Tibco Software - Shares Fail To Jump Upward, As Tibco Sees Some Light Points

| About: TIBCO Software, (TIBX)

Shares of Tibco Software (TIBX) fell toward the end of the past trading week and continued to slide on Monday, after the provider of middleware and infrastructure software reported its second-quarter results on Thursday.

After witnessing a more than 30% share price decline over the past year, there are few reasons to pick up shares as growth has stalled and earnings are under pressure.

Second-Quarter Results

Tibco Software generated second-quarter revenues of $245.8 million, down 0.6% on the year before. Revenues came in a touch below consensus estimates of $246.6 million.

The slight fall in revenues harmed profits in a severe way. Non-GAAP earnings per share fell by a third towards $29.7 million, or $0.18 per share. Non-GAAP earnings were in line with consensus estimates.

Net income fell even harder, coming in at $8.7 million, which compares to $26.5 million a year earlier. Diluted earnings per share fell from 16 cents to just five cents.

CEO and Chairman Vivek Ranadive commented on the second quarter developments, "Improving sales execution remains our top priority. While work remains to be done, we saw signs of improvement and a healthier base of activity this quarter. Given the opportunity we see, we continue to invest for growth and innovation. Our ability to extract insights from static and real-time data and then operationalize those insights to help customers achieve the Two Second Advantage is a powerful driver and well-aligned with market needs in this era of big data."

A More Detailed Look Into The Results

The revenue decline is entirely attributable to an 11% drop in license revenues, which came in at $82.3 million. Service and maintenance revenues were up by 5.7% to $163.6 million.

Adding to the pain was a fairly sizable 2.2% compression in gross profits, which came in just below the 70% mark. On top of that, came the actual dollar increase in operating expenses. Tibco saw a rapid increase in relative operating expenses, coming in at 61.4% of total revenues, up 440 basis points on the year.

All of this weighed heavily on net income, which fell by roughly two-thirds to just $8.7 million.

Looking Into The Third Quarter

For the current third quarter, Tibco expects to generate revenues between $253 and $263 million. At the midpoint of the guidance, revenues are expected to increase by a little over 1% on the previous year.

Non-GAAP earnings are expected to come in between $0.21 and $0.23 per share, with GAAP earnings per share seen between $0.03 and $0.05.


Tibco Software ended its second quarter with $726.6 million in cash, equivalents and short-term investments. The company operates with $532.1 million in convertible debt, for a net cash position of almost $200 million, excluding the possibility of conversion into equity.

For its annual year of 2012, Tibco generated revenues of $1.02 billion, up 11.3% on the year. Net earnings rose by 8.5% in the meantime toward $122 million.

Trading around $20 per share, the market values Tibco at $3.3 billion, or its operating assets at $3.1 billion. This values the company's operations at roughly 3.2 times annual revenues, and 27 times annual earnings.

Tibco Software currently does not pay a dividend.

Some Historical Perspective

After trading in a relative tight $5-$10 trading range for most of the period between 2003 and 2010, shares of Tibco have seen a large move upwards in recent years. Shares advanced towards $30 in 2011 and 2012, followed by a sell-of in the second part of last year, which, sent shares towards the low-20s.

Between 2009 and 2012, Tibco Software increased its annual revenues by a cumulative 65% to $1.02 billion. Net income roughly doubled to $122 million in the meantime.

Investment Thesis

After years of steadily growing revenues and earnings, Tibco ran into trouble last year. Growth slowed down dramatically, and second-quarter revenues even fell slightly compared to last year.

Yet the company took measures, including a leadership reorganization of the sales team and it made recent investments to boost the future offerings. Consequently, management is encouraged to see a healthy base of activity into the second half of the year.

The company is well positioned for the Big Data theme, something Tibco itself calls the "next Gold Rush." Customers can see live data and transactions coming in on Tibco's platform, better understanding their customers and anticipating their needs and actions. While these investments will create long-term value, Tibco spent $59 million on share repurchases during the quarter, retiring almost 2% of its share base.

The outlook for the third quarter is not spectacular, but it is solid and shows early indications of a stabilization of the business. Effects of better sales execution should be seen in the second half of the year, as poor leadership resulted in lost deals to large names like Oracle (NASDAQ:ORCL) and IBM (NYSE:IBM).

Back in December of last year, I took a look at the company's prospects. At the time, I was not a buyer of the shares given the disappointing GAAP margin developments. Shares have traded in a $20-$25 trading range ever since, edging toward the lower end of that range at the moment.

Valued at 3.2 times annual revenues and 27 times annual earnings, I continue to see little appeal at current levels. While a higher valuation might be warranted based on the historical growth rates and future market opportunity, I don't see much potential for a short-term trigger upward.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.