Siebel Takes Fiscal Short Steps Forward

Siebel Systems on Tuesday announced its official second-quarter 2005 financial results, which mirrored the disappointing preliminary figures it served to investors earlier this month. Siebel's underperforming license revenues jumped slightly from Q1 2005's $75 million to its second-quarter posting of $78.3 million, but suffered a major decline from last year's Q2 license revenues of $94.8 million. The company also reported a GAAP net loss of $50 million and incurred $74.1 million in restructuring and other charges. Excluding these charges, Siebel's non-GAAP net income was $0.7 million and its net income per share was zero cents. Total Q2 2005 revenues, though, were $313.6 million, in line with the company's preliminary report of total revenues between $312 million and $314 million, and up from Q1 2005's $298.9 million and Q2 2004's $301.1 million. Maintenance revenues, services and other revenues also matched preliminary results. Maintenance revenues almost copied Q1's results, pulling in $122.8 million, higher than Q2 2004 maintenance revenues of $114.4 million. Services and other revenues, which was expected to lie within the $111 million to $113 million range, came in at $112.5 million, an increase from Q1 2005's $101 million and Q2 2004's professional services and other revenues of $91.8 million. Guidance for Q3 includes license revenues between $75 million and $85 million, maintenance revenues between $122 million and $124 million, and services and other revenues between $108 million and $112 million, with total revenues between $305 million and $315 million. On a conference call Tuesday Kenneth Goldman, CFO and senior vice present of finance and administration, noted that some deals did not close as expected, and the company was unable to offset the license revenue shortfall at quarter's end. "This was actually particularly true in the public sector where sales cycles are more challenging to manage." Siebel, known for its mammoth deals, also saw its number of such deals decline. The company saw 295 transactions in Q2, up from 244 from the previous quarter, it did 15 deals of more than $1 million, down from 22 in Q1, and only one deal of more than $5 million. As a result, Siebel's average deal size fell from $307,000 in Q1 to $266,000 in Q2. CEO George Shaheen, echoing his statement made earlier this month during Siebel's preliminary Q2 results phone call, said he was disappointed--but not discouraged--by the company's inability to deliver a better Q2 license revenue. "We all know that we have work to do, but I am encouraged by the positive attitude and abilities of Siebel's employees and partners, and I am confident that we can achieve and exceed our goals." Bruce Cleveland, whose role was recently expanded from heading Siebel CRM OnDemand to senior vice president of products, noted Siebel's achievements in the second quarter, including delivering Siebel 7.8, Siebel CRM OnDemand Release 8, and Siebel Component Assembly, with the latter to be formally launched at Siebel CustomerWorld 2005, in October. Additional Q2 highlights included deploying 240,000 additional live users, bringing Siebel's live CRM-user count to date to more than 3.4 million, according to Cleveland. Siebel has recently seen some of its executives move to competitors' payrolls, but Shaheen noted recent adjustments to its executive lineup, including Cleveland's expanded role and the hiring of Patty Azzarello, former CEO of Euclid, as CMO. "We are focused on bringing in additional talent and taking additional actions to reinvigorate our revenue generation capability," Shaheen said. This includes reassessing its analytics practice. "We have to make sure that as a business intelligence offering that we are viable in the marketplace other than attached closely with CRM, and I think, to that extent, we don't address that. We're too closely tied with the ups and downs of the CRM market," Shaheen said. Improving sales execution is also a must. "We've made a lot of progress in the right areas...we still have to sell this stuff and we've got to get our sales execution up to par. I think once we do that, and we're going to do it, we will have all cylinders firing here." Janet White, a research analyst at Info-Tech Research Group, says that right now, "[Siebel is] trying to market to two different fronts and they have been less than successful on both fronts. So, they need to focus on their on-demand strategy or try to compete more effectively with the large enterprise software vendors like SAP and Oracle. If they do that, they really need to diversify their products so that they can compete more effectively." For now it seems that things are at least stabilizing for Siebel, but many issues remain ahead, says Chris Selland, industry analyst at Covington Associates. "A lot of the individual investors at this point sold out, and a lot of their shareholders are hedge funds who are really pushing them hard to put the company on the market. They're trying to reassure customers that they're still here. They're projecting that stability is what they need to do and I think all things considered they're doing a reasonably good job of that." Related articles: OnDemand 8: Siebel's Sophisticated Save? Siebel Tops Forrester's Wave for Enterprise CRM Siebel Shareholders Demand Action