ARBA Ariba, Inc. (MM)

Ariba, Inc. (Nasdaq: ARBA), the leading provider of collaborative business commerce solutions, today announced results for the first quarter of fiscal year 2011 ended December 31, 2010.

Quarterly Financial and Operational Highlights from Continuing Operations:

• Total revenues of $90.4 million and EPS of $0.09 from continuing operations.
• Non-GAAP EPS of $0.18 from continuing operations
• 12-month subscription software backlog of $166 million, up 19% percent year-over-year
• Cash flow from continuing operations of $15.6 million
• Ending cash, cash equivalents, investments and restricted cash of $290.9 million

“On the heels of a very strong fiscal year 2010, Ariba continues to perform well,” said Bob Calderoni, Chairman and CEO, Ariba. “We see momentum accelerating with our cloud-based collaborative commerce solutions as companies around the world increasingly seek ways to become more connected, efficient and informed. We also made a number of strategic moves, including the acquisition of Quadrem, which will allow us to expand the depth and breadth of our network-based offerings and further accelerate our growth.”

Results for the First Quarter of Fiscal Year 2011

Revenue from Continuing Operations:

Total revenues for the first quarter of fiscal year 2011 from continuing operations were $90.4 million, as compared to $75.2 million for the first quarter of fiscal year 2010. Subscription and maintenance revenues for the first quarter of fiscal year 2011 were $65.9 million, as compared to $58.4 million for the first quarter of fiscal year 2010. Within subscription and maintenance revenues, subscription software revenue was $50.2 million for the first quarter of fiscal year 2011, as compared to $41.2 million for the first quarter of fiscal year 2010. Services and other revenues for the first quarter of fiscal year 2011 were $24.6 million, as compared to $16.8 million for the first quarter of fiscal year 2010.

Earnings Per Share from Continuing Operations:

Net income from continuing operations for the first quarter of fiscal year 2011 was $8.5 million, or $0.09 per share, as compared to net income from continuing operations for the first quarter of fiscal year 2010 of $1.0 million, or $0.01 per share. Net income from continuing operations for the first quarter of fiscal year 2011 included expenses of $1.0 million for amortization of intangible assets, $12.8 million for stock-based compensation, and $1.0 million of transaction-related costs and included a tax accrual reversal benefit of $3.9 million and a restructuring benefit of $2.9 million. Excluding these items, Non-GAAP net income from continuing operations was $16.5 million, or $0.18 per diluted share.

Balance Sheet and Cash:

Total cash, cash equivalents, investments and restricted cash were $290.9 million at December 31, 2010, up $91.4 million from December 31, 2009 and up $38.9 million from September 30, 2010. Net cash flow from continuing operations for the three months ended December 31, 2010 was $15.6 million, as compared to $10.3 million for the three months ended December 31, 2009. Accounts receivable, on a days-sales-outstanding basis, were 21 days for the first quarter of fiscal 2011, as compared to 21 days for the first quarter of fiscal 2010, and 20 days with the previous quarter. Total deferred revenues were $125.2 million at December 31, 2010, compared to $119.5 million at December 31, 2009 and $104.3 million at September 30, 2010.

Customer Acquisition and Transactions for the Quarter:

During the quarter, 232 companies of all sizes across geographies purchased Ariba solutions to manage their commerce activities, including: American Express, Amgen, BP Corporation, Caterpillar, Hewlett-Packard, Pfizer, Accenture, Hertz, and Avon. The company also added 31 new customers, and closed 18 transactions over $1 million including seven software deals over $1 million, and 216 on-demand product deals.

Conference Call Information

Ariba will hold a conference call today at 5:00 p.m. ET to discuss its results for the first quarter of fiscal 2011. To join the call, please dial (877) 407-8031 in the United States and Canada, or (201) 689-8031 if calling internationally. The conference call will also be webcast live and can be accessed on the investor relations section of the company’s website at www.ariba.com or by logging in at www.vcall.com

A replay of the conference can be accessed by calling (877) 660-6853 in the United States and Canada or (201) 612-7415 internationally and entering account number 286 and conference ID number: 364674.

About Ariba, Inc.

Ariba, Inc. is the leading provider of collaborative business commerce solutions. Ariba combines industry-leading technology with the world's largest web-based trading community for business to help companies discover, connect and collaborate with a global network of partners – all in a cloud-based environment. Using the Ariba® Commerce Cloud, businesses of all sizes can buy, sell and manage cash more efficiently and effectively. Over 340,000 companies around the globe use the Ariba Commerce Cloud to simplify inter-enterprise commerce and enhance results. Why not join them? To get on the path to Better Commerce visit: www.ariba.com/commercecloud/

Copyright © 1996 – 2011 Ariba, Inc.

Ariba, the Ariba logo, AribaLIVE, Ariba.com, Ariba.com Network, Ariba Spend Management. Find it. Get it. Keep it. and PO-Flip are registered trademarks of Ariba, Inc. Ariba Procure-to-Pay, Ariba Buyer, Ariba eForms, Ariba PunchOut, Ariba Services Procurement, Ariba Travel and Expense, Ariba Procure-to-Order, Ariba Procurement Content, Ariba Sourcing, Ariba Savings and Pipeline Tracking, Ariba Category Management, Ariba Category Playbooks, Ariba StartSourcing, Ariba Spend Visibility, Ariba Analysis, Ariba Data Enrichment, Ariba Contract Management, Ariba Contract Compliance, Ariba Electronic Signatures, Ariba StartContracts, Ariba Invoice Management, Ariba Payment Management, Ariba Working Capital Management, Ariba Settlement, Ariba Supplier Information and Performance Management, Ariba Supplier Information Management, Ariba Discovery, Ariba Invoice Automation, Ariba PO Automation, Ariba Express Content, Ariba Ready, and Ariba LIVE are trademarks or service marks of Ariba, Inc. All other brand or product names may be trademarks or registered trademarks of their respective companies or organizations in the United States and/or other countries.

Ariba Safe Harbor

Safe Harbor Statement under the Private Securities Litigation Reform Act 1995: Information and announcements in this release involve Ariba's expectations, beliefs, hopes, plans, intentions or strategies regarding the future and are forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this release are based upon information available to Ariba as of the date of the release, and we assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. Factors that could cause or contribute to Ariba's operating and financial results to differ materially from current expectations include, but are not limited to: the impact of the credit crises on Ariba’s results of operations and financial condition; delays in development or shipment of new versions of Ariba's products and services; lack of market acceptance of Ariba's existing or future products or services; inability to continue to develop competitive new products and services on a timely basis; introduction of new products or services by major competitors;; the impact of any acquisitions, including our recently completed acquisition of the business of Quadrem International Holdings, Ltd., such as difficulties with the integration process or the realization of benefits of a transaction; the impact of our recent disposition of our sourcing service and business process outsourcing business, including the potential disruption of our ongoing business; the ability to attract and retain qualified employees; long and unpredictable sales cycles and the deferrals of anticipated orders; declining economic conditions, including the impact of a recession; inability to control costs; changes in the company's pricing or compensation policies; significant fluctuations in our stock price; the outcome of and costs associated with pending or potential future regulatory or legal proceedings; the impact of our acquisitions and dispositions, including the disruption or loss of customer, business partner, supplier or employee relationships; and the level of costs and expenses incurred by Ariba as a result of such transactions. Factors and risks associated with its business, including a number of the factors and risks described above, are discussed in Ariba's Form 10-K filed with the SEC on November 23, 2010. All forward-looking statements in this press release and the related earnings call are based on information available to Ariba as of the date hereof. Ariba assumes not obligation to update these forward-looking statements. Any future products, features or related specifications that may be referenced in the release or in the related earnings call are for information purposes only and are not commitments to deliver any technology or enhancement. Ariba reserves the right to modify future product plans at any time.

Ariba, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited; in thousands)     December 31, September 30, 2010 2010 ASSETS Current assets: Cash and cash equivalents $ 221,754 $ 182,393 Short-term investments 15,706 18,449 Restricted cash 104 104 Accounts receivable, net 23,565 21,781 Prepaid expenses and other current assets   19,901     7,942   Total current assets 281,030 230,669   Property and equipment, net 15,999 15,958 Long-term investments 24,219 22,283 Restricted cash, less current portion 29,137 29,137 Goodwill 394,718 406,507 Other intangible assets, net 12,129 13,154 Other assets   4,293     4,001   Total assets $ 761,525   $ 721,709     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 13,617 $ 11,190 Accrued compensation and related liabilities 17,086 32,079 Accrued liabilities 20,663 18,398 Restructuring obligations 15,901 17,188 Deferred revenue   113,167     97,005   Total current liabilities 180,434 175,860   Deferred rent obligations 8,342 9,880 Restructuring obligations, less current portion 17,443 23,339 Deferred revenue, less current portion 12,028 7,285 Other long-term liabilities   1,508     6,391   Total liabilities   219,755     222,755     Stockholders' equity: Common stock 187 188 Additional paid-in capital 5,237,531 5,236,265 Accumulated other comprehensive loss (2,427 ) (1,879 ) Accumulated deficit   (4,693,521 )   (4,735,620 ) Total stockholders' equity   541,770     498,954   Total liabilities and stockholders' equity $ 761,525   $ 721,709     Ariba, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited; in thousands, except per share data)     Three Months Ended December 31, 2010 2009 Revenues: Subscription and maintenance $ 65,858 $ 58,373 Services and other   24,562     16,819 Total revenues   90,420     75,192   Cost of revenues: Subscription and maintenance 14,290 12,674 Services and other 15,307 12,448 Amortization of acquired technology and customer intangible assets   1,025     1,327 Total cost of revenues   30,622     26,449 Gross profit   59,798     48,743   Operating expenses: Sales and marketing 35,716 26,692 Research and development 12,492 11,146 General and administrative 10,610 10,012 Amortization of other intangible assets - 104 Restructuring benefit   (2,923 )   - Total operating expenses   55,895     47,954   Operating income 3,903 789 Interest and other expense, net   769     277 Income from continuing operations before income taxes 4,672 1,066 (Benefit from) provision for income taxes   (3,812 )   17 Income from continuing operations 8,484 1,049   Discontinued operations, net of tax: (Loss) income from discontinued operations (5,104 ) 1,176 Gain on sale of discontinued operations   38,719     - Total discontinued operations   33,615     1,176   Net income $ 42,099   $ 2,225   Basic earnings per share: Income from continuing operations $ 0.09 $ 0.01 Discontinued operations, net of tax

 

0.38  

 

0.02 Net income per basic common share $ 0.47   $ 0.03   Diluted earnings per share: Income from continuing operations $ 0.09 $ 0.01 Discontinued operations, net of tax   0.36     0.02 Net income per diluted common share $ 0.45   $ 0.03   Weighted average shares - basic 88,632 85,161 Weighted average shares - diluted 92,574 88,262   Ariba, Inc. and Subsidiaries Cash Flows (Unaudited; in thousands)     Three Months Ended December 31, 2010 2009 Operating activities: Net income $ 42,099 $ 2,225 Less income from discontinued operations, net of tax

 

(33,615 )   (1,176 ) Income from continuing operations 8,484 1,049 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Provision for doubtful accounts 165 46 Depreciation 2,074 1,839 Amortization of intangible assets 1,025 1,431 Stock-based compensation 12,834 13,106 Restructuring benefit (2,923 ) - Other-than temporary impairment of long-term investments - 499 Changes in operating assets and liabilities: Accounts receivable (1,949 ) (52 ) Prepaid expense and other assets (652 ) (889 ) Accounts payable 91 79 Accrued compensation and related liabilities (13,695 ) (11,431 ) Accrued liabilities (6,535 ) (85 ) Deferred revenue 20,917 9,030 Restructuring obligations   (4,260 )   (4,326 ) Net cash provided by continuing operations 15,576 10,296 Net cash (used in)/provided by discontinued operations   (1,121 )   209   Net cash provided by operating activities   14,455     10,505     Investing activities: Proceeds from sale of discontinued operations 39,000 - Purchases of property and equipment (2,115 ) (1,386 ) Maturities of investments, net of purchases 459 (7,631 )     Net cash provided by (used in) investing activities   37,344     (9,017 )   Financing activities:

Proceeds from issuance of common stock, net

431 27 Repurchase of common stock (12,802 ) (5,056 )     Net cash used in financing activities   (12,371 )   (5,029 )   Effect of exchange rates on cash and cash equivalents (67 ) (7 )   Net change in cash and cash equivalents 39,361 (3,548 )   Cash and cash equivalents at beginning of period 182,393 130,881     Cash and cash equivalents at end of period $ 221,754   $ 127,333    

Non-GAAP Financial Measures

The following table reconciles financial measures prepared in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP) to the most directly comparable non-GAAP financial measures in the press release.

Non-GAAP financial measures should not be considered as a substitute for, or superior to, GAAP financial measures, which should be considered as the primary financial metrics for evaluating our financial performance. Significantly, non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles. Instead, they are based on subjective determinations by management designed to supplement our GAAP financial measures. They are subject to a number of important limitations and should be considered only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For example, our non-GAAP financial measures have the effect of excluding a purchase accounting adjustment, costs and expenses from our operating results that should be properly considered under a system of accrual accounting. In addition, our non-GAAP financial measures differ from GAAP measures with the same names, may vary over time and may differ from non-GAAP financial measures with the same or similar names used by other companies. Accordingly, investors should exercise caution when evaluating our non-GAAP financial measures.

Despite these limitations, we believe our non-GAAP financial measures provide meaningful supplemental information about our operating results, primarily because they exclude a purchase accounting adjustment and costs and expenses that we do not believe are indicative of the ongoing operating performance of our business and our senior management. Although these items should properly be considered in our GAAP financial measures, we believe they should be excluded when evaluating our current operating performance. The non-GAAP financial measures disclosed in the accompanying press release are used by our Board of Directors and senior management to evaluate our current operating performance, are used in evaluating the performance of our senior management, and are used in our budget and planning processes. We believe that our non-GAAP financial measures are helpful to investors by facilitating comparisons of our current and prior operating results and by facilitating comparisons of our operating results with those of other software companies.

  Ariba, Inc. and Subsidiaries Reconciliation of GAAP to Non-GAAP Operating Results (Unaudited; in thousands, except per share data)     The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP operating results for the period indicated below:   Three Months Ended Three Months Ended December 31, 2010 December 31, 2009

Expense reconciliation:

GAAP revenue $ 90,420 $ 75,192 Less: GAAP net income   42,099     2,225   Total GAAP expenses 48,321 72,967   Amortization of intangible assets (1,025 ) (1,431 ) Stock-based compensation (12,834 ) (13,106 ) Tax accrual reversal 3,942 - Restructuring benefit 2,923 - Transaction costs (990 ) - Discontinued operations   33,615     1,176   Total non-GAAP operating expenses $ 73,952   $ 59,606       Three Months Ended Three Months Ended December 31, 2010 December 31, 2009

Net income reconciliation:

GAAP net income $ 42,099 $ 2,225 Amortization of intangible assets 1,025 1,431 Stock-based compensation 12,834 13,106 Tax accrual reversal (3,942 ) - Restructuring benefit (2,923 ) - Transaction costs 990 - Discontinued operations   (33,615 )   (1,176 ) Non-GAAP income from continuing operations $ 16,468   $ 15,586       Three Months Ended Three Months Ended December 31, 2010 December 31, 2009

Net income per share reconciliation:

GAAP net income per share - basic $ 0.47 $ 0.03 Amortization of intangible assets 0.01 0.01 Stock-based compensation 0.14 0.15 Tax accrual reversal (0.04 ) - Restructuring benefit (0.03 ) - Transaction costs 0.01 - Discontinued operations   (0.38 )   (0.01 ) Non-GAAP income from continuing operations per share - basic $ 0.19   $ 0.18     Non-GAAP income from continuing operation per share - diluted $ 0.18 $ 0.18   Weighted average shares - basic 88,632 85,161 Weighted average shares - diluted 92,574 88,262  

Discussion of Specific Items Excluded From Non-GAAP Financial Measures

Our non-GAAP financial measures exclude the results of discontinued operations and generally exclude expenses or benefits for (i) amortization of intangible assets related to acquisitions, (ii) stock-based compensation, (iii) restructuring costs or benefits, (iv) tax accrual reversal (v) transaction related costs. We exclude these items because we believe they are not closely related to the ongoing operating performance of our business and the performance of our senior management and are generally excluded from our budget and planning process. In addition to these reasons, we believe our non-GAAP financial measures are also helpful to investors by facilitating comparisons of our operating results over different time periods and by facilitating comparisons of our financial performance with that of other companies. In addition, except for costs and expenses related to restructuring and transaction related costs, these items are non-cash items that do not affect cash flows.

(1) Discontinued Operations. We exclude the results of discontinued operations from our non-GAAP financial measures because they are unrelated to our ongoing operations. We believe excluding the results of discontinued operations helps investors compare our operating performance with that of other companies. We recognize, however, that the discontinued operations impact cash flow and that we and investors should carefully consider the impact of this on cash flow.

(2) Amortization of Acquired Intangible Assets. In accordance with GAAP, we amortize intangible assets acquired in connection with acquisitions over the estimated useful lives of the assets. We exclude these amortization costs in our non-GAAP financial measures because they (i) result from prior acquisitions, rather than the ongoing operating performance of our business, and (ii) absent additional acquisitions, are expected to decline over time as the remaining carrying amounts of these assets are amortized. We believe excluding these costs helps investors compare our financial performance with that of other companies with different acquisition histories. However, as with impairment charges, we recognize that amortization costs provide a helpful measure of the financial impact and performance of prior acquisitions and consider our non-GAAP financial measures in conjunction with our GAAP financial results that include amortization costs.

(3) Stock-Based Compensation Expenses. We exclude stock-based compensation expense associated with stock options and stock granted to employees and non-executive directors in our non-GAAP financial measures. While stock-based compensation is a significant component of our expenses, we believe that investors wish to be able to exclude the effects of stock-based compensation expense in comparing our financial performance with that of other companies.

(4) Restructuring benefit. We recorded a restructuring benefit related to lease abandonment accruals in the three months ended December 31, 2010. We exclude this from our non-GAAP financial measures because it is unrelated to our ongoing operations and is significantly impacted by factors outside our control. We believe excluding restructuring costs helps investors compare our operating performance with that of other companies. We recognize, however, that restructuring costs will impact cash flows and that we and investors should carefully consider the impact of these costs on future cash flows.

(5) Release of tax reserve. We released a tax reserve of approximately $3.9 million in the three months ended December 31, 2010. We exclude this from our non-GAAP financial measures because it is unrelated to our ongoing operations. We believe excluding the tax reserve release helps investors compare our operating performance with that of other companies.

(6) Transaction related costs. We recorded approximately $1.0 million of transaction related costs in the three months and twelve months ended December 31, 2010. We exclude these from our non-GAAP financial measures because they are unrelated to our ongoing operations. We believe excluding the transaction related costs helps investors compare our operating performance with that of other companies. We recognize, however, that the transaction related costs impact cash flow and that we and investors should carefully consider the impact of this on cash flow.

  Ariba, Inc. and Subsidiaries Reconciliation of Outlook for the Quarter Ending March 31, 2011 (Unaudited; in thousands, except per share data)     The following tables reconcile the specific items excluded from GAAP in the calculation of non-GAAP projected operating results for the period indicated below:     Range for the Three Months Ending March 31, 2011 Low High

Projected revenue:

$ 103,000 $ 106,000     Range for the Three Months Ending

 

March 31, 2011

Projected expense reconciliation:

Low High GAAP projected total expenses $ 103,300 $ 104,300 Amortization of intangible assets (3,000 ) (3,000 ) Stock-based compensation (12,000 ) (12,000 ) Transaction costs   (1,300 )   (1,300 ) Non-GAAP projected total expenses $ 87,000   $ 88,000       Range for the Three Months Ending March 31, 2011

Projected net income reconciliation:

Low High GAAP projected net income $ (300 ) $ 1,700 Amortization of intangible assets 3,000 3,000 Stock-based compensation 12,000 12,000 Transaction costs   1,300     1,300   Non-GAAP projected net income $ 16,000   $ 18,000       Range for the Three Months Ending March 31, 2011

Projected net income per share reconciliation:

Low High GAAP projected net income per share - basic $ (0.00 ) $ 0.02 Amortization of intangible assets 0.03 0.03 Stock-based compensation 0.13 0.13 Transaction costs   0.01     0.01   Non-GAAP projected net income per share - basic $ 0.17   $ 0.20     Non-GAAP projected net income per share - diluted $ 0.17 $ 0.19   Projected weighted average shares - basic 91,900 91,900 Projected weighted average shares - diluted 94,700 94,700   Ariba, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited; in thousands, except per share data)           Three Months Ended Three Months Ended December 31, December 31,

2010Reported

Adj

2010 Non-GAAP

2009Reported

Adj

2009 Non-GAAP

Revenues: Subscription and maintenance $ 65,858 $ - $ 65,858 $ 58,373 $ - $ 58,373 Services and other   24,562     -     24,562   16,819   -     16,819 Total revenues   90,420     -     90,420   75,192   -     75,192   Cost of revenues: Subscription and maintenance (3) 14,290 (788 ) 13,502 12,674 (934 ) 11,740 Services and other (2) 15,307 (889 ) 14,418 12,448 (1,186 ) 11,262 Amortization of acquired technology and customer intangible assets (2)   1,025     (1,025 )   -   1,327   (1,327 )   - Total cost of revenues   30,622     (2,702 )   27,920   26,449   (3,447 )   23,002 Gross profit   59,798     2,702     62,500   48,743   3,447     52,190   Operating expenses: Sales and marketing (3) 35,716 (6,450 ) 29,266 26,692 (5,546 ) 21,146 Research and development (3) 12,492 (1,863 ) 10,629 11,146 (1,377 ) 9,769 General and administrative (3) (6) 10,610 (3,834 ) 6,776 10,012 (4,063 ) 5,949 Amortization of other intangible assets (2) - - - 104 (104 ) - Restructuring benefit (4)   (2,923 )   2,923     -   -   -     - Total operating expenses   55,895     (9,224 )   46,671   47,954   (11,090 )   36,864   Operating income 3,903 11,926 15,829 789 14,537 15,326 Interest and other expense, net   769     -     769   277   -     277 Income from continuing operations before income taxes 4,672 11,926 16,598 1,066 14,537 15,603 (Benefit from) provision for income taxes (5)   (3,812 )   3,942     130   17   -     17 Income from continuing operations 8,484 7,984 16,468 1,049 14,537 15,586 Discontinued operations, net of tax: (Loss) income from discontinued operations (1) (5,104 ) 5,104 - 1,176 (1,176 ) - Gain on sale of discontinued operations (1)   38,719     (38,719 )   -   -   -     - Total discontinued operations   33,615     (33,615 )   -   1,176   (1,176 )   -   Net income $ 42,099   $ (25,631 ) $ 16,468 $ 2,225 $ 13,361   $ 15,586   Basic earnings per share: Income from continuing operations $ 0.09 $ 0.19 $ 0.01 $ 0.18 Discontinued operations, net of tax   0.38     -   0.02   - Net income per basic common share $ 0.47   $ 0.19 $ 0.03 $ 0.18   Diluted earnings per share: Income from continuing operations $ 0.09 $ 0.18 $ 0.01 $ 0.18 Discontinued operations, net of tax   0.36     -   0.02   - Net income per diluted common share $ 0.45   $ 0.18 $ 0.03 $ 0.18   Weighted average shares - basic 88,632 88,632 85,161 85,161 Weighted average shares - diluted 92,574 92,574 88,262 88,262   Ariba, Inc. and Subsidiaries Q1 Fiscal 2011 Supplemental Information (in millions, except for percentages)                                         FY 2008   FY2009   FY2010   FY2011       2008-Q1 2008-Q2 2008-Q3 2008-Q4 2009-Q1 2009-Q2 2009-Q3 2009-Q4 2010-Q1 2010-Q2 2010-Q3 2010-Q4 2011-Q1   REVENUE ANALYSIS   Network Software Revenue 4.7 7.4 7.1 6.9 8.2 7.5 7.7 8.6 9.8 9.4 10.7 11.2 13.8   Subscription software revenue 20.8 28.6 30.3 32.6 35.9 36.4 37.9 41.1 41.2 42.3 44.0 46.5 50.2 Purchase accounting adjustment to acquired Procuri contracts     0.4     2.3     1.4     0.9     0.4     -     -     -     -     -     -     -     -   Non-GAAP subscription software revenue 21.2 30.8 31.7 33.5 36.2 36.4 37.9 41.1 41.2 42.3 44.0 46.5 50.2   Subscription software revenue growth rates (Yr/Yr) Subscription software revenue 37 % 83 % 68 % 74 % 72 % 27 % 25 % 26 % 15 % 16 % 16 % 13 % 22 % Non-GAAP subscription software revenue 40 % 97 % 76 % 78 % 71 % 18 % 19 % 23 % 14 % 16 % 16 % 13 % 22 %                                   CASH FLOW METRICS Continuing Operations =>   Cash Flow from Operations $ 1.2 $ 1.5 $ 8.7 $ 10.2 $ 10.8 $ 16.3 $ 20.0 $ 18.8 $ 10.3 $ 24.9 $ 16.3 $ 10.5 $ 15.6   Cash used for lease loss (Restructuring Obligations) 4.4 4.5 5.9 4.7 4.7 4.5 4.4 4.3 $ 4.3 $ 4.2 $ 4.3 $ 4.3 $ 4.3 Cash used for Procuri-related integration & other severances (Restructuring Obligations) 0.2 1.8 0.8 1.2 1.0 1.7 1.4 0.7 - - - - - Cash for Procuri-related M&A activities (Accrued liabilities) - 3.1 - - - - - - - - - - - Cash used for Sky settlement (Prepaids, Accrued liabilities) - 5.9 - - - - - - - - - - - Cash Received for Emptoris Litigation Judgment   -     -     -     -     -     -     -     -     -     (7.0 )   -     -     -   Cash from Operations used for Procuri, Sky, Lease Loss less Emptoris Receipt 4.6 15.3 6.7 5.9 5.7 6.2 5.8 5.0 4.3 (2.8 ) 4.3 4.3 4.3 Cash Flow from Ops, before Procuri, Sky, Lease Losses & Emptoris Receipt 5.8 16.8 15.4 16.1 16.5 22.5 25.9 23.8 14.6 22.1 20.6 14.8 19.8                                 Capital Expenditures 0.9 1.8 2.5 2.5 2.3 1.2 1.4 1.8 1.4 4.4 2.0 1.6 2.1   Free Cash Flow 0.3 (0.3 ) 6.2 7.7 8.6 15.2 18.7 17.0 8.9 20.4 14.3 8.9 13.5 Free Cash Flow, before Procuri, Sky and Lease Losses 4.9 15.0 12.9 13.7 14.3 21.4 24.5 22.0 13.2 17.6 18.6 13.2 17.7   Ariba, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited; in thousands, except per share data)                                              

Q1 '10 Non-GAAPReported

Q1 '10 Non-GAAPSMS

Q1 '10 Non-GAAPContinuing Ops

Q2 '10 Non-GAAPReported

Q2 '10 Non-GAAPSMS

Q2 '10 Non-GAAPContinuing Ops

Q3 '10 Non-GAAPReported

Q3 '10 Non-GAAPSMS

Q3 '10 Non-GAAPContinuing Ops

Q4 '10 Non-GAAPReported

Q4 '10 Non-GAAPSMS

Q4 '10 Non-GAAPContinuing Ops

2010 Non-GAAPReported

2010 Non-GAAPSMS

2010 Non-GAAPContinuing Ops

Revenues: Subscription and maintenance $ 58,373 $ - $ 58,373 $ 58,756 $ - $ 58,756 $ 60,768 $ - $ 60,768 $ 62,892 $ - $ 62,892 $ 240,789 $ - $ 240,789 Services and other   27,298     10,479     16,819   28,374     9,822       18,552   32,481       10,243       22,238     32,204       10,203     22,001     120,357       40,747       79,610   Total revenues   85,671     10,479     75,192   87,130     9,822       77,308   93,249       10,243       83,006     95,096       10,203     84,893     361,146       40,747       320,399     Cost of revenues: Subscription and maintenance 11,740 - 11,740 11,803 - 11,803 12,270 - 12,270 11,948 - 11,948 47,761 - 47,761 Services and other   18,028     6,766     11,262   18,626     6,498       12,128   20,421       6,792       13,629     20,256       6,884     13,372     77,331       26,940       50,391   Total cost of revenues   29,768     6,766     23,002   30,429     6,498       23,931   32,691       6,792       25,899     32,204       6,884     25,320     125,092       26,940       98,152   Gross profit   55,903     3,713     52,190   56,701     3,324       53,377   60,558       3,451       57,107     62,892       3,319     59,573     236,054       13,807       222,247     Operating expenses: Sales and marketing 22,587 1,441 21,146 23,212 1,408 21,804 25,659 1,564 24,095 26,425 1,254 25,171 97,883 5,667 92,216 Research and development 9,769 - 9,769 10,133 - 10,133 10,226 - 10,226 10,348 - 10,348 40,476 - 40,476 General and administrative   6,634     685     5,949   6,420     685       5,735   6,977       684       6,293     6,663       683     5,980     26,694       2,737       23,957   Total operating expenses   38,990     2,126     36,864   39,765     2,093       37,672   42,862       2,248       40,614     43,436       1,937     41,499     165,053       8,404       156,649     Income from operations 16,913 1,587 15,326 16,936 1,231 15,705 17,696 1,203 16,493 19,456 1,382 18,074 71,001 5,403 65,598 Interest and other expense, net   321     44     277   74     (69 )     143   (454 )     (160 )     (294 )   (676 )     67     (743 )   (735 )     (118 )     (617 ) Income before income taxes 17,234 1,631 15,603 17,010 1,162 15,848 17,242 1,043 16,199 18,780 1,449 17,331 70,266 5,285 64,981 Provision for income taxes   55     38     17   515     37       478   423       38       385     425       37     388     1,418       150       1,268   - Net income $ 17,179   $ 1,593   $ 15,586 $ 16,495   $ 1,125     $ 15,370 $ 16,819     $ 1,005     $ 15,814     18,355     $ 1,412   $ 16,943   $ 68,848     $ 5,135     $ 63,713     Net income per share Basic $ 0.20 $ 0.02 $ 0.18 $ 0.19 $ 0.01 $ 0.18 $ 0.19 $ 0.01 $ 0.18 $ 0.21 $ 0.02 $ 0.19 $ 0.79 $ 0.06 $ 0.73 Diluted $ 0.19 $ 0.02 $ 0.18 $ 0.19 $ 0.01 $ 0.17 $ 0.19 $ 0.01 $ 0.18 $ 0.20 $ 0.02 $ 0.18 $ 0.77 $ 0.06 $ 0.71 Weighted average shares Basic 85,161 85,161 85,161 86,578 86,578 86,578 87,163 87,163 87,163 87,565 87,565 87,565 87,565 87,565 87,565 Diluted 88,262 88,262 88,262 88,753 88,753 88,753 89,336 89,336 89,336 91,868 91,868 91,868   89,221       89,221       89,221    

To supplement our financial results presented on a GAAP basis, we use non-GAAP measures of net income and earnings per share, which exclude expenses that we believe are helpful in understanding our past financial performance and prospects for the future, including stock-based compensation associated with stock options and restricted shares issued to executive officers and employees, amortization of intangible assets in connection with our acquisitions, restructuring costs related to lease abandonment accruals, litigation benefit related to a patent infringement judgement, transaction-related costs and release of tax reserves.