seats to 525 seats. It added 2,500 seats total.

/zimages/3/28571.gifClick here to read about Siebels acquisition of Ineto Services Inc.

The company provided no data on how many of those customers were existing Siebel software customers and how many were new customers, though officials did indicate that about half of those customers crossed over from the UpShot hosted CRM service Siebel acquired last fall.

OnDemand is not "material" to the companys services revenues yet, officials said. The company initially offered the service free for 90 days, based on a one-year contract.

/zimages/3/28571.gifSiebel is facing a class-action shareholder lawsuit. Click here to read more.

"Were not really concerned with profits; were not focused on margins," Siebel said of his companys hosted CRM offering. "The game is simply and purely about market share." He said he intends for Siebel CRM OnDemand to eventually have at least 50 percent market share of the hosted CRM space.

"The company that can establish market share will have a profitable long-term franchise. Were in it for the long term," Siebel said.

Analytics software, introduced as a standalone product in the fourth quarter of last year, accounted for 20 percent of license revenues, officials said.

Company officials also revealed during Thursdays earnings call that 2,800 of Siebels 3,200 licensed software customers are already using or are in the process of upgrading to version 7 of the companys products. Of those, 1,400 are live on version 7.5, with another 200 due to upgrade by the end of the second quarter. Siebel has 2.36 million users total, up by 880,000 in the past year.

Tom Siebel described the IT recovery as "fragile" and said "quite a bit of uncertainty" remains in the market because of global political instability.

"We look forward to the day when we can look back on five, six, seven, eight quarters of top-line revenue growth and earnings growth. When we see that, well know we had a recovery," Siebel said.

The company predicts that second-quarter license revenue will be between $120 million and $140 million; that maintenance revenue will be between $112 million and $118 million; and that services revenue will be between $95 million and $107 million, for total revenue of $340 million to $365 million. Earnings per share is expected to fall between six and eight cents.

"We remain focused on execution, driving growth and running a cash-positive business," Siebel said.

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