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Executives

John Duncan -

Ahmed Rubaie - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Robert M. Calderoni - Chairman, Chief Executive Officer and Member of Equity Incentive Committee

Analysts

Gregory Dunham - Goldman Sachs Group Inc., Research Division

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Thomas Ernst - Deutsche Bank AG, Research Division

Robert P. Breza - RBC Capital Markets, LLC, Research Division

Lauren Choi

Richard T. Williams - Cross Research LLC

Ariba (ARBA) Q2 2012 Earnings Call April 26, 2012 5:00 PM ET

Operator

Greetings. And welcome to the Ariba Second Quarter Fiscal Year 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Duncan, Vice President of Investor Relations for Ariba. Thank you. Mr. Duncan, you may begin.

John Duncan

Good afternoon. And welcome, everyone, to Ariba's conference call to discuss results for the second quarter of fiscal year 2012. In today's call, we'll make reference to supplemental presentation slides with our prepared remarks. To access these slides, please log on to Investor Relations section at our website at www.ariba.com. Our speakers for the call today are Bob Calderoni, our Chairman and Chief Executive Officer; and Ahmed Rubaie, our Chief Financial Officer. For those on the call accessing the supplement presentations, please now advance to Slide 2.

Before we begin, I'll read the Safe Harbor statement. Statements that may be made on this call and the supplemental slides that are not historical facts may be forward-looking statements, including statements regarding the company's or management's intentions, hopes, beliefs, plans, expectations or strategies for the future. These statements are subject to various risks and uncertainties and actual results could differ materially from the company's current expectations. These risks and uncertainties are discussed in the company's SEC filings, including our most recent Form 10-Q filed on February 7, 2012.

During the course of this call, we will reference historical non-GAAP financial measures. The management reviews non-GAAP financial information in evaluating Ariba's historical and projected financial performance and believes that it may assist investors in assessing its ongoing operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for, or superior to measures of financial performance prepared in accordance with GAAP. For a reconciliation of historical non-GAAP to GAAP financial measures, please see the earnings press release and supplemental analysis on the Investor Relations section of our website at www.ariba.com or our Form 8-K filed this afternoon.

In addition, we will reference certain forward-looking non-GAAP financial information, including fiscal year 2012 revenues, expenses and net income. We're unable to reconcile this forward-looking non-GAAP financial information to corresponding forward-looking GAAP measures because we are unable to estimate without unreasonable efforts certain forward-looking GAAP revenue expense and other income items.

At this time, I would like to turn the call over to Ahmed Rubaie to review the financial highlights for the quarter.

Ahmed Rubaie

Thanks, John. Good afternoon, everyone, and thank you for joining us today to review Ariba's second quarter results. Ariba delivered another strong quarter. We were above the top end of our guidance on revenue, primarily due to the continued rapid growth of our network revenue. This is not only the fastest growing component of our business. It is now also the largest contributor to our highly profitable recurrent Subscription Software revenue.

Our revenue outperformance combined with the inherent leverage of our network business and focus on scaling our businesses efficiently as balance with investments for tomorrow's growth contributed to non-GAAP EPS, but also exceeded the high end of our guidance. We are very pleased with the trajectory of our business, and accordingly, we are raising our revenue EPS and cash flow guidance for the full year.

Now let me walk you through the highlights for the second quarter. Please turn to Slide 3. Our annualized Subscription Software backlog increased to $220 million, up 20% year-over-year. Our trailing 12-month network volumes rose to approximately $319 million, up 25% year-over-year organically. In tandem, we continued to increase participation and our chargeable relationships rose to approximately $98,300 or 18% year-over-year organic growth.

Please turn to Slide 4. Our highly profitable recurring Subscription Software revenue was $89.2 million for the quarter, exceeded our guidance and is up 32% year-over-year and up 21% organically at constant currency. As I mentioned a moment ago, the driver of our subscription revenue growth is our network revenue, which showed continued strength at $45.4 million in the quarter, up 59% year-over-year and 31% organically at constant currency. We were very pleased with the continued growth in the network transactions across the globe. Renewal rate continue to be solid: network at approximately 95% and other applications at approximately 90%. This is an indication of business value that we are delivering to our customers.

On to operating cash flow and the old adage that cash is king. We are pleased to have set a record in the March quarter where we generated $44.4 million of operating cash flow before lease loss, which is up significantly by approximately $50 million or approximately 50% from the same quarter last year. Including lease loss of $5.7 million, Q2 net cash flow was $38.7 million. Remember that the lease loss impact from the legacy Sunnyvale campus will end next January.

Now let me turn to more specific financial results for the March quarter. Please turn to Slide 6. Total revenue increased 21% year-over-year to $131.5 million for the second quarter, above our guidance range of $128.5 million plus or minus $2 million. Subscription and maintenance revenue was $102.1 million, exceeding our guidance of $99 million, plus or minus $2 million. Subscription Software revenue was $89.2 million, also exceeding our guidance of $86.5 million, plus or minus $2 million, and as mentioned a moment ago, up 32% year-over-year and up 21% organically at constant currency.

Maintenance revenue was $12.9 million in the quarter, above our guidance of $12.5 million. Services and other revenue was $29.4 million consistent with our guidance of $29.5 million plus or minus $1 million.

Turning to expenses. Total operating expenses on a GAAP basis including cost of revenue were $127.3 million. Included in these GAAP results were $18 million for stock-based compensation and a $4.8 million charge for amortization of intangible assets. Excluding these items, non-GAAP operating expenses were $104.5 million for the quarter, resulting in non-GAAP operating income of $27 million. This represents a 48% year-over-year growth in non-GAAP operating income and an operating margin of approximately 21%, slightly above our 19% to 20% target for the current year. These demonstrates the inherent leverage in our business model, which I continue to highlight for you. Going forward, we will continue to balance margin expansion with investments in multiple parts of our business to drive long-term growth with a current focus on investments related to technology and innovation.

GAAP net income for the second quarter for continuing operations was $1.8 million or $0.02 per share. On a non-GAAP basis, we had net income of $24.6 million or $0.25 per share coming in above the high end of our EPS range of $0.22, plus or minus $0.01, and up 34% year-over-year.

Moving on to the balance sheet. Deferred revenue was in line with expectations at $142.6 million. DSO was 25 days. Our cash balance increased to $262.1 million, up from $223 million in the prior quarter, reflecting the strong operating cash flow I mentioned earlier and is now $2.66 a share. 18 months ago, we had $252 million in the bank. We sold a small non-core business, bought 2 core growth network businesses, handsomely grew the business, built out a new and more fitting facility for our engineers in California ahead of our lease expiration next January, and we have now put all that money back in the bank, added another $10 million on top of it, and we will keep going.

Let's now look at our EPS outlook for fiscal year 2012. Please go to Slide 7. As mentioned earlier and based on the strength of our second quarter and our positive outlook for the rest of the year, we are raising our network and total revenue guidance by $5 million, EPS guidance by $0.04 and cash flow guidance by $2 million for the full year. These raises are after incorporating approximately $6 million of year-over-year currency headwinds that primarily impact network revenue. We now expect total revenue of approximately $530 million, plus or minus $5 million, up from our previous expectation of $525 million, plus or minus $5 million. We expect Subscription Software revenue to be approximately $366 million, plus or minus $4 million, or 33% year-over-year growth. This is up from our original guidance of $361 million, plus or minus $4 million or 31% growth. These uplift in our Subscription Software guidance, after incorporating $6 million of currency headwinds, now represents approximately 22% constant currency organic growth, up from our previous guidance of 20% in January and 19% in October.

Within this, we expect our network revenue to be approximately 31% constant currency organic growth, up from our previous guidance of 27% in January and 24% in October. We still expect maintenance revenue to be approximately $49 million, and services and other revenue to be approximately $115 million, plus or minus $5 million. On services, and as we have said in the past, we expect the underlying quarterly run rate to be between $27 million to $30 million. And of course, it will continue to be less predictable.

Given the revenue outperformance, we are also raising our non-GAAP EPS guidance for the full fiscal year to a range of $0.98, plus or minus $0.02, which is up $0.04 from our January guidance of $0.94, plus or minus $0.02; and $0.06 from our October guidance of $0.92, plus or minus $0.02. This is based on approximately 99 million diluted shares outstanding. We reiterate our prior commitment and continue to expect operating margin expansion to be approximately 20% for the full year. This includes investments across multiple areas of our business to drive long-term growth and a current focus on technology and innovation. We are also raising our operating cash flow before lease loss guidance by $2 million to $110 million, representing an operating cash flow margin of approximately 21%.

Turning to Q3, specifically, we expect the following: total revenue in the range of $135 million, plus or minus $2 million; subscription and maintenance revenue of approximately $106.5 million, plus or minus $2 million, including roughly $94.5 million, plus or minus $2 million for Subscription Software revenue; and approximately $12 million for maintenance revenue. We expect services and other revenue of approximately $28.5 million, plus or minus $2 million. Note that our Q3 revenue guidance for Subscription Software incorporates approximately $2 million currency headwinds year-over-year based on today's rates. Again, most of the impact is on network transaction revenue.

With respect to the rest of the P&L, we expect total non-GAAP expenses to be approximately $108 million for the third quarter. Contained within this are high-level estimates of cost of revenue, roughly $42 million; R&D of approximately $16 million; sales and marketing of approximately $38 million; G&A of roughly $12 million; and in addition, we expect the net impact from interest, taxes and FX of approximately $3 million expense. On a non-GAAP basis, we expect net income of roughly $24 million, plus or minus $1 million, or approximately $0.24 plus or minus 1. This is based on an estimated 99 million diluted shares outstanding.

In addition, we expect to record expenses of roughly $22 million for stock-based compensation and amortization of intangible assets, including Quadrem and b-process.

In summary, I'm very pleased with the results for the March quarter and our improved outlook for the June quarter in the fiscal year.

With that, let me turn the call over to Bob.

Robert M. Calderoni

Thanks, Ahmed. And thanks to all of you for joining us today. While certainly pleased with the solid performance we delivered once again this quarter with total revenue, subscription revenue, network revenue and earnings per share all ahead of guidance, as Ahmed pointed out, but I'm also pleased with how we continue to execute against our stated strategy of becoming the world's leading internet-based business commerce network. As many of you may have seen at Ariba LIVE just last week, buyers and sellers are increasingly using a network model to drive process improvements, savings and competitive advantage in their business. Whether it was examples like Anglo American, who discussed how they're collaborating with and developing suppliers in remote regions of the world using the Ariba network, or GlaxoSmithKline using the Ariba network to extend their SAP systems to drive touchless invoicing or other examples like Dollar Tree, who's using the Ariba network in every portion of its source-to-settle process, which has been helping them with their aggressive rollout of opening more than one store each and every week. All of these customer stories signal that the network economy has arrived, and I think perhaps more importantly that Ariba is at center stage as a key enabler of this network economy.

I think what was a vision of Ariba's just a few years ago is now a reality. Today, companies can automate their processes beyond their 4 walls, sellers can quickly find new business opportunities with a network of prospective customers who are in the act of buying, and buyers can now efficiently discover and qualify new sources of supply and track and coordinate orders across their supply chain, all of this happening in real time. And any company can have real time transparency into their payables and receivables status, enabling them to make more informed working capital decisions. And by being part of the Ariba network, our customers are pioneering this network economy and they're achieving real benefits and competitive advantage in the marketplace.

I see this new network reality is reflected in our performance this quarter. Our core network volume continues to grow at a very healthy clip, and we believe our network will continue to grow over time as it scales and becomes more deeply embedded across a wide range of global customers and business processes. Our performance in the second quarter also reflects our solid execution and increasing penetration across our network, including accounts that are using third-party applications. I see this is a powerful growth model. We're unleashing more spend as we open up more nodes. We're also improving our user experience by combining functional innovations with an enhanced user interface, sort of a next-generation user interface with catalogs and advanced consumerized navigation, something some of our customers have said they've never seen before available in Enterprise-buying applications. This is and will continue to enable us to extend and drive more adoption with our customers across a broader range of their processes and spend. So this combination of more nodes, broader adoption and deeper spend penetration is what is fueling our growth today and into the future.

During this past quarter, we added 51 new logos, which extends our installed base and potential spend penetration even further. An example of one of our new logos, provincial government, Western Cape, South Africa, they've tapped our upstream sourcing and supplier information solutions. This is a network story as well, and it shows how we're extending a network effect into all solutions and demonstrates the breadth of Ariba's global trading community. For example, with this win, disadvantaged suppliers are populating their profile and certification information once in the Ariba network making them available to all South African government departments, who'll be able to easily search and discover disadvantaged suppliers. The supplier information is also going to be available to all of the other buyers on the Ariba global network and is part of this network effect that we talked about that's leading to many sellers wanting to join the network, which is resulting in more than 1,000 new suppliers coming on to the network each and every week.

Our growth opportunity is not limited to customers that use our suite of SaaS applications, as I indicated earlier. We're able to provide network services to literally any company in the world irrespective of the software preference. Case in point this quarter, Barrick Gold, the global mining company, entered into a multi-year deal to use the Ariba network to extend their Oracle ERP systems and enable collaborative procurement and invoicing with more than 5,000 suppliers deployed across 4 continents. We also continue to help SAP customers get network as well. For example, this past quarter, BMS, the leading packaging producer, they elected to extend their SAP SRM solutions with a host of Ariba network-based solutions, including procurement, content, PO automation and invoice automation, to manage service spend, work order driven MRO materials and also the direct materials. Once this process is fully ramped, we will enable them to automate and extend their procurement and invoicing processes to several thousand suppliers.

We close a similar deal at another major SAP account. A global electrical products manufacturer selected Ariba due to our integrated collaborative procurement approach and our global capabilities. In this particular case, we'll extend their back-end SAP environment automate PO and invoice processes with more than 20,000 global suppliers. One thing that's common in each of these examples is that with the power of the network, which prevailed for Ariba as more and more companies are realizing the benefits of being part of our many-to-many networks. We also continue to make progress against our initiative to expand our reach and add buyers through strategic alliances. This quarter, we added 2 new partners that are contributing in this area and talked about it at Ariba LIVE last week.

We announced a partnership with Microsoft to connect 10,000 Microsoft dynamic ERP and CRM customers for the Ariba network enabling buyers and sellers to engage in the Ariba community and extend their procurement sales and finance processes to their trading partners. This gives our network access to thousands of companies we would never have been calling out ourselves.

Another partnership to highlight is Dell Boomi. We will support this Microsoft to Ariba network integration model through our strategic alliance with Dell Boomi, which provides a standard set of predefined out-of-the-box integrations from Microsoft Dynamics to the Ariba network. We're also going to make the Dell Boomi integration as a service offering available for integration between Ariba applications and our customers' back office ERP systems. Both of these partnerships, albeit in the first inning right now, over time will enable us to more easily tap into the commerce of thousands of new companies using third-party software and expand the reach in the volume of our network.

The next major component of the growth strategy is our increased focus on customer adoption and spend penetration, in this case, with existing customers. An example talk about here is a large mining company and one of our longtime network users. This company continues to grow through expansion, committed to leveraging the Ariba network to automate their complex and highly collaborative field service procurement and invoicing activities. And due to the remote location of its employees and sites, they're going to largely use our mobility solutions to place requests and collaborate from mobile devices in the field. This company is already one of our top customers on the network, and they continue to grow at a rapid clip as we broaden our reach into their spend, which today Ariba helps them connect with more than 5,000 suppliers.

The final prong of our strategy is our continued focus on developing and innovations around our product that contribute and enhance the network effect of our business with a major push on creating a superior user experience. For buyers, we launched our next-generation catalog and user interface products. If any of you were at Ariba LIVE, you would have seen the demonstration on the main stage. It further consumerizes business commerce. In this case we're talking about the procure-to-pay experience by providing frontline buyers or requisitioners with a highly intuitive consumer-like shopping experience across all aspects of the buying process. And the feedback from customers has been extremely positive, with many customers describing it to us as the Amazon for business.

For sellers, we got some innovation there as well, our Unified Seller Experience or what we call the seller collaboration console. It's enabling sellers to manage all their processes from lead management to negotiations, order and invoice management, for all of the -- to all the community collaboration with all of their customers on a network through one single console. It's just like managing all of your relationships and groups of interactions through a single console in your Facebook account. And I think it's part of our focus on offering increased value and solutions to suppliers.

All of us here at Ariba, we're very encouraged by the progress we're making against our strategy. I believe we are expanding our lead in this network economy. And our results this quarter reinforced not only the strategy, but provides us the confidence in our business going forward and once again enabled us to raise expectations for the full year.

So with that, let me turn the call back to the operator and open the line for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Greg Dunham with Goldman Sachs.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

I want to hit on the volume acceleration from 23% to 25% in the quarter, off of a much bigger base actually. So how much of that is the new farming initiative that you put in place the past 18 months? And in what inning are we in terms of that initiative really driving acceleration and the network volume?

Robert M. Calderoni

Greg, this is Bob. I think it's largely driven by our customer management organization, sort of. That's what we call our farming organization, really just got underway here in the last 2 quarters, so I think this is a good early sign that we see an increase in the spend going through the network. Still in the very, very early innings of that. I don't want to jump to any conclusions after just one quarter, but we're pleased with the uptick in volume in the network. And between the volume in the network and the chargeable relationships, we continue to remain confident in that 20% to 30% growth that we've forecasted pretty consistently now in terms of network revenue. Good early start for the organization internally though.

Gregory Dunham - Goldman Sachs Group Inc., Research Division

One follow-up, I guess, on a different topic. Amazon, a couple days ago, announced that they're going to do MRO category for B2B. Can you talk about that in the context of what that does versus kind of the offering that you're giving your kind of Fortune 100 customers and how does their entry into the market impact the overall B2B market from a supplier and buyer perspective?

Robert M. Calderoni

Yes. I see the Amazon supply, its announcement they made recently. I see that as a market place for MRO activity. This is already -- there's a number of players in the MRO space from Grainger to companies like ThomasNet. I actually see this Amazon supply opportunity as a additional partnership opportunity for us as they build that marketplace and they build a sort of a community of suppliers, just like we did with ThomasNet, which is in this area. We partnered with them and brought all their suppliers into the network. I think Amazon could become an additional partner opportunity for us.

Operator

Our next question comes from the line of Peter Goldmacher with Cowen and Company.

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

I wanted to ask you sort of a philosophical question, Ahmed. You've talked a number of times about you feel like you want to maintain a certain margin level because you feel like margins beyond that level are best spent investing back in the business. And this quarter we saw probably more margin upside than I think most people have modeled, but we also saw the traditional software business a little bit softer than we've seen it in a long time. And I'm just wondering, you guys have positioned the ASN as really the crown jewels for a long time. And for the first time, it's the lion's share of the revenue, which is just fantastic. But I'm wondering, are you thinking differently about the core software business now? And when you're modeling the business, looking forward, what is that right margin level? And how are you thinking about investing in the more traditional software business?

Robert M. Calderoni

This is Bob, Peter. I'll let Ahmed answer the margin side of your question. As far as how we're thinking about the software business, we're not thinking any differently about it. I think probably the best way to think about it is we evolved from a company that was a software company that had a network to a network company that has software. So software still an important part of the business. It's just not the only part of the business. And we have modeled that our software application business would grow 15% to 20%. We continue to be in that range. Sometimes we'll be at the higher end of the range, sometimes we'll be at the lower end of the range, but we're going to be in that 15% to 20% range. And I expect we'll continue to be there. So the fact that we are looking to connect our network to customers that might be using some of the software, I view that really as an addition instead of a takeaway to the extent we make a software sale, and we're still motivated to make software sales. We tie in the network. I just don't want to be closed off. I don't want to limit the network to only customers that are using Ariba software. So I really see this complementary and not something that we're deemphasizing at all.

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Well, Bob, I know you made that commitment because I remember your Ariba LIVE in Arizona about 6 years ago where you made that strategic decision. But software revenue this quarter was the lowest it's been in probably about just looking back certainly through last year. And you're maintaining, sort of, that you can still think it's going to be 15-ish%. And I don't want to harp on really the only thing you could nitpick out on the quarter, but as you're investing in all these other network businesses, is software being de-emphasized? Should we start to think about it differently?

Robert M. Calderoni

I wouldn't say de-emphasized. I think you ought to think about it in context of the overall business model that we have, where we're going to grow our combined subscription revenues in that 15% to 25% range. We're growing 21% or 22% combined now. We got network at the high end, and we've got software a little bit below that. I think the network will always grow faster than the software. And to some degree, if we're thinking differently, we will take smaller software deals just to get the network plugged in and -- sort of that land-and-expand strategy rather than -- maybe a few years ago, we would have been pushing for bigger software deals. And that might be the only thing that's changing in the business, but certainly not a de-emphasis of the software business at all.

Peter L. Goldmacher - Cowen and Company, LLC, Research Division

Okay. And, Ahmed, on the margins?

Ahmed Rubaie

Yes, so I mean, Peter, if you take the -- I think you're picking up on the right beat. At the end of the day, as the network revenue or the network business continues to grow, it's obviously already surpassed, there's going to be more drop to the bottom line. So if you look at this particular quarter in Q2 and how we're thinking about the rest of the year, I committed to 19% to 20%. I'm expecting to stay at 20% for the current year. The reason this particular quarter was slightly higher is just simply the timing of hiring and so on. So at the end of the day, when you look at it, we've hired over 322 people in the last 12 months, and we're continuing to invest heavily in the business. The fact that this quarter was at 21%, I wouldn't interpret anything out of it. The model should be a 20% for the year. The medium term model continues to be at 20% to 25%, and your philosophical conclusion that with the network that leverage becomes easier is 100% right.

Operator

Our next question comes from the line of Tom Ernst with Deutsche Bank.

Thomas Ernst - Deutsche Bank AG, Research Division

So with a strong performance in network and the outlook, in particular, we are seeing more upside, I'm curious about the acquisitions. We're now a year past the Quadrem deal closure, so the fourth quarter. And the question for you, how was that business tracking, particularly b-process? Are you finding that that's helping accelerate volumes or customer acquisition in Quadrem? And what are you looking at in key metrics in that? And then as a follow-up I'd like to ask you about how the supply chain strategies will look forward?

Robert M. Calderoni

So the rationale for the Quadrem acquisition and to some extent the rationale for the b-process acquisition was similar. It was really about building out our geographic footprint. So it gave us a strong position in markets we were not strong in. It fit like a glove. Ariba was strong. Legacy Ariba was strong in North America and Europe, and Quadrem was stronger in the southern hemisphere in Asia. So that gave us that real good solid footprint around the world. That's still the case. The other reason was we thought there were some customers there that were largely network customers that we would also be able to sell software into those markets. We're starting to see some early wins in terms of some software sales, not only with Quadrem customers, but even non -- some new customers down in their markets as well. So that's been validated. And the other reason is one of the things that we learned from Quadrem was -- since we originated as a software company and they originated as a network company. They actually got into this concept of farming before we did. And so one of the synergies we thought we'd find in the business is exporting -- or importing some of their farming capabilities and techniques into the core Ariba business. And that largely was the foundation for the customer management organization we put in place over the last couple of quarters. And as we highlighted in one of the earlier questions, that appears to be going pretty well, in addition, because we see an uptick in the spend in the network. So I think all of that's playing out pretty well. It's a little over a year now with Quadrem. I think you could say many of the same things about b-process just a far, far smaller example. B-process was really more about getting a little bit deeper into Europe, particularly in Southern Europe, and building out the network of suppliers there. It's a fraction of the size where Quadrem was, but the concepts and the principle was pretty much the same. I would just say it's too early to comment on whether or not we've learned anything relative to our expectations. And that is only a less than 2 quarters since we closed that deal.

Thomas Ernst - Deutsche Bank AG, Research Division

Specifically, though, has Quadrem -- how's that been tracking? I know you're not breaking it out for us, but how has it been tracking in terms of its growth and its renewal rates? Has it been consistent accelerating, decelerating for you?

Robert M. Calderoni

I think consistent -- renewal rates have been consistent. I think the business has been pretty consistent for us as well since we combined the 2 companies. I don't see any -- we really don't track Quadrem as a stand-alone business any longer because it's fully integrated. But the sense you have, because most of their business was in the Southern hemisphere, that business continues to grow nicely.

Thomas Ernst - Deutsche Bank AG, Research Division

Okay. And the last follow-up for me. When you acquired Quadrem, you told us that this could be step one, are you encouraging this strategy? Might you be more aggressive, less aggressive in terms of deals like Quadrem looking forward?

Robert M. Calderoni

That continues to be -- there aren't any very large companies out there that's on our radar screen right now. But there's always a handful of companies that are on our radar for a potential M&A. And I think that's something that will -- hard to forecast, hard to predict. It's when the time's right, but we'll have similar characteristics in the sense that'll be network focused, and it'll open up the opportunity for us in either new markets. Or perhaps they're in a vertical or a category of spend that we think would be a complementary addition to Ariba.

Operator

Our next question comes from the line of Robert Breza with RBC Capital Markets.

Robert P. Breza - RBC Capital Markets, LLC, Research Division

Bob, maybe just to ask a couple of different ways around the volume side, have you seen any volume increases? Or as you build out, maybe your network by geography, have you seen a new set of kind of suppliers by geography come on board?

Robert M. Calderoni

No, I think now with the Quadrem acquisition, we're pretty well balanced across all the major geographies, and we're seeing some pretty good growth coming out of all parts of the network, all geographies, really can't discern one versus another.

Robert P. Breza - RBC Capital Markets, LLC, Research Division

And then maybe just -- I would love to just get a character or kind of a customer profile as you think about volume. As you bring on a new customer, you talked about the 51 new logos this quarter. What kind of percent of increase do you see those new customers add to volume? Is it -- as you think about, like the first year, obviously, starts from a low base. But I'd love to just understand the progression of those new logos and as they kind of help contribute to their own volume.

Robert M. Calderoni

Yes, I think it really depends on the application, Rob. You have -- if it’s a P2P application, that one is going to bring spend on a little bit slower because customers are going to be looking to bring that spend into that process, the Procure-to-Pay process. That's fragmented spend that's spread all over the company today, and they need to really go after one category at a time. And there's a bit of a change of management, so it's a little bit slower. And you might not see a lot of spend for the first 12 months. And then in the second 12 months, you'd see it start to ramp. Some of the network applications like invoice automation or closer to the invoice side of the business, that spend that's already happening in an organization today. It's already sitting in a software somewhere. It's just the process of stopping at the edge of the firewall, and what the network application or in this case invoice comes in allows us to do is just get right in between existing spend and suppliers and become a connection. So you'll see spend ramp on the network a lot faster on those applications. And we'll always have a good mix of the deals that we're doing, whether they're P2P or invoice-related applications. And some will bring spend on sooner than others, but over the course of 24 months, 36 months, there won't be much of a difference, just about the rate and pace.

Ahmed Rubaie

If I may just complement Bob and actually the prior similar question. It's always important when you're thinking about our growth on the network side is to keep it within the 20% to 30%, which we've been pretty consistent on. We're very encouraged by the volume growth. Some of that is, obviously, the macro improving to Bob's point across our portfolio, particularly in emerging markets; subjectively what's happening at the customer level, our own focus with the customer management organization. But in any given quarter, it's about all multiples, volumes, chargeable relationships and so on. And so I would encourage you to stick with my guidance in terms of revenue for the current year, as well as how we think about it for the future at a similar CAGR that we've maintained for the last several years.

Robert P. Breza - RBC Capital Markets, LLC, Research Division

Maybe, Ahmed, just one follow-up. Taxes, how should we be thinking about taxes and, maybe I missed it, for next quarter and maybe for the remainder of the year?

Ahmed Rubaie

Yes, I think I gave you the number. It's $3 million for Q3. And that includes the entire other line, so it's taxes, interests and other income.

Operator

Our next question comes from the line of Lauren Choi with JPMorgan.

Lauren Choi

I just had another question around the investments. So past couple of years, you guys always kind of gave this full-year guidance where you're like, we're spending a certain amount of EPS on investments. Are you still thinking about it that way? And if you are, what is -- how much of the EPS is going towards investment this year?

Robert M. Calderoni

Lauren, can you just repeat that question? Ahmed was looking something up, and he didn't realize it was aimed for you.

Lauren Choi

Yes, so in the past, I think, Ahmed, you've always kind of talked about investments being, let's say, like $0.15 of earnings type of thing. I just wanted to understand if you had -- are you still looking at 2012 in a similar way? And what would that be?

Ahmed Rubaie

Yes, I mean again for 2012, just to be abundantly clear, we're going to stick to delivering 20% operating margins. What will be incremental investment above and beyond the $0.98 I guided? I would say probably about $0.25 to $0.27, Lauren.

Lauren Choi

And then I guess in a similar fashion around investments. So in the past, the investments were really in sales force. I think you guys talked about reducing sales cycle, I guess now also cultivating that farming sales type of person or culture. I just wanted to understand, is there anything else that you guys are doing in 2012 that's in addition to that stuff?

Ahmed Rubaie

Yes. We're also focused on the technology part of the business. As you build, as you focus more at the customer level, that brings more enhancements that are universal across. We talked at Ariba LIVE about the unified selling experience, multiple other innovations that we're bringing to the table. And you can see that in the P&L as you look at the R&D line sequentially every quarter.

Lauren Choi

And, Bob, so the last time you guys had a pricing increase was in 2010, right? And I think you guys have said in a few years, maybe 3, 4 years, there could be another pricing increase. Have you guys started thinking about that?

Robert M. Calderoni

Well, I've always felt there's an opportunity to get a better yield than we currently do out of the network. I think today we have an effective yield of only about 5 basis points. Our pricing is 15 basis points, but it's free for some suppliers up to a certain level. So we got a net yield today of about 5, maybe a little bit more than 5 basis points. The opportunity is certainly there to drive that yield up through business model changes, whether we change the basis points or we change some of the caps or some of the floors. I like to put some time in between those changes. And so I don't anticipate any changes in the near-term here, but that opportunity remains. And like we have in the past, you'll probably see, every 2 years to 3 years, there'll be some tweak. And when we do, Ahmed -- Ahmed's always quick to remind everybody, "Let's stick to this 20% to 30% growth in the network revenue." We've been at the higher end of that range, if anything a little bit over it. I think whenever we do a model change, we tend to be above 30%. So without a model change, we'll be similar to what you see today, high-20s, somewhere between the 20% and 30% range. And the model change, it should be periods when we're above our target range. I just don't have anything that we'll talk about in the next couple of quarters on that.

Lauren Choi

Okay. And then just last question. Given the E-commerce volumes that you do see. I'm guessing you do see like geographically strengths and weaknesses. Can you just touch upon where you're seeing a lot of your customer spending and maybe weaknesses also in other geographies?

Robert M. Calderoni

We see good growth in all of the geographies. Now part of that is you could have a North American company that's buying more, but sourcing it from another region. So it's hard to map the macro trends necessarily that you see from company-reported results back to where you see the supplier of volumes in there. But with that said, I think it's pretty consistent right now from what we see across geographies. We're obviously growing much faster than the economy as we're driving deeper penetration. But there probably is a little bit of a macro pickup couple of points, possibly a macro pickup in the numbers there. But for the most part, this is a -- we're growing a penetration with our customers in every geography. And they're doing business with suppliers in almost every geography, so we see a good balanced set of growth across everywhere we slice the network.

Operator

Our next question comes from the line of Richard Williams with Cross Research.

Richard T. Williams - Cross Research LLC

Just thinking back to prior calls. Bob, you talked about some of the large one time a year auction events bringing them on to the network to boost the volumes. How has that gone and to what degree do you get carryover business from those big guys?

Robert M. Calderoni

One time? I'm not sure I follow the question, Richard. One time a year?

Richard T. Williams - Cross Research LLC

The single auction event per year. There's some very large, non-repetitive stuff direct procurement. No? We can talk about that offline.

Robert M. Calderoni

Yes, [indiscernible] offline. It's not ringing a bell with me, Richard.

Richard T. Williams - Cross Research LLC

Also partners and VARs, are you seeing any opportunities to leverage the growth rate and the customer maturation rate by using partners?

Robert M. Calderoni

Yes. So our partner approach is really taken to sort of 2 dimensions to it. On one hand, our initial partnerships were with the BPO providers to get our platform, our software platform to become the standard platform that BPO providers would use in their business. And in a lot of ways, we see finance or procurement BPO providers being a very, very large accounts payable department. So we want to get our invoicing applications and our P2P applications into that. And that's going to drive all that spend there managing out to the network. So we feel pretty good that our applications today are the standard that all the 3 big BPO providers are using for their solutions for customers, whether it be Genpact, IBM or Accenture. So we feel pretty good on the partnership side there. More recently, and I think it's some of the partnerships I talked about in the call today, we're looking to strike alliances with other software vendors that have access to a lot of customers and a lot of customers spend that we would never get at largely because they tend to be smaller businesses. So if you think back a couple of quarters, we did a partnership with Netsuite. And more recently we just did a partnership with Microsoft Dynamics. There's thousands of companies there that use that software. And realistically, we never would get to them selling our software, so this is an opportunity to connect our network to their customers. And that's our current focus. Now all of those partnerships are relatively new, so there's not a lot to point to on that just yet. Obviously, the Microsoft one is brand new, but we think over the next year or 2, that's going to present a real good opportunity for us.

Richard T. Williams - Cross Research LLC

Also could you help with just the magnitude of opportunity that comes from Discount Pro?

Robert M. Calderoni

The magnitude of opportunity that comes from Discount Pro? I think it's just one of the many network-related opportunities that we offer our customers. I wouldn't want to single out the opportunity on any one solution. I think it's part of the mix. I think it's the reason why a lot of companies want to put more and more spend on the network that opens up an opportunity that not only automate their process with their suppliers, but whether it be Discount Pro or be some of the working capital management solutions, I think it opens up additional opportunities for them to either get better savings through better discounts or better working capital management. Or so I think it's part of the mix and not any one of these items is the reason companies are coming to us. It's really part of the broad opportunity.

Operator

I would now like to turn the call back over to Mr. Calderoni for closing comments.

Robert M. Calderoni

Okay, thank you. Thanks all of you for joining us today. We're very pleased with the progress we're making in the organization, not only with the financial results, but with a number of the nonfinancial items that we're executing to, to our strategy of building Ariba to be in the world's leading business-to-business commerce network. So I look forward to seeing many of you over the next 90 days. And thanks for your participation. Take care.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.

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