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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (53485)	1/25/2003 2:05:49 PM
From: hueyone	Read Replies (1) \| Respond to of 54805

re: Sebl Free Cash Flow Hi Mike: Excellent effort as usual on the Sebl report. As you aware, however, I have been having some problems accepting your reported free cash flow numbers, which used to be my free cash flow numbers<g> and do not take stock option expenses into account, as being a relevant indicator of the company's ability to create and retain wealth for shareholders. We still have ongoing discussions regarding this issue on the Cisco thread if anyone is interested. An old Fool on the Hill article back in 1999, which I wish I had read and understood back then, makes the point that mistakes made in the net income statement, referring to failing to expense stock options, are carried right over into the other financial statements including the operating cash flows section of the cash flow statement: fool.com If what you're saying is true, only the income statement would be impacted. The balance sheet and cash flow statements would still be accurate, right? Not really. All three financial statements are intertwined and inaccuracies in one carry over to the other. In the same way that net income is overstated, cash flow is effectively overstated. The actual amount of cash isn't misstated, but the company has given away a cash-substitute (the option), which is not reflected on the cash flow statement. If the company were forced to pay its employees in cash, rather than with "self-published" options, operating cash flow would be lower. JMO, Huey

To: Mike Buckley who wrote (53485)	1/25/2003 9:49:20 PM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

THE FRONT OFFICE GORILLA GAME: Q4, 2002 -- PART 2 The Gorilla Game At the time of my Q3 report, the Gorilla Game's numbers were simply awful, showing big-time underperformance compared to both indexes. (Don't look up that post. The numbers were so bad that it'll hurt to see them again.) Since then, the S&P 500 and the Naz have moved down 2% and up 3%, respectively. The Gorilla Game has advanced 20%. As a result, though the comparisons with the indexes haven't yet returned to the market-stomping days of two years ago, they are definitely much easier to live with today. Notice that since the inception of the Game nearly five years ago, its performance and the performance of the indexes are amazingly similar. Year- History to-Date History Annualized Gorilla Game 12.63% -27.32% -6.60% Nasdaq -15.14% -25.64% -6.14% S&P 500 -2.09% -22.43% -5.29% The numbers for Siebel Systems as of the close of market, January 25, 2003: Change 5/25/98 5/1/99 4/11/00 Current From First Buy Price Buy Price Buy Price Price Purchase SEBL $5.75 $9.61 $52.47 $8.35 45.22% The Final Tally Stocks $7,164.30 Cash 104.08 Total $7,268.38 Details about the Game The Front Office Gorilla Game (not a real-money portfolio) was begun with $10,000 and four stocks in equal dollar amounts on May 25, 1998. Using the rules of the Game, I gradually eliminated all gorilla candidates until only the stock of the Gorilla (Siebel) remained as it does today. Commissions are based on $8 per trade. The value of earnings on invested cash is not calculated. Those earnings would have been so insignificant that no meaningful lesson could have been learned from them. And last, the most important stuff ... CAVEAT: I own shares of Siebel Systems. In the past I have owned long and short positions of Siebel's competitors (including some that were at one time "in the Game") and reserve the right to do so in the future. Most important, please, please don't make any investment decisions based on anything coming from my keyboard. Do your own homework! --Mike Buckley

To: Mike Buckley who wrote (53485)	1/25/2003 9:49:27 PM
From: Mike Buckley	Respond to of 54805

deleted

To: Mike Buckley who wrote (53485)	1/26/2003 2:19:21 PM
From: Casaubon	Read Replies (1) \| Respond to of 54805

Just for the record, in all likelihood, the return of all those options granted to Tom Siebel will have a negligible effect on the bottom line for SEBL and the investors. In effect Tom Siebel gave up nothing! How can I make such an outrageous statement? Simple. If the price of the stock never rises above the grant price of the option grants, then Tom Siebel would never be able to sell the options for a gain. Since the options were granted in the go-go years, the price of the stock was outlandishly high. The price of the option grants would have been established based on the price of the stock (outlandishly high). Therefore, the options granted would never be in the money because, the price of the stock would have to rise above the bubble prices of the stock when the options were granted. In all likelihood, that will not happen. Thus, this is a great PR move on the part of Tom Siebel. In actuality, he is likely giving up nothing (those options granted would likely have expired worthless) but, he is gaining the respect and admiration of the investment community.

To: Mike Buckley who wrote (53485)	4/28/2003 6:52:44 PM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

THE FRONT OFFICE GORILLA GAME: Q1, 2003 The News The general manager of Siebel's ERM unit says "ERM now represents the largest Siebel deployments and is the fastest-growing product line for Siebel." The company is focusing on industries that have a relatively large number of knowledge workers as opposed to hourly workers. The product has been slow to gain traction in industries with a large number of hourly workers, such as the retail sector. J. D. Edwards, an ERP firm that caters primarily to small companies, introduced its second version of CRM software suite of sales, service and marketing apps. SAP announced that it plans to release mySAP4.0 in the fall. The new release will feature new components tailored to specific industries, such as automobiles, computers and electronics, and consumer goods. Not long after Siebel announced a $150 million investment in an agreement with Microsoft to enable its software to work with .Net, the company also announced a partnership and investment of the same size to enable its software to run on IBM's Websphere. The two companies will initially focus on "a new branch teller solution for retail banking, their first solution to leverage IBM Business Consulting Services' deep expertise in branch banking." Apparently the launch is to take place later this year. In non-Gorilla Gaming news, you'll remember that the Teachers' Retirement System of Louisiana, a public pension fund, has sued Tom Siebel and the company's directors for issuing stock options since 1999 to Tom that violate the company's rules. A federal judge recently ruled that the suit is not to be dismissed and set a trial date of October 6. Conference Call Overview See the pdf file with slides discussed in the conference call at siebel.com Income Statement WARNING: This is really ugly. Total Revenue: down 30% year over year; down 16% from Q4 Licensing Revenue: down 54% year over year; down 29% from Q4 Service Revenue: down 5% year over year; down 7% from Q4 EPS: $.01, down from $.14 year over year and $.05 in Q4 Free cash flow (Worse than the income statement!) Operating cash flow less ESOP tax benefits less capex: down 66% year over year; down 39% from Q4. The same calculation on a per-share basis: down 66% year over year; down 44% from Q4. Free cash flow for every dollar of revenue: $.16 Down 52% year over year; down 27% from Q4. Operating Margin The operating loss in Q1 was $3 million, compared to an operating profit of $90 million a year earlier. Market Share Management continues to state that the company is maintaining or increasing market share. Miscellaneous Numbers DSO matched the previous quarter's record low of 63 days. Management continues to maintain a target of 75 - 85 days. Payment terms decreased to 26 days from 28 days. Domestic Licensing: 49% of total licensing, down from 51% in Q4. International Licensing: 51% of total licensing, up from 49% in Q3. Regarding verticals, there is vital information in the pdf file mentioned above. The two most "challenging" verticals were also two of its largest -- high technology and financial services. Three verticals that did particularly well were consumer goods, retail, and travel and transportation. Though not verticals per se,UAN and analytics also did well. Regarding horizontals, the top three businesses are call center software, sales force automation software, and analytics software (in that order.) Analytics is relatively new (having been launched in 1991) and moved into third place for the first time. Transaction Size The average transaction was $282,000, compared to $403,000 in Q4. Excluding transactions less than $50,000, the average size was $498,000, compared to $654,000 in Q4. OUCH! Though I suspect that Q4 was skewed somewhat by the really large AT&T deal, management indeed conceded that the number of large deals they are seeing is considerably smaller than in the past as the following numbers indicate. The CFO said Siebel closed 34 deals over $1 million. (The slide in the pdf file says 32 deals were closed.) 38 deals of that size were reported in Q4. There were 2 transactions in excess of $5 million, down from 5 in Q4. Competitive Landscape There was no significant change from previous quarters except that they ran into SAP in about 11% of the deals as opposed to the 4% - 6% range in the previous three years. ERM There are now over 250 ERM customers, compared to 230 reported in the previous quarter. Analytics Software 44 deals were closed in Q1. Management considers the product a "resounding success." Universal Applications Network (UAN) We don't know how many customers were added in Q1. (A total of 75 were reported as of Q4.) There are now 20 "live" customers. Going Forward Management sees the business environment in Q2 as no better than in Q1. However, current projections are higher: $340 - $360 million in total revenue compared to $333 million in Q1, and $120 - $140 million in licensing revenue compared to $112 million in Q1. Though the company tends to lay off the weakest 5% of its employees every 6 - 12 months, it will not replace those in the current round of layoffs. The company will focus on controlling costs until revenue improves. The plan is to continue remaining cash-flow positive (albeit only slightly positive during Q1.) The strategy through 2004 is to increase margins. (Well, at the risk of being cynical, I should hope so.) THE GORILLA GAME At the current moment, the Front Office Gorilla Game is still losing to the indexes on a long-term basis. (The game is only about one month shy of being 5 years old.) However, the year-to date comparisons place the Gorilla Game in the lead, so far. Is it the start of a rebound to its earlier days of market-stomping performance? Year- History to-Date History Annualized Gorilla Game 14.49% -26.12% -5.96% Nasdaq 9.50% -18.99% -4.18% S&P 500 -3.98% -17.62% -3.86% The numbers for Siebel Systems as of the close of market, April 28, 2003: Change 5/25/98 5/1/99 4/11/00 Current From First Buy Price Buy Price Buy Price Price Purchase SEBL $5.75 $9.61 $52.47 $8.49 47.65% The Final Tally Stocks $7,284.42 Cash 104.08 Total $7,388.50 Details about the Game The Front Office Gorilla Game (not a real-money portfolio) was begun with $10,000 and four stocks in equal dollar amounts on May 25, 1998. Using the rules of the Game, I gradually eliminated all gorilla candidates until only the stock of the Gorilla (Siebel) remained as it does today. Commissions are based on $8 per trade. The value of earnings on invested cash is not calculated. Those earnings would have been so insignificant that no meaningful lesson could have been learned from them. And last, the most important stuff ... CAVEAT: I own shares of Siebel Systems. In the past I have owned long and short positions of Siebel's competitors (including some that were at one time "in the Game") and reserve the right to do so in the future. Most important, please, please don't make any investment decisions based on anything coming from my keyboard. Do your own homework! --Mike Buckley