IWOV » Topics » Overview

These excerpts taken from the IWOV 10-K filed Mar 13, 2009.
Overview
 
Interwoven, Inc. is a provider of content management solutions. Our software and services enables organizations to maximize online business performance and organize, find and govern business content. Our solutions unlock the value of content by delivering the right content to the right person in the right context at the right time. Over 4,700 companies, professional services firms and government entities in 70 countries have chosen Interwoven.
 
We were incorporated in California in March 1995 and reincorporated in Delaware in October 1999. Our principal office is located at 160 East Tasman Drive, San Jose, California 95134 and our telephone number at that location is (408) 774-2000. We maintain a Web site at www.interwoven.com. We make available free of charge through this Web site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the Securities and Exchange Commission. Investors can also obtain copies of our filings with the Securities and Exchange Commission from the Securities and Exchange Commission’s Web site at www.sec.gov.
 
Overview
 
Interwoven, Inc. is a provider of content management solutions. Our software and services enables organizations to maximize online business performance and organize, find and govern business content. Our solutions unlock the value of content by delivering the right content to the right person in the right context at the right time. Over 4,700 companies, professional services firms and government entities in 70 countries have chosen Interwoven.
 
We were incorporated in California in March 1995 and reincorporated in Delaware in October 1999. Our principal office is located at 160 East Tasman Drive, San Jose, California 95134 and our telephone number at that location is (408) 774-2000. We maintain a Web site at www.interwoven.com. We make available free of charge through this Web site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the Securities and Exchange Commission. Investors can also obtain copies of our filings with the Securities and Exchange Commission from the Securities and Exchange Commission’s Web site at www.sec.gov.
 
Overview
 
Interwoven, Inc. is a provider of content management solutions. Our software and services enables organizations to maximize online business performance and organize, find and govern business content. Our solutions unlock the value of content by delivering the right content to the right person in the right context at the right time. Over 4,700 companies, professional services firms and government entities in 70 countries have chosen Interwoven.
 
We were incorporated in California in March 1995 and reincorporated in Delaware in October 1999. Our principal office is located at 160 East Tasman Drive, San Jose, California 95134 and our telephone number at that location is (408) 774-2000. We maintain a Web site at www.interwoven.com. We make available free of charge through this Web site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the Securities and Exchange Commission. Investors can also obtain copies of our filings with the Securities and Exchange Commission from the Securities and Exchange Commission’s Web site at www.sec.gov.
 
Overview


 



Interwoven, Inc. is a provider of content management solutions.
Our software and services enables organizations to maximize
online business performance and organize, find and govern
business content. Our solutions unlock the value of content by
delivering the right content to the right person in the right
context at the right time. Over 4,700 companies,
professional services firms and government entities in 70
countries have chosen Interwoven.


 



We were incorporated in California in March 1995 and
reincorporated in Delaware in October 1999. Our principal office
is located at 160 East Tasman Drive, San Jose, California
95134 and our telephone number at that location is
(408) 774-2000.
We maintain a Web site at www.interwoven.com. We make available
free of charge through this Web site our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after filing such material electronically
or otherwise furnishing it to the Securities and Exchange
Commission. Investors can also obtain copies of our filings with
the Securities and Exchange Commission from the Securities and
Exchange Commission’s Web site at www.sec.gov.


 




Overview


 



Interwoven, Inc. is a provider of content management solutions.
Our software and services enables organizations to maximize
online business performance and organize, find and govern
business content. Our solutions unlock the value of content by
delivering the right content to the right person in the right
context at the right time. Over 4,700 companies,
professional services firms and government entities in 70
countries have chosen Interwoven.


 



We were incorporated in California in March 1995 and
reincorporated in Delaware in October 1999. Our principal office
is located at 160 East Tasman Drive, San Jose, California
95134 and our telephone number at that location is
(408) 774-2000.
We maintain a Web site at www.interwoven.com. We make available
free of charge through this Web site our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after filing such material electronically
or otherwise furnishing it to the Securities and Exchange
Commission. Investors can also obtain copies of our filings with
the Securities and Exchange Commission from the Securities and
Exchange Commission’s Web site at www.sec.gov.


 




Overview


 



Interwoven, Inc. is a provider of content management solutions.
Our software and services enables organizations to maximize
online business performance and organize, find and govern
business content. Our solutions unlock the value of content by
delivering the right content to the right person in the right
context at the right time. Over 4,700 companies,
professional services firms and government entities in 70
countries have chosen Interwoven.


 



We were incorporated in California in March 1995 and
reincorporated in Delaware in October 1999. Our principal office
is located at 160 East Tasman Drive, San Jose, California
95134 and our telephone number at that location is
(408) 774-2000.
We maintain a Web site at www.interwoven.com. We make available
free of charge through this Web site our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after filing such material electronically
or otherwise furnishing it to the Securities and Exchange
Commission. Investors can also obtain copies of our filings with
the Securities and Exchange Commission from the Securities and
Exchange Commission’s Web site at www.sec.gov.


 




Overview
 
Incorporated in March 1995, we are a provider of content management solutions. Our software and services enable organizations to maximize online business performance and organize, find and govern business content. Our solutions unlock the value of content by delivering the right content to the right person in the right context at the right time. Over 4,700 companies, professional services firms and government entities in 70 countries have chosen Interwoven.
 
We operate in a single segment, which is the design, development, marketing and sale of software solutions. Our goal is to be the leading provider of content management software solutions. We are focused on generating profitable and sustainable growth through internal research and development, licensing from third parties and acquisitions of businesses with complementary products and technologies.
 
Total revenues for 2008 were $260.3 million, up 15% from 2007. We experienced increases in 2008 over 2007 in each revenue category — license and support and service. We believe the increases were attributable to the business-critical nature of our product and service offerings and to a favorable competitive environment, which has allowed us to be successful in displacing the solutions offered by our competitors. While we are striving to continue our business momentum, the challenging global economic and market conditions, combined with the pendency of Autonomy’s proposed acquisition of us, have led to longer sales cycles and could cause deferrals of customer orders and reduced customer spending. Our primary sources of revenue, and the factors affecting them, are discussed below.
 
We license our software to companies, professional services firms and government entities generally on a non-exclusive and perpetual basis. The growth in software license revenues is affected by the strength of general economic and business conditions, customer budgetary constraints and the competitive position of our software solutions. Software license revenues are also affected by long, unpredictable sales cycles and, as a result, license revenues are difficult to forecast from period to period. While our consolidated results of operations have shown improvement in recent periods, the challenging global economic and market conditions, coupled with the typical challenges associated with the sales environment for content management products and services, could cause our revenue to decline in future periods.
 
Customer support revenues are primarily influenced by the number and size of new support contracts sold in connection with software licenses and the renewal rate of existing support contracts. Our support contracts entitle our customers to unspecified product upgrades and technical support during the support period, which is typically one year.
 
Service revenues consist of software installation and integration, training, business process consulting and software products sold on a subscription basis. Other than our sales of software on a subscription basis, service revenues tend to lag software license revenues since consulting services, if purchased at all, are typically performed after the purchase of new software licenses or in connection with software upgrades. Professional services are predominately billed on a time-and-materials basis and we recognize revenues when the services are performed. For the years ended December 31, 2008 and 2007, professional services revenues also include subscription revenues from our multivariable testing and Web optimization service, which we acquired through our acquisition of Optimost, and revenues from our eDiscovery service, which we acquired through our acquisition of Discovery Mining in August, 2008. Professional services revenues are influenced primarily by the number of professional services engagements sold in connection with software license sales and the customers’ use of third party services providers. The growth in our services revenues is also affected by the strength of general economic and business conditions, customer budgetary constraints and the competitive position of our software solutions.
 
Because our products are complex and involve a consultative sales model, our strategy is to market and sell our products and services primarily through a direct sales force. We look to augment those efforts through relationships with technology vendors, professional services firms, systems integrators, digital/interactive marketing agencies and other strategic partners, which assist our direct sales force in obtaining customer leads and referrals. The percentage of our new customer license orders that are influenced by or co-sold with our strategic partners and


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Table of Contents

resellers was 65% for the year ended December 31, 2008. In general, these strategic partners and resellers perform the installation and integration, consulting and other services for the enterprises to which they resell our products, and we are not engaged by their customers for these services.
 
Our sales efforts are targeted to senior executives and personnel who are responsible for managing an enterprise’s information technology initiatives. We generate demand for our products and services primarily through our direct sales force and strategic relationships. Our direct sales force is responsible for managing customer relationships and opportunities and is supported by product, marketing and service specialists.
 
In the rapidly changing and increasingly complex and competitive information technology environment, we believe product differentiation will be a key to market leadership. Thus, our strategy is to continually work to enhance and extend the features and functionality of our existing products and develop new and innovative solutions for our customers. We have in the past and expect to continue to devote substantial resources to our research and development activities and as a result our research and development expenses have continued to increase in absolute dollars each year. We recorded research and development expenses in 2008 of $40.4 million, as compared $37.4 million in 2007 and $35.1 million in 2006. As a percentage of total revenues, research and development expenses were 16%, 17% and 18% in 2008, 2007 and 2006, respectively.
 
We recorded income from operations in 2008 of $31.4 million, as compared $13.9 million in 2007 and $2.3 million in 2006. We are focused on improving our operating margins by increasing our revenues and managing our expenses through improved productivity and utilization of economies of scale. As a significant portion of our expenses are employee-related, we manage our headcount from period to period. We had 1,012 employees worldwide at December 31, 2008 versus 888 employees at December 31, 2007 and 774 at December 31, 2006. The increase in headcount from 2007 to 2008 was due primarily to the employees we hired as part of the acquisitions of Discovery Mining and staffing of our development operation in Bangalore, India. We also look to improve our cost structure by hiring personnel in countries where advanced technical expertise is available at lower costs. Additionally, we pay close attention to other costs, including facilities and related expense, professional fees and promotional expenses, which are each significant components of our cost structure. As discussed below, in January 2009, we announced a workforce reduction of approximately 70 positions across all functions.
 
Our acquisition strategy is an important element of our overall business strategy. We seek to identify acquisition opportunities that will enhance the features and functionality of our existing products, add new products and technologies to sell to our existing customers, provide additional customers that we can sell our current products to, or which facilitate entry into adjacent markets. In evaluating these opportunities, we consider, among other strategic objectives, both time to market of the technologies or products to be acquired and potential market share gains. We have completed a number of acquisitions in the past, and we may acquire other technologies, products and companies in the future. In recent years, we have acquired products and solutions with digital asset management, collaborative document management, records management, content publishing, multivariable testing and Website optimization services, eDiscovery services and capital markets vertical market capabilities. The results of operations of these business combinations have been included prospectively from the closing dates of these transactions. Accordingly, our financial results may not be directly comparable to those of the previous periods.
 
Overview
 
Incorporated in March 1995, we are a provider of content management solutions. Our software and services enable organizations to maximize online business performance and organize, find and govern business content. Our solutions unlock the value of content by delivering the right content to the right person in the right context at the right time. Over 4,700 companies, professional services firms and government entities in 70 countries have chosen Interwoven.
 
We operate in a single segment, which is the design, development, marketing and sale of software solutions. Our goal is to be the leading provider of content management software solutions. We are focused on generating profitable and sustainable growth through internal research and development, licensing from third parties and acquisitions of businesses with complementary products and technologies.
 
Total revenues for 2008 were $260.3 million, up 15% from 2007. We experienced increases in 2008 over 2007 in each revenue category — license and support and service. We believe the increases were attributable to the business-critical nature of our product and service offerings and to a favorable competitive environment, which has allowed us to be successful in displacing the solutions offered by our competitors. While we are striving to continue our business momentum, the challenging global economic and market conditions, combined with the pendency of Autonomy’s proposed acquisition of us, have led to longer sales cycles and could cause deferrals of customer orders and reduced customer spending. Our primary sources of revenue, and the factors affecting them, are discussed below.
 
We license our software to companies, professional services firms and government entities generally on a non-exclusive and perpetual basis. The growth in software license revenues is affected by the strength of general economic and business conditions, customer budgetary constraints and the competitive position of our software solutions. Software license revenues are also affected by long, unpredictable sales cycles and, as a result, license revenues are difficult to forecast from period to period. While our consolidated results of operations have shown improvement in recent periods, the challenging global economic and market conditions, coupled with the typical challenges associated with the sales environment for content management products and services, could cause our revenue to decline in future periods.
 
Customer support revenues are primarily influenced by the number and size of new support contracts sold in connection with software licenses and the renewal rate of existing support contracts. Our support contracts entitle our customers to unspecified product upgrades and technical support during the support period, which is typically one year.
 
Service revenues consist of software installation and integration, training, business process consulting and software products sold on a subscription basis. Other than our sales of software on a subscription basis, service revenues tend to lag software license revenues since consulting services, if purchased at all, are typically performed after the purchase of new software licenses or in connection with software upgrades. Professional services are predominately billed on a time-and-materials basis and we recognize revenues when the services are performed. For the years ended December 31, 2008 and 2007, professional services revenues also include subscription revenues from our multivariable testing and Web optimization service, which we acquired through our acquisition of Optimost, and revenues from our eDiscovery service, which we acquired through our acquisition of Discovery Mining in August, 2008. Professional services revenues are influenced primarily by the number of professional services engagements sold in connection with software license sales and the customers’ use of third party services providers. The growth in our services revenues is also affected by the strength of general economic and business conditions, customer budgetary constraints and the competitive position of our software solutions.
 
Because our products are complex and involve a consultative sales model, our strategy is to market and sell our products and services primarily through a direct sales force. We look to augment those efforts through relationships with technology vendors, professional services firms, systems integrators, digital/interactive marketing agencies and other strategic partners, which assist our direct sales force in obtaining customer leads and referrals. The percentage of our new customer license orders that are influenced by or co-sold with our strategic partners and


31


Table of Contents

resellers was 65% for the year ended December 31, 2008. In general, these strategic partners and resellers perform the installation and integration, consulting and other services for the enterprises to which they resell our products, and we are not engaged by their customers for these services.
 
Our sales efforts are targeted to senior executives and personnel who are responsible for managing an enterprise’s information technology initiatives. We generate demand for our products and services primarily through our direct sales force and strategic relationships. Our direct sales force is responsible for managing customer relationships and opportunities and is supported by product, marketing and service specialists.
 
In the rapidly changing and increasingly complex and competitive information technology environment, we believe product differentiation will be a key to market leadership. Thus, our strategy is to continually work to enhance and extend the features and functionality of our existing products and develop new and innovative solutions for our customers. We have in the past and expect to continue to devote substantial resources to our research and development activities and as a result our research and development expenses have continued to increase in absolute dollars each year. We recorded research and development expenses in 2008 of $40.4 million, as compared $37.4 million in 2007 and $35.1 million in 2006. As a percentage of total revenues, research and development expenses were 16%, 17% and 18% in 2008, 2007 and 2006, respectively.
 
We recorded income from operations in 2008 of $31.4 million, as compared $13.9 million in 2007 and $2.3 million in 2006. We are focused on improving our operating margins by increasing our revenues and managing our expenses through improved productivity and utilization of economies of scale. As a significant portion of our expenses are employee-related, we manage our headcount from period to period. We had 1,012 employees worldwide at December 31, 2008 versus 888 employees at December 31, 2007 and 774 at December 31, 2006. The increase in headcount from 2007 to 2008 was due primarily to the employees we hired as part of the acquisitions of Discovery Mining and staffing of our development operation in Bangalore, India. We also look to improve our cost structure by hiring personnel in countries where advanced technical expertise is available at lower costs. Additionally, we pay close attention to other costs, including facilities and related expense, professional fees and promotional expenses, which are each significant components of our cost structure. As discussed below, in January 2009, we announced a workforce reduction of approximately 70 positions across all functions.
 
Our acquisition strategy is an important element of our overall business strategy. We seek to identify acquisition opportunities that will enhance the features and functionality of our existing products, add new products and technologies to sell to our existing customers, provide additional customers that we can sell our current products to, or which facilitate entry into adjacent markets. In evaluating these opportunities, we consider, among other strategic objectives, both time to market of the technologies or products to be acquired and potential market share gains. We have completed a number of acquisitions in the past, and we may acquire other technologies, products and companies in the future. In recent years, we have acquired products and solutions with digital asset management, collaborative document management, records management, content publishing, multivariable testing and Website optimization services, eDiscovery services and capital markets vertical market capabilities. The results of operations of these business combinations have been included prospectively from the closing dates of these transactions. Accordingly, our financial results may not be directly comparable to those of the previous periods.
 
Overview
 
Incorporated in March 1995, we are a provider of content management solutions. Our software and services enable organizations to maximize online business performance and organize, find and govern business content. Our solutions unlock the value of content by delivering the right content to the right person in the right context at the right time. Over 4,700 companies, professional services firms and government entities in 70 countries have chosen Interwoven.
 
We operate in a single segment, which is the design, development, marketing and sale of software solutions. Our goal is to be the leading provider of content management software solutions. We are focused on generating profitable and sustainable growth through internal research and development, licensing from third parties and acquisitions of businesses with complementary products and technologies.
 
Total revenues for 2008 were $260.3 million, up 15% from 2007. We experienced increases in 2008 over 2007 in each revenue category — license and support and service. We believe the increases were attributable to the business-critical nature of our product and service offerings and to a favorable competitive environment, which has allowed us to be successful in displacing the solutions offered by our competitors. While we are striving to continue our business momentum, the challenging global economic and market conditions, combined with the pendency of Autonomy’s proposed acquisition of us, have led to longer sales cycles and could cause deferrals of customer orders and reduced customer spending. Our primary sources of revenue, and the factors affecting them, are discussed below.
 
We license our software to companies, professional services firms and government entities generally on a non-exclusive and perpetual basis. The growth in software license revenues is affected by the strength of general economic and business conditions, customer budgetary constraints and the competitive position of our software solutions. Software license revenues are also affected by long, unpredictable sales cycles and, as a result, license revenues are difficult to forecast from period to period. While our consolidated results of operations have shown improvement in recent periods, the challenging global economic and market conditions, coupled with the typical challenges associated with the sales environment for content management products and services, could cause our revenue to decline in future periods.
 
Customer support revenues are primarily influenced by the number and size of new support contracts sold in connection with software licenses and the renewal rate of existing support contracts. Our support contracts entitle our customers to unspecified product upgrades and technical support during the support period, which is typically one year.
 
Service revenues consist of software installation and integration, training, business process consulting and software products sold on a subscription basis. Other than our sales of software on a subscription basis, service revenues tend to lag software license revenues since consulting services, if purchased at all, are typically performed after the purchase of new software licenses or in connection with software upgrades. Professional services are predominately billed on a time-and-materials basis and we recognize revenues when the services are performed. For the years ended December 31, 2008 and 2007, professional services revenues also include subscription revenues from our multivariable testing and Web optimization service, which we acquired through our acquisition of Optimost, and revenues from our eDiscovery service, which we acquired through our acquisition of Discovery Mining in August, 2008. Professional services revenues are influenced primarily by the number of professional services engagements sold in connection with software license sales and the customers’ use of third party services providers. The growth in our services revenues is also affected by the strength of general economic and business conditions, customer budgetary constraints and the competitive position of our software solutions.
 
Because our products are complex and involve a consultative sales model, our strategy is to market and sell our products and services primarily through a direct sales force. We look to augment those efforts through relationships with technology vendors, professional services firms, systems integrators, digital/interactive marketing agencies and other strategic partners, which assist our direct sales force in obtaining customer leads and referrals. The percentage of our new customer license orders that are influenced by or co-sold with our strategic partners and


31


Table of Contents

resellers was 65% for the year ended December 31, 2008. In general, these strategic partners and resellers perform the installation and integration, consulting and other services for the enterprises to which they resell our products, and we are not engaged by their customers for these services.
 
Our sales efforts are targeted to senior executives and personnel who are responsible for managing an enterprise’s information technology initiatives. We generate demand for our products and services primarily through our direct sales force and strategic relationships. Our direct sales force is responsible for managing customer relationships and opportunities and is supported by product, marketing and service specialists.
 
In the rapidly changing and increasingly complex and competitive information technology environment, we believe product differentiation will be a key to market leadership. Thus, our strategy is to continually work to enhance and extend the features and functionality of our existing products and develop new and innovative solutions for our customers. We have in the past and expect to continue to devote substantial resources to our research and development activities and as a result our research and development expenses have continued to increase in absolute dollars each year. We recorded research and development expenses in 2008 of $40.4 million, as compared $37.4 million in 2007 and $35.1 million in 2006. As a percentage of total revenues, research and development expenses were 16%, 17% and 18% in 2008, 2007 and 2006, respectively.
 
We recorded income from operations in 2008 of $31.4 million, as compared $13.9 million in 2007 and $2.3 million in 2006. We are focused on improving our operating margins by increasing our revenues and managing our expenses through improved productivity and utilization of economies of scale. As a significant portion of our expenses are employee-related, we manage our headcount from period to period. We had 1,012 employees worldwide at December 31, 2008 versus 888 employees at December 31, 2007 and 774 at December 31, 2006. The increase in headcount from 2007 to 2008 was due primarily to the employees we hired as part of the acquisitions of Discovery Mining and staffing of our development operation in Bangalore, India. We also look to improve our cost structure by hiring personnel in countries where advanced technical expertise is available at lower costs. Additionally, we pay close attention to other costs, including facilities and related expense, professional fees and promotional expenses, which are each significant components of our cost structure. As discussed below, in January 2009, we announced a workforce reduction of approximately 70 positions across all functions.
 
Our acquisition strategy is an important element of our overall business strategy. We seek to identify acquisition opportunities that will enhance the features and functionality of our existing products, add new products and technologies to sell to our existing customers, provide additional customers that we can sell our current products to, or which facilitate entry into adjacent markets. In evaluating these opportunities, we consider, among other strategic objectives, both time to market of the technologies or products to be acquired and potential market share gains. We have completed a number of acquisitions in the past, and we may acquire other technologies, products and companies in the future. In recent years, we have acquired products and solutions with digital asset management, collaborative document management, records management, content publishing, multivariable testing and Website optimization services, eDiscovery services and capital markets vertical market capabilities. The results of operations of these business combinations have been included prospectively from the closing dates of these transactions. Accordingly, our financial results may not be directly comparable to those of the previous periods.
 
Overview


 



Incorporated in March 1995, we are a provider of content
management solutions. Our software and services enable
organizations to maximize online business performance and
organize, find and govern business content. Our solutions unlock
the value of content by delivering the right content to the
right person in the right context at the right time. Over
4,700 companies, professional services firms and government
entities in 70 countries have chosen Interwoven.


 



We operate in a single segment, which is the design,
development, marketing and sale of software solutions. Our goal
is to be the leading provider of content management software
solutions. We are focused on generating profitable and
sustainable growth through internal research and development,
licensing from third parties and acquisitions of businesses with
complementary products and technologies.


 



Total revenues for 2008 were $260.3 million, up 15% from
2007. We experienced increases in 2008 over 2007 in each revenue
category — license and support and service. We believe
the increases were attributable to the business-critical nature
of our product and service offerings and to a favorable
competitive environment, which has allowed us to be successful
in displacing the solutions offered by our competitors. While we
are striving to continue our business momentum, the challenging
global economic and market conditions, combined with the
pendency of Autonomy’s proposed acquisition of us, have led
to longer sales cycles and could cause deferrals of customer
orders and reduced customer spending. Our primary sources of
revenue, and the factors affecting them, are discussed below.


 



We license our software to companies, professional services
firms and government entities generally on a non-exclusive and
perpetual basis. The growth in software license revenues is
affected by the strength of general economic and business
conditions, customer budgetary constraints and the competitive
position of our software solutions. Software license revenues
are also affected by long, unpredictable sales cycles and, as a
result, license revenues are difficult to forecast from period
to period. While our consolidated results of operations have
shown improvement in recent periods, the challenging global
economic and market conditions, coupled with the typical
challenges associated with the sales environment for content
management products and services, could cause our revenue to
decline in future periods.


 



Customer support revenues are primarily influenced by the number
and size of new support contracts sold in connection with
software licenses and the renewal rate of existing support
contracts. Our support contracts entitle our customers to
unspecified product upgrades and technical support during the
support period, which is typically one year.


 



Service revenues consist of software installation and
integration, training, business process consulting and software
products sold on a subscription basis. Other than our sales of
software on a subscription basis, service revenues tend to lag
software license revenues since consulting services, if
purchased at all, are typically performed after the purchase of
new software licenses or in connection with software upgrades.
Professional services are predominately billed on a
time-and-materials
basis and we recognize revenues when the services are performed.
For the years ended December 31, 2008 and 2007,
professional services revenues also include subscription
revenues from our multivariable testing and Web optimization
service, which we acquired through our acquisition of Optimost,
and revenues from our eDiscovery service, which we acquired
through our acquisition of Discovery Mining in August, 2008.
Professional services revenues are influenced primarily by the
number of professional services engagements sold in connection
with software license sales and the customers’ use of third
party services providers. The growth in our services revenues is
also affected by the strength of general economic and business
conditions, customer budgetary constraints and the competitive
position of our software solutions.


 



Because our products are complex and involve a consultative
sales model, our strategy is to market and sell our products and
services primarily through a direct sales force. We look to
augment those efforts through relationships with technology
vendors, professional services firms, systems integrators,
digital/interactive marketing agencies and other strategic
partners, which assist our direct sales force in obtaining
customer leads and referrals. The percentage of our new customer
license orders that are influenced by or co-sold with our
strategic partners and





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Table of Contents






resellers was 65% for the year ended December 31, 2008. In
general, these strategic partners and resellers perform the
installation and integration, consulting and other services for
the enterprises to which they resell our products, and we are
not engaged by their customers for these services.


 



Our sales efforts are targeted to senior executives and
personnel who are responsible for managing an enterprise’s
information technology initiatives. We generate demand for our
products and services primarily through our direct sales force
and strategic relationships. Our direct sales force is
responsible for managing customer relationships and
opportunities and is supported by product, marketing and service
specialists.


 



In the rapidly changing and increasingly complex and competitive
information technology environment, we believe product
differentiation will be a key to market leadership. Thus, our
strategy is to continually work to enhance and extend the
features and functionality of our existing products and develop
new and innovative solutions for our customers. We have in the
past and expect to continue to devote substantial resources to
our research and development activities and as a result our
research and development expenses have continued to increase in
absolute dollars each year. We recorded research and development
expenses in 2008 of $40.4 million, as compared
$37.4 million in 2007 and $35.1 million in 2006. As a
percentage of total revenues, research and development expenses
were 16%, 17% and 18% in 2008, 2007 and 2006, respectively.


 



We recorded income from operations in 2008 of
$31.4 million, as compared $13.9 million in 2007 and
$2.3 million in 2006. We are focused on improving our
operating margins by increasing our revenues and managing our
expenses through improved productivity and utilization of
economies of scale. As a significant portion of our expenses are
employee-related, we manage our headcount from period to period.
We had 1,012 employees worldwide at December 31, 2008
versus 888 employees at December 31, 2007 and 774 at
December 31, 2006. The increase in headcount from 2007 to
2008 was due primarily to the employees we hired as part of the
acquisitions of Discovery Mining and staffing of our development
operation in Bangalore, India. We also look to improve our cost
structure by hiring personnel in countries where advanced
technical expertise is available at lower costs. Additionally,
we pay close attention to other costs, including facilities and
related expense, professional fees and promotional expenses,
which are each significant components of our cost structure. As
discussed below, in January 2009, we announced a workforce
reduction of approximately 70 positions across all functions.


 



Our acquisition strategy is an important element of our overall
business strategy. We seek to identify acquisition opportunities
that will enhance the features and functionality of our existing
products, add new products and technologies to sell to our
existing customers, provide additional customers that we can
sell our current products to, or which facilitate entry into
adjacent markets. In evaluating these opportunities, we
consider, among other strategic objectives, both time to market
of the technologies or products to be acquired and potential
market share gains. We have completed a number of acquisitions
in the past, and we may acquire other technologies, products and
companies in the future. In recent years, we have acquired
products and solutions with digital asset management,
collaborative document management, records management, content
publishing, multivariable testing and Website optimization
services, eDiscovery services and capital markets vertical
market capabilities. The results of operations of these business
combinations have been included prospectively from the closing
dates of these transactions. Accordingly, our financial results
may not be directly comparable to those of the previous periods.


 




Overview


 



Incorporated in March 1995, we are a provider of content
management solutions. Our software and services enable
organizations to maximize online business performance and
organize, find and govern business content. Our solutions unlock
the value of content by delivering the right content to the
right person in the right context at the right time. Over
4,700 companies, professional services firms and government
entities in 70 countries have chosen Interwoven.


 



We operate in a single segment, which is the design,
development, marketing and sale of software solutions. Our goal
is to be the leading provider of content management software
solutions. We are focused on generating profitable and
sustainable growth through internal research and development,
licensing from third parties and acquisitions of businesses with
complementary products and technologies.


 



Total revenues for 2008 were $260.3 million, up 15% from
2007. We experienced increases in 2008 over 2007 in each revenue
category — license and support and service. We believe
the increases were attributable to the business-critical nature
of our product and service offerings and to a favorable
competitive environment, which has allowed us to be successful
in displacing the solutions offered by our competitors. While we
are striving to continue our business momentum, the challenging
global economic and market conditions, combined with the
pendency of Autonomy’s proposed acquisition of us, have led
to longer sales cycles and could cause deferrals of customer
orders and reduced customer spending. Our primary sources of
revenue, and the factors affecting them, are discussed below.


 



We license our software to companies, professional services
firms and government entities generally on a non-exclusive and
perpetual basis. The growth in software license revenues is
affected by the strength of general economic and business
conditions, customer budgetary constraints and the competitive
position of our software solutions. Software license revenues
are also affected by long, unpredictable sales cycles and, as a
result, license revenues are difficult to forecast from period
to period. While our consolidated results of operations have
shown improvement in recent periods, the challenging global
economic and market conditions, coupled with the typical
challenges associated with the sales environment for content
management products and services, could cause our revenue to
decline in future periods.


 



Customer support revenues are primarily influenced by the number
and size of new support contracts sold in connection with
software licenses and the renewal rate of existing support
contracts. Our support contracts entitle our customers to
unspecified product upgrades and technical support during the
support period, which is typically one year.


 



Service revenues consist of software installation and
integration, training, business process consulting and software
products sold on a subscription basis. Other than our sales of
software on a subscription basis, service revenues tend to lag
software license revenues since consulting services, if
purchased at all, are typically performed after the purchase of
new software licenses or in connection with software upgrades.
Professional services are predominately billed on a
time-and-materials
basis and we recognize revenues when the services are performed.
For the years ended December 31, 2008 and 2007,
professional services revenues also include subscription
revenues from our multivariable testing and Web optimization
service, which we acquired through our acquisition of Optimost,
and revenues from our eDiscovery service, which we acquired
through our acquisition of Discovery Mining in August, 2008.
Professional services revenues are influenced primarily by the
number of professional services engagements sold in connection
with software license sales and the customers’ use of third
party services providers. The growth in our services revenues is
also affected by the strength of general economic and business
conditions, customer budgetary constraints and the competitive
position of our software solutions.


 



Because our products are complex and involve a consultative
sales model, our strategy is to market and sell our products and
services primarily through a direct sales force. We look to
augment those efforts through relationships with technology
vendors, professional services firms, systems integrators,
digital/interactive marketing agencies and other strategic
partners, which assist our direct sales force in obtaining
customer leads and referrals. The percentage of our new customer
license orders that are influenced by or co-sold with our
strategic partners and





31





Table of Contents






resellers was 65% for the year ended December 31, 2008. In
general, these strategic partners and resellers perform the
installation and integration, consulting and other services for
the enterprises to which they resell our products, and we are
not engaged by their customers for these services.


 



Our sales efforts are targeted to senior executives and
personnel who are responsible for managing an enterprise’s
information technology initiatives. We generate demand for our
products and services primarily through our direct sales force
and strategic relationships. Our direct sales force is
responsible for managing customer relationships and
opportunities and is supported by product, marketing and service
specialists.


 



In the rapidly changing and increasingly complex and competitive
information technology environment, we believe product
differentiation will be a key to market leadership. Thus, our
strategy is to continually work to enhance and extend the
features and functionality of our existing products and develop
new and innovative solutions for our customers. We have in the
past and expect to continue to devote substantial resources to
our research and development activities and as a result our
research and development expenses have continued to increase in
absolute dollars each year. We recorded research and development
expenses in 2008 of $40.4 million, as compared
$37.4 million in 2007 and $35.1 million in 2006. As a
percentage of total revenues, research and development expenses
were 16%, 17% and 18% in 2008, 2007 and 2006, respectively.


 



We recorded income from operations in 2008 of
$31.4 million, as compared $13.9 million in 2007 and
$2.3 million in 2006. We are focused on improving our
operating margins by increasing our revenues and managing our
expenses through improved productivity and utilization of
economies of scale. As a significant portion of our expenses are
employee-related, we manage our headcount from period to period.
We had 1,012 employees worldwide at December 31, 2008
versus 888 employees at December 31, 2007 and 774 at
December 31, 2006. The increase in headcount from 2007 to
2008 was due primarily to the employees we hired as part of the
acquisitions of Discovery Mining and staffing of our development
operation in Bangalore, India. We also look to improve our cost
structure by hiring personnel in countries where advanced
technical expertise is available at lower costs. Additionally,
we pay close attention to other costs, including facilities and
related expense, professional fees and promotional expenses,
which are each significant components of our cost structure. As
discussed below, in January 2009, we announced a workforce
reduction of approximately 70 positions across all functions.


 



Our acquisition strategy is an important element of our overall
business strategy. We seek to identify acquisition opportunities
that will enhance the features and functionality of our existing
products, add new products and technologies to sell to our
existing customers, provide additional customers that we can
sell our current products to, or which facilitate entry into
adjacent markets. In evaluating these opportunities, we
consider, among other strategic objectives, both time to market
of the technologies or products to be acquired and potential
market share gains. We have completed a number of acquisitions
in the past, and we may acquire other technologies, products and
companies in the future. In recent years, we have acquired
products and solutions with digital asset management,
collaborative document management, records management, content
publishing, multivariable testing and Website optimization
services, eDiscovery services and capital markets vertical
market capabilities. The results of operations of these business
combinations have been included prospectively from the closing
dates of these transactions. Accordingly, our financial results
may not be directly comparable to those of the previous periods.


 




Overview


 



Incorporated in March 1995, we are a provider of content
management solutions. Our software and services enable
organizations to maximize online business performance and
organize, find and govern business content. Our solutions unlock
the value of content by delivering the right content to the
right person in the right context at the right time. Over
4,700 companies, professional services firms and government
entities in 70 countries have chosen Interwoven.


 



We operate in a single segment, which is the design,
development, marketing and sale of software solutions. Our goal
is to be the leading provider of content management software
solutions. We are focused on generating profitable and
sustainable growth through internal research and development,
licensing from third parties and acquisitions of businesses with
complementary products and technologies.


 



Total revenues for 2008 were $260.3 million, up 15% from
2007. We experienced increases in 2008 over 2007 in each revenue
category — license and support and service. We believe
the increases were attributable to the business-critical nature
of our product and service offerings and to a favorable
competitive environment, which has allowed us to be successful
in displacing the solutions offered by our competitors. While we
are striving to continue our business momentum, the challenging
global economic and market conditions, combined with the
pendency of Autonomy’s proposed acquisition of us, have led
to longer sales cycles and could cause deferrals of customer
orders and reduced customer spending. Our primary sources of
revenue, and the factors affecting them, are discussed below.


 



We license our software to companies, professional services
firms and government entities generally on a non-exclusive and
perpetual basis. The growth in software license revenues is
affected by the strength of general economic and business
conditions, customer budgetary constraints and the competitive
position of our software solutions. Software license revenues
are also affected by long, unpredictable sales cycles and, as a
result, license revenues are difficult to forecast from period
to period. While our consolidated results of operations have
shown improvement in recent periods, the challenging global
economic and market conditions, coupled with the typical
challenges associated with the sales environment for content
management products and services, could cause our revenue to
decline in future periods.


 



Customer support revenues are primarily influenced by the number
and size of new support contracts sold in connection with
software licenses and the renewal rate of existing support
contracts. Our support contracts entitle our customers to
unspecified product upgrades and technical support during the
support period, which is typically one year.


 



Service revenues consist of software installation and
integration, training, business process consulting and software
products sold on a subscription basis. Other than our sales of
software on a subscription basis, service revenues tend to lag
software license revenues since consulting services, if
purchased at all, are typically performed after the purchase of
new software licenses or in connection with software upgrades.
Professional services are predominately billed on a
time-and-materials
basis and we recognize revenues when the services are performed.
For the years ended December 31, 2008 and 2007,
professional services revenues also include subscription
revenues from our multivariable testing and Web optimization
service, which we acquired through our acquisition of Optimost,
and revenues from our eDiscovery service, which we acquired
through our acquisition of Discovery Mining in August, 2008.
Professional services revenues are influenced primarily by the
number of professional services engagements sold in connection
with software license sales and the customers’ use of third
party services providers. The growth in our services revenues is
also affected by the strength of general economic and business
conditions, customer budgetary constraints and the competitive
position of our software solutions.


 



Because our products are complex and involve a consultative
sales model, our strategy is to market and sell our products and
services primarily through a direct sales force. We look to
augment those efforts through relationships with technology
vendors, professional services firms, systems integrators,
digital/interactive marketing agencies and other strategic
partners, which assist our direct sales force in obtaining
customer leads and referrals. The percentage of our new customer
license orders that are influenced by or co-sold with our
strategic partners and





31





Table of Contents






resellers was 65% for the year ended December 31, 2008. In
general, these strategic partners and resellers perform the
installation and integration, consulting and other services for
the enterprises to which they resell our products, and we are
not engaged by their customers for these services.


 



Our sales efforts are targeted to senior executives and
personnel who are responsible for managing an enterprise’s
information technology initiatives. We generate demand for our
products and services primarily through our direct sales force
and strategic relationships. Our direct sales force is
responsible for managing customer relationships and
opportunities and is supported by product, marketing and service
specialists.


 



In the rapidly changing and increasingly complex and competitive
information technology environment, we believe product
differentiation will be a key to market leadership. Thus, our
strategy is to continually work to enhance and extend the
features and functionality of our existing products and develop
new and innovative solutions for our customers. We have in the
past and expect to continue to devote substantial resources to
our research and development activities and as a result our
research and development expenses have continued to increase in
absolute dollars each year. We recorded research and development
expenses in 2008 of $40.4 million, as compared
$37.4 million in 2007 and $35.1 million in 2006. As a
percentage of total revenues, research and development expenses
were 16%, 17% and 18% in 2008, 2007 and 2006, respectively.


 



We recorded income from operations in 2008 of
$31.4 million, as compared $13.9 million in 2007 and
$2.3 million in 2006. We are focused on improving our
operating margins by increasing our revenues and managing our
expenses through improved productivity and utilization of
economies of scale. As a significant portion of our expenses are
employee-related, we manage our headcount from period to period.
We had 1,012 employees worldwide at December 31, 2008
versus 888 employees at December 31, 2007 and 774 at
December 31, 2006. The increase in headcount from 2007 to
2008 was due primarily to the employees we hired as part of the
acquisitions of Discovery Mining and staffing of our development
operation in Bangalore, India. We also look to improve our cost
structure by hiring personnel in countries where advanced
technical expertise is available at lower costs. Additionally,
we pay close attention to other costs, including facilities and
related expense, professional fees and promotional expenses,
which are each significant components of our cost structure. As
discussed below, in January 2009, we announced a workforce
reduction of approximately 70 positions across all functions.


 



Our acquisition strategy is an important element of our overall
business strategy. We seek to identify acquisition opportunities
that will enhance the features and functionality of our existing
products, add new products and technologies to sell to our
existing customers, provide additional customers that we can
sell our current products to, or which facilitate entry into
adjacent markets. In evaluating these opportunities, we
consider, among other strategic objectives, both time to market
of the technologies or products to be acquired and potential
market share gains. We have completed a number of acquisitions
in the past, and we may acquire other technologies, products and
companies in the future. In recent years, we have acquired
products and solutions with digital asset management,
collaborative document management, records management, content
publishing, multivariable testing and Website optimization
services, eDiscovery services and capital markets vertical
market capabilities. The results of operations of these business
combinations have been included prospectively from the closing
dates of these transactions. Accordingly, our financial results
may not be directly comparable to those of the previous periods.


 




These excerpts taken from the IWOV 10-K filed Mar 14, 2008.
Overview
 
Incorporated in March 1995, we are a provider of content management software solutions. Our software and services enable organizations to leverage content to drive business growth by improving online business performance, increasing collaboration and streamlining business processes both internally and externally. Since our inception, over 4,200 enterprise and professional services organizations in 60 countries worldwide have chosen our solutions.
 
We operate in a single segment, which is the design, development and marketing of content management software solutions. Our goal is to be the leading provider of content management software solutions. We are focused on generating profitable and sustainable growth through internal research and development, licensing from third parties and acquisitions of businesses with complementary products and technologies.
 
Total revenues for 2007 were $225.7 million up 13% from 2006. We experienced increases in 2007 over 2006 in each revenue category — license, support, consulting and training. These results reflected increased information technology spending, particularly spending on content management initiatives, in both domestic and international markets and the success of our strategic relationships. Our 2007 revenues may have also benefited from consolidation within the content management market, which we believe created uncertainty regarding some of our competitors and their products. The unfavorable economic and market conditions that are currently affecting the United States could reduce levels of information technology spending from those that we witnessed in 2007, which in turn, could adversely affect our revenues and results of operations. If such a reduced spending environment develops, we believe the strategies we are implementing may mitigate some of its effects, and will provide long-term growth opportunities.
 
We license our software to businesses, professional services organizations, capital markets companies and government agencies generally on a non-exclusive and perpetual basis. The growth in our software license revenues is affected by the strength of general economic and business conditions, customer budgetary constraints and the competitive position of our software solutions. Software licenses revenues are also affected by long, unpredictable sales cycles, so they are difficult to forecast from period to period. Although our consolidated results of operations have improved in recent periods, our results were impacted in these periods by long product evaluation periods, protracted contract negotiations and multiple authorization requirements of our customers, all of which we believe are characteristic of the market for content management products and services. During the latter half of the fourth quarter of 2007, we observed some of our customers, specifically those in the global capital markets industry, engaging in unusually careful budgeting processes for their information technology spending in 2008. In the past, under similar circumstances, we experienced a relative lengthening of the sales cycle with respect to customers that demonstrated this kind of behavior. To the extent other customers in other industries exhibit this same behavior in response to the unfavorable economic and market conditions that are currently affecting the United States, our sales cycle could lengthen, which in turn, could adversely affect our revenues and results of operations.
 
Customer support revenues are primarily influenced by the number and size of new support contracts sold in connection with software licenses and the renewal rate of existing support contracts. Customers that purchase software licenses usually purchase support contracts and renew their support contracts annually. Our support contracts entitle our customers to unspecified product upgrades and technical support during the support period, which is typically one year.
 
Services revenues consist of software installation and integration, training and business process consulting, as well as revenue from software products we sell on a subscription basis. Other than our sales of software on a subscription basis, services revenues tend to lag software license revenues since consulting services, if purchased, are typically performed after the purchase of new software licenses or in connection with software upgrades. Professional services are predominately billed on a time-and-materials basis and we recognize revenues when the services are performed. Professional services revenues also include subscription revenues relating to our multivariable testing and Website optimization services. Professional services revenues are influenced primarily by the


27


Table of Contents

number of professional services engagements sold in connection with software license sales and the customers’ use of third party services providers.
 
Because our products are complex and involve a consultative sales model, our strategy is to market and sell our products and services primarily through a direct sales force. We look to augment those efforts through relationships with technology vendors, professional services firms, systems integrators and other strategic partners, which assist our direct sales force in obtaining customer leads and referrals. Approximately 61% of our new customer license orders for the year ended December 31, 2007 were influenced by or co-sold with our strategic partners and resellers. In general, these partners and resellers perform the installation and integration, consulting and other services for the enterprises to which they resell our products, and we are not engaged by their customers for these services.
 
Our sales efforts are targeted to senior executives and personnel who are responsible for managing an enterprise’s information technology initiatives. We generate demand for our products and services primarily through our direct sales force and strategic relationships. Our direct sales force is responsible for managing customer relationships and opportunities and is supported by product, marketing and service specialists.
 
In the rapidly changing and increasingly complex and competitive information technology environment, we believe product differentiation will be a key to market leadership. Thus, our strategy is to continually work to enhance and extend the features and functionality of our existing products and develop new and innovative solutions for our customers. We have in the past and expect to continue to devote substantial resources to our research and development activities. As a percentage of total revenues, research and development expenses were 17%, 18% and 18% in 2007, 2006 and 2005, respectively.
 
We recorded income from operations in 2007 of $13.9 million, as compared $2.3 million in 2006 and a loss of $1.9 million in 2005. We are focused on improving our operating margins by increasing our revenues and carefully managing our expenses through improved productivity and utilization of economies of scale. As a significant portion of our expenses are employee-related, we manage our headcount from period to period. We had 888 employees worldwide at December 31, 2007 versus 774 employees at December 31, 2006 and 744 at December 31, 2005. The increase in headcount from 2006 to 2007 was due in part to the 67 employees we hired as part of the acquisition of Optimost and, to a lesser extent, to our efforts to rationalize the degree to which we incur subcontractor expenses. We also look to improve our cost structure by hiring personnel in countries where advanced technical expertise is available at lower costs. Additionally, we pay close attention to other costs, including facilities and related expense, professional fees and promotional expenses, which are each significant components of our expense structure. While we have been carefully managing our costs and expenses relating to the operation of our business, our general and administrative expenses have increased significantly during 2007 as compared to 2006 as we have incurred significant accounting, legal and other expenses relating to the Audit Committee’s review of our historical stock option grant procedures and related accounting throughout 2007.
 
Our acquisition strategy is an important element of our overall business strategy. We seek to identify acquisition opportunities that will enhance the features and functionality of our existing products, provide new products and technologies to sell to our installed base of customers, acquire additional customers that we can sell our existing products, or which facilitate entry into adjacent markets. In evaluating these opportunities, we consider, among other items, both time to market of the technologies or products to be acquired and potential market share gains. We have completed a number of acquisitions in the past, and we may acquire other technologies, products and companies in the future. In recent years, we have added through acquisition products and solutions with digital asset management, collaborative document management, records management, content publishing, Website optimization and capital markets vertical market capabilities. The results of operations of these business combinations have been included prospectively from the closing dates of these transactions. Accordingly, our financial results may not be directly comparable to those of the previous periods.


28


Table of Contents

Overview


 



Incorporated in March 1995, we are a provider of content
management software solutions. Our software and services enable
organizations to leverage content to drive business growth by
improving online business performance, increasing collaboration
and streamlining business processes both internally and
externally. Since our inception, over 4,200 enterprise and
professional services organizations in 60 countries worldwide
have chosen our solutions.


 



We operate in a single segment, which is the design, development
and marketing of content management software solutions. Our goal
is to be the leading provider of content management software
solutions. We are focused on generating profitable and
sustainable growth through internal research and development,
licensing from third parties and acquisitions of businesses with
complementary products and technologies.


 



Total revenues for 2007 were $225.7 million up 13% from
2006. We experienced increases in 2007 over 2006 in each revenue
category — license, support, consulting and training.
These results reflected increased information technology
spending, particularly spending on content management
initiatives, in both domestic and international markets and the
success of our strategic relationships. Our 2007 revenues may
have also benefited from consolidation within the content
management market, which we believe created uncertainty
regarding some of our competitors and their products. The
unfavorable economic and market conditions that are currently
affecting the United States could reduce levels of information
technology spending from those that we witnessed in 2007, which
in turn, could adversely affect our revenues and results of
operations. If such a reduced spending environment develops, we
believe the strategies we are implementing may mitigate some of
its effects, and will provide long-term growth opportunities.


 



We license our software to businesses, professional services
organizations, capital markets companies and government agencies
generally on a non-exclusive and perpetual basis. The growth in
our software license revenues is affected by the strength of
general economic and business conditions, customer budgetary
constraints and the competitive position of our software
solutions. Software licenses revenues are also affected by long,
unpredictable sales cycles, so they are difficult to forecast
from period to period. Although our consolidated results of
operations have improved in recent periods, our results were
impacted in these periods by long product evaluation periods,
protracted contract negotiations and multiple authorization
requirements of our customers, all of which we believe are
characteristic of the market for content management products and
services. During the latter half of the fourth quarter of 2007,
we observed some of our customers, specifically those in the
global capital markets industry, engaging in unusually careful
budgeting processes for their information technology spending in
2008. In the past, under similar circumstances, we experienced a
relative lengthening of the sales cycle with respect to
customers that demonstrated this kind of behavior. To the extent
other customers in other industries exhibit this same behavior
in response to the unfavorable economic and market conditions
that are currently affecting the United States, our sales cycle
could lengthen, which in turn, could adversely affect our
revenues and results of operations.


 



Customer support revenues are primarily influenced by the number
and size of new support contracts sold in connection with
software licenses and the renewal rate of existing support
contracts. Customers that purchase software licenses usually
purchase support contracts and renew their support contracts
annually. Our support contracts entitle our customers to
unspecified product upgrades and technical support during the
support period, which is typically one year.


 



Services revenues consist of software installation and
integration, training and business process consulting, as well
as revenue from software products we sell on a subscription
basis. Other than our sales of software on a subscription basis,
services revenues tend to lag software license revenues since
consulting services, if purchased, are typically performed after
the purchase of new software licenses or in connection with
software upgrades. Professional services are predominately
billed on a
time-and-materials
basis and we recognize revenues when the services are performed.
Professional services revenues also include subscription
revenues relating to our multivariable testing and Website
optimization services. Professional services revenues are
influenced primarily by the





27





Table of Contents






number of professional services engagements sold in connection
with software license sales and the customers’ use of third
party services providers.


 



Because our products are complex and involve a consultative
sales model, our strategy is to market and sell our products and
services primarily through a direct sales force. We look to
augment those efforts through relationships with technology
vendors, professional services firms, systems integrators and
other strategic partners, which assist our direct sales force in
obtaining customer leads and referrals. Approximately 61% of our
new customer license orders for the year ended December 31,
2007 were influenced by or co-sold with our strategic partners
and resellers. In general, these partners and resellers perform
the installation and integration, consulting and other services
for the enterprises to which they resell our products, and we
are not engaged by their customers for these services.


 



Our sales efforts are targeted to senior executives and
personnel who are responsible for managing an enterprise’s
information technology initiatives. We generate demand for our
products and services primarily through our direct sales force
and strategic relationships. Our direct sales force is
responsible for managing customer relationships and
opportunities and is supported by product, marketing and service
specialists.


 



In the rapidly changing and increasingly complex and competitive
information technology environment, we believe product
differentiation will be a key to market leadership. Thus, our
strategy is to continually work to enhance and extend the
features and functionality of our existing products and develop
new and innovative solutions for our customers. We have in the
past and expect to continue to devote substantial resources to
our research and development activities. As a percentage of
total revenues, research and development expenses were 17%, 18%
and 18% in 2007, 2006 and 2005, respectively.


 



We recorded income from operations in 2007 of
$13.9 million, as compared $2.3 million in 2006 and a
loss of $1.9 million in 2005. We are focused on improving
our operating margins by increasing our revenues and carefully
managing our expenses through improved productivity and
utilization of economies of scale. As a significant portion of
our expenses are employee-related, we manage our headcount from
period to period. We had 888 employees worldwide at
December 31, 2007 versus 774 employees at
December 31, 2006 and 744 at December 31, 2005. The
increase in headcount from 2006 to 2007 was due in part to the
67 employees we hired as part of the acquisition of
Optimost and, to a lesser extent, to our efforts to rationalize
the degree to which we incur subcontractor expenses. We also
look to improve our cost structure by hiring personnel in
countries where advanced technical expertise is available at
lower costs. Additionally, we pay close attention to other
costs, including facilities and related expense, professional
fees and promotional expenses, which are each significant
components of our expense structure. While we have been
carefully managing our costs and expenses relating to the
operation of our business, our general and administrative
expenses have increased significantly during 2007 as compared to
2006 as we have incurred significant accounting, legal and other
expenses relating to the Audit Committee’s review of our
historical stock option grant procedures and related accounting
throughout 2007.


 



Our acquisition strategy is an important element of our overall
business strategy. We seek to identify acquisition opportunities
that will enhance the features and functionality of our existing
products, provide new products and technologies to sell to our
installed base of customers, acquire additional customers that
we can sell our existing products, or which facilitate entry
into adjacent markets. In evaluating these opportunities, we
consider, among other items, both time to market of the
technologies or products to be acquired and potential market
share gains. We have completed a number of acquisitions in the
past, and we may acquire other technologies, products and
companies in the future. In recent years, we have added through
acquisition products and solutions with digital asset
management, collaborative document management, records
management, content publishing, Website optimization and capital
markets vertical market capabilities. The results of operations
of these business combinations have been included prospectively
from the closing dates of these transactions. Accordingly, our
financial results may not be directly comparable to those of the
previous periods.





28





Table of Contents







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