Ariba Reports Results for the Fourth Quarter and Fiscal Year 2005; Strategic Acquisitions Drive Annual Revenue Growth

Fiscal Year Results

Total revenues for fiscal year 2005 were $323.0 million, ascompared to $245.8 million for fiscal year 2004. Software licenserevenues were $47.8 million, as compared to $65.7 million for fiscalyear 2004. Subscription and maintenance revenues were $123.4 million,as compared to $95.7 million for fiscal year 2004. Services and otherrevenues for the year were $151.8 million, as compared to $84.5million for fiscal year 2004.

Net loss for fiscal year 2005 was $349.6 million, or $5.49 pershare, as compared to a net loss for fiscal year 2004 of $25.2million, or $0.51 per share. The net loss for fiscal year 2005included charges of $20.3 million for amortization of intangibleassets, $19.6 million for stock-based compensation, $247.8 million forgoodwill impairment, $37.0 million for litigation provision, and $41.2million for restructuring and integration costs. Excluding theseitems, total non-GAAP expenses for fiscal year 2005 were $306.7million, resulting in non-GAAP net income of $16.4 million, or $0.24per share.

The results for fiscal year 2005 include the results fromFreeMarkets, Inc., which Ariba merged with on July 1, 2004.

Fourth Quarter Results

Total revenues for the fourth quarter of fiscal year 2005 were$77.1 million, as compared to $84.1 million for the fourth quarter offiscal year 2004. Software license revenues for the quarter were $8.0million, as compared to $15.6 million for the fourth quarter of fiscalyear 2004. Subscription and maintenance revenues were $30.6 million,as compared to $31.1 million for the fourth quarter of fiscal year2004. Services and other revenues for the quarter were $38.6 million,as compared to $37.4 million for the fourth quarter of fiscal year2004.

Net loss for the fourth quarter of fiscal year 2005 was $7.3million, or $0.11 per share, as compared to a net loss for the fourthquarter of fiscal year 2004 of $22.9 million, or $0.36 per share. Thenet loss for the fourth quarter of fiscal 2005 included charges of$4.8 million for amortization of intangible assets, $7.5 million forstock-based compensation, and $2.6 million for restructuring andintegration costs. Excluding these items, total non-GAAP expenses forthe fourth quarter of fiscal 2005 were $69.5 million, resulting innon-GAAP net income of $7.6 million, or $0.11 per share.

"This was an important year for Ariba, as we completed theintegration with FreeMarkets and established ourselves as a truesolutions provider and the clear leader in spend management," said BobCalderoni, CEO, Ariba. "During the fourth quarter, we continued tomake good progress on the strategic initiatives we established earlierthis year, including the transition of our license revenue to asubscription software model, the monetization of the Ariba SupplierNetwork(TM), and the development of an organization to address thegrowing enterprise market."

Customers Validate Growing Market for Spend Management Solutions

Ariba added 74 new customers during fiscal year 2005, as companiesseek to generate cost savings, increase their margins and acceleratepositive bottom-line results. During the fourth quarter of fiscal year2005, more than 150 customers in all regions renewed or expanded theirinvestment in Ariba Spend Management(TM) solutions, including: EmersonElectric; Kohl's; Schering-Plough, Inc.; Tyco International; PPGIndustries; Dutch Railways; Nestle; and Ranbaxy Laboratories.

"This was a good quarter for Ariba, as we continue to see soliddemand for spend management solutions," said Mr. Calderoni. "Companiesare realizing that Ariba is focused on a critical business strategythat has a sustainable impact on the bottom line, and we continue toplay a major role in helping our customers accelerate their results."

Conference Call Information

Ariba will hold a conference call today at 2:00 p.m. PDT/5:00 p.m.EDT to discuss the fourth quarter and fiscal year-end results. To jointhe call, please dial (800) 473-6123 in the United States and Canada,or (973) 935-8507 if calling internationally. There will also be alive web broadcast available on the investor relations section of thecompany's website at www.ariba.com or at www.vcall.com. A replay ofthis call will be available at approximately 5:00 p.m. PDT/8:00 p.m.EDT today through November 2, 2005 by calling (877) 519-4471 in theUnited States and Canada or (973) 341-3080 internationally andentering ID #: 6568902.

Copyright (C) 1996 - 2005 Ariba, Inc.

Ariba and the Ariba logo are registered trademarks of Ariba, Inc.Ariba Spend Management, Ariba Spend Management. Find it. Get it. Keepit., Ariba. This is Spend Management, Ariba Solutions Delivery, AribaAnalysis, Ariba Buyer, Ariba Category Management, Ariba CategoryProcurement, Ariba Contract Compliance, Ariba Contracts, AribaContract Management, Ariba Contract Workbench, Ariba Data Enrichment,Ariba eForms, Ariba Sourcing, Ariba Invoice, Ariba Travel & Expense,Ariba Workforce, Ariba Supplier Network, Ariba Supplier PerformanceManagement, Ariba PunchOut, Ariba QuickSource, PO-Flip, AribaSettlement and Ariba Spend Management Knowledge Base are trademarks orservice marks of Ariba, Inc. Ariba Proprietary and Confidential. Allrights reserved. Patents pending. All other trademarks are property oftheir respective owners.

Ariba Safe Harbor

Safe Harbor Statement under the Private Securities LitigationReform Act 1995: Information and announcements in this release involveAriba's expectations, beliefs, hopes, plans, intentions or strategiesregarding the future and are forward-looking statements that involverisks and uncertainties. All forward-looking statements included inthis release are based upon information available to Ariba as of thedate of the release, and we assume no obligation to update any suchforward-looking statements. These statements are not guarantees offuture performance and actual results could differ materially from ourcurrent expectations. Factors that could cause or contribute toAriba's operating and financial results to differ materially from itscurrent expectations include, but are not limited to: delays indevelopment or shipment of new versions of Ariba's products andservices; lack of market acceptance of Ariba's existing or futureproducts or services; inability to continue to develop competitive newproducts and services on a timely basis; introduction of new productsor services by major competitors; the ability to attract and retainqualified employees; difficulties in assimilating acquired companies;long and unpredictable sales cycles and the deferrals of anticipatedorders; declining economic conditions; inability to control costs;changes in the company's pricing or compensation policies; significantfluctuations in our stock price; the outcome of and costs associatedwith pending or potential future regulatory or legal proceedings; theimpact of our acquisitions, including the disruption or loss ofcustomer, business partner, supplier or employee relationships; andthe level of costs and expenses incurred by Ariba as a result of suchtransactions. For example, in February 2005, Ariba settled patentinfringement claims filed against it by ePlus, Inc. for $37.0 millionand incurred significant related legal expenses. Factors and risksassociated with its business, including a number of the factors andrisks described above, are discussed in Ariba's Form 10-K filedDecember 14, 2004 and in its Form 10-Q filed August 9, 2005.

Ariba, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited; in thousands)


September September
30, 30,
2005 2004
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $60,909 $74,031
Short-term investments 50,520 37,227
Restricted cash 1,381 45,623
Accounts receivable, net 41,890 48,071
Prepaid expenses and other current assets 10,080 10,795
----------- -----------
Total current assets 164,780 215,747

Property and equipment, net 17,999 21,909
Long-term investments 2,731 29,676
Restricted cash, less current portion 31,894 26,862
Goodwill 328,692 574,679
Other intangible assets, net 41,562 62,249
Other assets 2,986 2,767
----------- -----------
Total assets $590,644 $933,889
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $11,031 $15,433
Accrued compensation and related
liabilities 30,046 31,171
Accrued liabilities 23,461 69,570
Restructuring obligations 18,144 16,825
Deferred revenue 39,548 49,664
Deferred income - Softbank 13,368 -
----------- -----------
Total current liabilities 135,598 182,663

Deferred rent obligations 22,184 21,406
Restructuring obligations, less current
portion 68,356 41,042
Deferred revenue, less current portion 21,056 22,858
Deferred income - Softbank, less current
portion 13,925 -
----------- -----------
Total liabilities 261,119 267,969
----------- -----------

Minority interests - 19,547

Stockholders' equity:
Common stock 144 125
Additional paid-in capital 5,023,964 4,963,002
Deferred stock-based compensation (35,537) (5,959)
Accumulated other comprehensive income 3,011 1,634
Accumulated deficit (4,662,057) (4,312,429)
----------- -----------
Total stockholders' equity 329,525 646,373
----------- -----------
Total liabilities and stockholders'
equity $590,644 $933,889
=========== ===========


Ariba, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited; in thousands, except per share data)



Three Months Ended Year Ended
September 30, September 30,
2005 2004 2005 2004
--------- --------- ---------- ---------
Revenues:
License $8,010 $15,563 $47,817 $65,654
Subscription and
maintenance 30,565 31,105 123,430 95,689
Services and other 38,556 37,408 151,796 84,455
--------- --------- ---------- ---------
Total revenues 77,131 84,076 323,043 245,798
--------- --------- ---------- ---------

Cost of revenues:
License 830 562 3,576 2,673
Subscription and
maintenance 7,409 6,354 28,800 22,360
Services and other 29,689 28,911 121,557 69,832
Amortization of acquired
technology and customer
intangible assets 4,613 4,725 19,501 5,065
--------- --------- ---------- ---------
Total cost of
revenues 42,541 40,552 173,434 99,930
--------- --------- ---------- ---------
Gross profit 34,590 43,524 149,609 145,868
--------- --------- ---------- ---------

Operating expenses:
Sales and marketing 17,714 23,346 83,276 74,291
Research and development 10,778 15,219 47,212 54,091
General and
administrative 7,726 9,958 30,588 26,072
Other income - Softbank (3,345) - (9,490) -
Amortization of other
intangible assets 200 235 798 460
In-process research and
development - 100 - 100
Stock-based compensation 7,526 1,149 19,604 2,788
Restructuring and
integration costs 2,579 16,900 41,248 16,803
Goodwill impairment - - 247,830 -
Litigation provision - - 37,000 -
--------- --------- ---------- ---------
Total operating
expenses 43,178 66,907 498,066 174,605
--------- --------- ---------- ---------

Loss from operations (8,588) (23,383) (348,457) (28,737)
Interest and other
income, net 2,259 314 5,863 2,808
--------- --------- ---------- ---------
Loss before income taxes and
minority interests (6,329) (23,069) (342,594) (25,929)
Provision (benefit) for
income taxes 941 193 7,017 (160)
Minority interests in
net (loss) income of
consolidated
subsidiaries - (403) 17 (539)
--------- --------- ---------- ---------

Net loss $(7,270) $(22,859) $(349,628) $(25,230)
========= ========= ========== =========

Net loss per share - basic
and diluted (1) $(0.11) $(0.36) $(5.49) $(0.51)
Weighted average shares -
basic and diluted (1) 64,554 62,734 63,655 49,625


(1) Reflects the one-for-six reverse split of the company's
outstanding common stock effected July 1, 2004.



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 Year
Ended Ended
Sept. 30, Sept. 30,
2005 2005
------------ ------------
Expense reconciliation:
-----------------------
GAAP revenue $77,131 $323,043
GAAP net loss 7,270 349,628
------------ ------------
Total GAAP expenses 84,401 672,671

Amortization of intangible assets (4,813) (20,299)
Stock-based compensation (7,526) (19,604)
Goodwill impairment - (247,830)
Litigation provision - (37,000)
Restructuring and integration costs (2,579) (41,248)
------------ ------------
Total non-GAAP operating expenses $69,483 $306,690
============ ============


Three Months Year
Ended Ended
Sept. 30, Sept. 30,
2005 2005
------------ ------------
Net income (loss) reconciliation:
---------------------------------
GAAP net loss $(7,270) $(349,628)
Amortization of intangible assets 4,813 20,299
Stock-based compensation 7,526 19,604
Goodwill impairment - 247,830
Litigation provision - 37,000
Restructuring and integration costs 2,579 41,248
------------ ------------
Non-GAAP net income $7,648 $16,353
============ ============


Three Months Year
Ended Ended
Sept. 30, Sept. 30,
2005 2005
------------ ------------
Net income (loss) per share reconciliation:
-------------------------------------------
GAAP net loss per share - basic $(0.11) $(5.49)
Amortization of intangible assets 0.07 0.32
Stock-based compensation 0.12 0.31
Goodwill impairment - 3.89
Litigation provision - 0.58
Restructuring and integration costs 0.04 0.65
------------ ------------
Non-GAAP net income per share - basic $0.12 $0.26
============ ============

Non-GAAP net income per share - diluted $0.11 $0.24

Weighted average shares - basic 64,554 63,655
Weighted average shares - diluted 70,346 67,099



Ariba provides quarterly and annual financial statements that are
prepared in accordance with generally accepted accounting principles
(GAAP). In addition, this press release contains non-GAAP financial
information. This non-GAAP financial information excludes the
following types of costs and expenses that are included in GAAP: i)
amortization of intangible assets, ii) stock-based compensation, iii)
goodwill impairment, iv) litigation provision, and v) restructuring
and integration costs. Management reviews this 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. We have provided a reconciliation of
the non-GAAP financial information provided in this press release with
the comparable financial information reported in accordance with GAAP
for the given period.