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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ____ to ____
Commission File Number 000-26867
PIVOTAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
British Columbia, Canada 98-0366456
(State or other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
300-224 West Esplanade
North Vancouver, British Columbia
Canada
V7M 3M6
(Address of Principal Executive Offices, Including Zip Code)
(604) 988-9982
(Registrant's Telephone Number,
Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Shares
- --------------------------------------------------------------------------------
(Title of Class)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS); AND (2) HAS BEEN SUBJECT TO THE
FILING REQUIREMENTS FOR THE PAST 90 DAYS: Yes [X] No [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K: [X]
The aggregate market value of the voting shares held by non-affiliates of the
Registrant, based on the closing sale price of the common shares on August 1,
2002 as reported on the Nasdaq National Market was approximately
U.S.$48,040,474. Common shares held by each current executive officer and
director and by each person who is known by the Registrant to own 5% or more of
the outstanding common shares have been excluded from this computation in that
such persons may be deemed to be affiliates of the Registrant. This
determination of affiliate status is not a conclusive determination for other
purposes.
As of August 1, 2002, 24,164,209 common shares of the Registrant were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable.
TABLE OF CONTENTS
PART I 1
ITEM 1. BUSINESS..........................................................1
ITEM 2. PROPERTIES........................................................29
ITEM 3. LEGAL PROCEEDINGS.................................................30
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.................30
PART II 30
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...............................................30
ITEM 6. SELECTED FINANCIAL DATA...........................................33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION..........................................35
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................52
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..........................................82
PART III 82
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT..........................82
ITEM 11. EXECUTIVE COMPENSATION............................................85
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....88
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................89
PART IV 90
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...90
i
FORWARD-LOOKING STATEMENTS
Statements in this filing about our future results, levels of activity,
performance, goals or achievements or other future events constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in our forward-looking statements.
These factors include, among others, those described in connection with the
forward-looking statements, and the factors described under the heading
"Important factors that may affect our business, our results of operations and
our share price" in Item 1 to this report, which is hereby incorporated by
reference in this report.
In some cases, you can identify forward-looking statements by our use of words
such as "may," "will," "should," "could," "expect," "plan," "intend,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or the
negative or other variations of these words, or other comparable words or
phrases.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, achievements or other future events. Moreover, neither we
nor anyone else assumes responsibility for the accuracy and completeness of our
forward-looking statements. We are under no duty to update any of our
forward-looking statements after the date of this report. You should not place
undue reliance on our forward-looking statements.
PART I
ITEM 1. BUSINESS
OVERVIEW
Pivotal Corporation offers Customer Relationship Management (CRM) software that
enables mid-sized enterprises worldwide to acquire, serve and manage their
customers. Pivotal's target customers are companies and business units in the
revenue range of $100 million to $3 billion. Customer Relationship Management
products and services automate and manage marketing, selling and servicing
processes. We refer to our software as the Pivotal CRM Suite. The Pivotal CRM
Suite is designed to complement and integrate with a business' supply chain,
therefore enabling businesses to improve efficiency and increase revenue.
Our products are used in 44 countries and are available in English, French,
German, Spanish, Portuguese, Japanese, Chinese and Hebrew. More than 1,500
companies around the world use Pivotal, including: CIBC, Centex Homes,
HarperCollins Publishers, Hitachi Telecom Inc., Premera Blue Cross, Royal Bank
of Canada, Southern Company and Vivendi. We market and sell our products through
a direct sales force as well as through third-party solution providers.
Our common shares are listed on the Nasdaq National Market under the symbol
"PVTL" and on the Toronto Stock Exchange under the symbol "PVT". Our head office
is located at 300 - 224 West Esplanade, North Vancouver, British Columbia,
Canada V7M 3M6, and our telephone number is (604) 988-9982. Our home page on the
Internet can be found at www.pivotal.com. Information contained on our website
does not constitute part of this report.
Pivotal Corporation was incorporated in British Columbia, Canada in 1990 under
the name Pen Magic Software Corporation, and then changed its name to Pen Magic
Software Inc. in 1991, to Pivotal Software Inc. in 1995 and to Pivotal
Corporation in 1999. The terms "Pivotal," "our company" and "we" in this filing
refer to Pivotal Corporation, a British Columbia company, and all of Pivotal
Corporation's wholly owned subsidiaries including Pivotal Corporation,
incorporated in the State of Washington; Pivotal Corporation Limited,
incorporated in the United Kingdom; Pivotal Corporation France S.A.,
incorporated in France; Exactium Ltd., incorporated in Israel; Exactium, Inc.,
incorporated in the State of Delaware; Pivotal Technologies Corporation Limited,
incorporated in the Republic of Ireland; Pivotal Corporation (N.I.) Limited,
incorporated in Northern Ireland; Pivotal GmbH, incorporated in Germany; Pivotal
Corporation Australia Pty. Ltd., incorporated in Australia; Project One Business
Technologies Inc., amalgamated in British Columbia, Canada; Nihon Pivotal K.K.,
incorporated in Japan; and 1254590 Ontario Limited (formerly Inform, Inc.),
incorporated in Ontario, Canada.
Pivotal CRM Suite, Pivotal Sales, Pivotal Sales - Miller Heiman Edition, Pivotal
Wireless for Sales, Pivotal Sales Analytics, Pivotal Marketing, Pivotal
eMarketing, Pivotal Marketing Analytics, Pivotal Service, Pivotal Contact
Center, Pivotal eService, Pivotal Wireless for Service, Pivotal Service
Analytics, Pivotal eSales, Pivotal Configurator, Pivotal Advisor, Pivotal
Quoter, Pivotal Catalog, Pivotal ePartner, Pivotal Partner Management, Pivotal
Partner Analytics, Pivotal Integration Engine, Pivotal Lifecycle Engine, Pivotal
Syncstream, Pivotal Intellisync, Pivotal Interactive Selling Engine, Pivotal
Analytics Engine, Pivotal Intelligent Internet Architecture
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and Pivotal Wireless are trademarks and/or registered trademarks of Pivotal
Corporation. All other company names, product names, marks, logos, and symbols
referenced are the trademarks and/or registered trademarks of their respective
owners.
On January 24, 2002, we announced the availability of our advanced integration
product - Pivotal Integration Engine, a technology that will be embedded in our
products and has been designed to cost-effectively integrate and synchronize our
Customer Relationship Management software with back-office and legacy systems.
INDUSTRY BACKGROUND
In the mid-1980's, businesses began to implement contact management software to
track prospects, customers and customer data. Since then, departmental software
products have been developed to track data related to servicing customers on the
demand side of the business. Some examples of departmental software products
include: sales force automation software, which provides prospect and customer
data to sales staff; customer service software which provides customer service
request and history to customer service representatives; and marketing
automation software to provide campaign, prospect and customer data to marketing
staff to generate more demand for products and services. In the 1990s,
cross-departmental Customer Relationship Management systems began to emerge that
brought departmental data assets together into centralized customer and prospect
data repositories while allowing these demand side departments to input their
own specific information, providing the company with a unified view of the
customer and prospect. Today, Customer Relationship Management has become a
business strategy that seeks to optimize profitability, revenue and customer
satisfaction by organizing around customer segments, fostering customer
satisfying behaviors and implementing customer-centric processes.
With the appearance of the Internet in the 1990s as a ubiquitous communication
network, companies began to provide support over the Internet for field and
remote staff who needed access to departmental data assets. As other
communication channels have continued to evolve, such as fax, email and wireless
communications, businesses have looked for Customer Relationship Management
systems that can provide an integrated "real-time" view of customer information
across all of these communication channels. In addition, businesses have
recognized that the Internet is more than simply a network for allowing their
own remote staff to access centralized data repositories, with the Internet
providing a backbone for businesses to change the way they interact with
business partners and customers.
We believe that the Internet and other communication technologies such as
wireless technologies have created a fundamental change in the way many
companies conduct business. Today, the Internet goes beyond simple
communication. It provides a means for prospects and customers to interact with
businesses, and businesses to interact with all their stakeholders, including
employees, customers, partners and suppliers in "real-time" across global and
corporate boundaries. As a result, there has been a demand for enterprise-wide
software products that support stakeholders' needs to communicate and
collaborate with businesses across departments and communication channels.
Today's demand-side and enterprise-wide eBusiness products support this business
need. These software products automate and manage the people and processes
related to customer management in order to increase revenues and decrease costs.
These enterprise-wide products tie into companies' supply chain management and
enterprise resource planning applications to increase productivity, decrease
costs, and increase revenues.
The Impact of Changing Technologies
Developments in technology have dramatically affected the marketplace for
Customer Relationship Management products. These developments include:
o The Internet. With the emergence of the Internet as a dominant
platform for global interactive communication, coordination and
commerce, businesses are seeking better ways to use the Internet as a
platform to conduct their business. As a result, businesses are
investing in technologies that support and exploit the capabilities of
the Internet. Emerging new technology standards based on eXtensible
Markup Language (XML) and Web services are being embraced by
enterprises seeking to integrate internal systems and provide
collaboration with partners and suppliers in a drive to reduce costs,
increase revenues, increase market intelligence and improve customer
satisfaction. Increasingly, these new technologies are also
supplanting non-Internet native architectures, such as client server
computing.
o Widespread Adoption of Microsoft Technologies. Microsoft Windows NT,
Microsoft Windows 2000 and Microsoft .NET platforms offer businesses
the opportunity to develop, deploy and maintain information technology
systems with
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increased flexibility on a cost-effective basis. These platforms are
also widely used and well understood by technical personnel. With the
recent addition of Microsoft Commerce Server 2000, Share Point Server
2001 and BizTalk Server, Microsoft is delivering a rich and
cost-effective application development platform to support the
requirement for integration, application customization and
flexibility, and document exchange.
o Growth of Wireless Computing. The proliferation of wireless computing
devices, such as hand-held computers, Internet-enabled cell phones and
improved remote computing has empowered the mobile professional. These
electronic products enable users to access information from almost any
location using their preferred wireless computing device.
o Availability of Intelligence Systems. Intelligence systems include
customer profiling technologies that enable software to respond to or
anticipate user needs with less input from the user through analysis
of profiles or actual website visitor behavior. These include guided
selling technologies to help users make purchases on the Internet,
even for very complex products and services. With these
customer-profiling technologies, the customer's buying experience is
personalized and targeted to fulfill its specific needs.
THE OPPORTUNITY
The customers we serve are typically mid-sized enterprises and divisions of
large businesses. Many of these businesses are responding to pressures to
implement cross-departmental or enterprise-wide business models that put the
customer at the center of their business in order to increase revenues, margins
and customer loyalty.
We believe that the mid-enterprise market is underserved, and represents a
significant opportunity for our enterprise-wide, customer relationship
management suite and professional services. We also believe that Pivotal is
strongly positioned to deliver meaningful results to mid-sized enterprises. We
believe our unique approach, product architecture and proven rapid business
implementation methods mean Pivotal products can be more easily customized, more
quickly integrated with current systems and business processes, and more rapidly
deployed to provide increases in revenues, margins and customer loyalty faster
and more cost-effectively than either shrink-wrap or large enterprise Customer
Relationship Management products.
We believe that our products are closely aligned with the needs of mid-sized
enterprises, offering a sensible set of commonly needed features that can be
rapidly customized to match changing business goals and processes. Built on an
Intelligent Internet Architecture, Pivotal CRM Suite incorporates many of the
technology components at the core of mid-sized enterprises today, including the
Internet, Oracle, Microsoft Windows NT, Microsoft Windows 2000, Microsoft
BackOffice, Microsoft .NET server platforms and Oracle databases.
Our services are designed to implement Customer Relationship Management in an
innovative and highly pragmatic manner that sets, tracks and delivers achievable
business results. Pivotal's proven services approach allows mid-sized
enterprises to implement and evolve their Customer Relationship Management
systems iteratively over time, ensuring each goal is met, and all customer,
partner and employee needs are addressed. We believe that our partners are best
suited to address the mid-enterprise market. While platform partners Intel and
Microsoft constitute the underlying architecture in most mid-sized enterprises,
our worldwide network of Customer Relationship Management strategists, product
experts and certified Pivotal partners understand the needs of the
mid-enterprise, and ensure achievable business results are delivered rapidly and
professionally.
We believe that our business style mirrors the way that the mid-enterprise
market wants to do business: straightforward, respectful and responsive. Our
marketing, selling and servicing initiatives are tailored to the pragmatic
business style of mid-sized enterprises, establishing a collaborative
relationship contracts. As a result, we believe that the cost of Pivotal's
products and services are more predictable than our competitors, addressing a
principal concern of mid-sized enterprises.
PIVOTAL PRODUCTS
Our suite includes applications for sales force automation, marketing
automation, service automation, contact center management, partner relationship
management and electronic commerce. These products enable companies to increase
revenues and decrease costs by increasing efficiency within the sales, marketing
and service activities that ultimately increase customer acquisition and
loyalty. To achieve this, our products connect employees, partners and customers
into one unified business network. Our products include award-winning,
Internet-based applications supported by an array of professional services and
our global Pivotal Partner Program network of third-party distributors. Our
products are designed and optimized for the Internet, Microsoft, Intel and
Oracle platforms.
We believe our products:
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o Enable Businesses to Increase Revenues, Margins and Customer Loyalty.
Our products unify sales, marketing and customer service employees and
partners around customer processes and interactions. By maintaining
all customer information in a shared database, our products make it
easy for different users to maximize their contribution to customer
relationship management by better capturing customer profiles and
building one-to-one customer relationships. We believe this
improvement in customer focus enables businesses to increase revenues
through improving customer loyalty, which increases both customer
retention and customer net value. Our customers also realize decreased
costs by streamlining processes and interactions between employees,
partners and customers, through more effective and more targeted
marketing, sales and service campaigns, the reduction of inefficient
communications, and the increased effectiveness of targeted
communications efforts.
o Improve the Collaboration and Interaction Between Businesses and Their
Customers. Using Pivotal products, businesses can transform their
static websites into collaborative tools used to increase their
customer bases, and to service and sell to existing customers.
Prospective customers can obtain information regarding businesses'
products and services over the Internet. Customers can place orders
and retrieve information on products and services over the Internet
and directly interact online with sales, marketing and customer
service departments. This direct interaction can result in improved
customer service and generation of leads, as well as lower customer
service costs.
o Improve the Collaboration and Interaction Between Businesses and Their
Partners. Pivotal products enable businesses to improve their
efficiency and selling processes by facilitating interaction and
collaboration with their partners over the Internet. Our application
maintains a shared database consisting of customers' information
related to products, services, customer contacts and sales
opportunities. By enabling their partners to access and update the
shared database, our products simplify the sharing of information
between businesses and their partners so they can jointly service
their customers' needs and concerns.
o Enable Rapid Implementation and Simple Customization. Businesses can
use our products without significant customization, thereby expediting
the implementation process. If they so desire, businesses can easily
customize our products to reflect their own internal processes using
the industry-standard, business programming language of Microsoft
Visual Basic. In addition, businesses can choose one of our products
for a particular industry vertical or micro-vertical - products
already optimized and configured for such industries as financial
services and healthcare, as well as specific segments within
industries, including Retail Banking, Investment Banking, Healthcare
Insurance and Real Estate/Construction. These industry-specific
products allow businesses to immediately gain business benefits as we
have already done the industry-specific customizations.
o Yield a Low Total Cost of Ownership. Our products can be
cost-effectively deployed and customized and thus require few
resources for ongoing support, system maintenance and end-user
training. Our products are also relatively easy for end-users to
learn, which results in lower ongoing training costs. In addition, our
software applications permit modifications and upgrades to be
transmitted to all users, including mobile users, thereby reducing the
cost of customization and administration.
o Scale With the Growing Needs of Pivotal's Customers. Many of our
customers require that our products support their growing number of
employees, online customers and partners. Our underlying architecture
enables our customers to expand our products as their businesses grow
by adding servers in a number of locations. This capability improves
performance and enables our products to support larger numbers of
concurrent users.
o Increase the Efficiency of Mobile Professionals. Mobile professionals
can access our products remotely across local-area networks, wide-area
networks or over the Internet by using a number of portable computing
devices including laptops, hand-held computers and Internet-enabled
cell phones. Mobile professionals also can work disconnected, logging
on to transmit and receive information that automatically updates
their own files and the shared corporate database. These capabilities
increase the efficiency of mobile professionals.
BUSINESS STRATEGY
Our goal is to continue our efforts to maintain and increase our position as a
leading global provider of Customer Relationship Management systems in the
mid-market. The key elements of our growth strategy are as follows:
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o Extend Application and Product Scope. We intend to continue the
development of our applications to add new functions, such as
additional contact center and web-enabled service functionality. We
also intend to continue to develop industry products for specific
industry segments ("micro-verticals") that will further simplify the
deployment and use of our applications. In addition, we plan to offer
new versions of our applications that support a wider variety of
international customers and their respective business practices and
languages.
o Deepen Collaboration and Interaction Between Pivotal and Our
Customers. We will continue to focus on providing customer products
that help our customers achieve business success. In particular, we
plan to maintain a customer-focused culture by inviting repeat
business from existing customers as we make new features available,
and to gain new customers as our existing customers become independent
references for our products. We believe that the benefits of our
products have helped us to develop a loyal base of customers.
o Continue Expansion of Our Worldwide Distribution Capacity. We
currently have a distribution strategy that includes direct sales
personnel and resellers which enables us to target a wide variety of
customers in different industries and geographical regions. Our
current plans call for continued investment in our worldwide
distribution capacity to increase market share and penetration. This
investment will include continuing to expand relationships with
existing and new resellers and entering into bundling arrangements
with technology providers to provide complementary niche products to
our customers.
o Deepen Collaboration and Interaction with Members of the Pivotal
Partner Program. We plan to continue strengthening our network of
strategic relationships, including our Pivotal Partner Program
network. The Pivotal Partner Program network includes independent
companies that distribute our products, install the software purchased
by our customers and provide other software or related services to
address specific customer needs. This network has allowed us to focus
on our core competencies while taking advantage of the strengths of
Pivotal Partner Program members who may have specific industry
expertise or better regional presence, which enables them to better
address the needs of our customers and provide them with a complete
electronic business product.
o Extend Relationships with Application Service Providers to Deliver Our
Products on a Usage Fee Basis. We will continue to expand our
relationships with application service providers to provide an
alternative licensing arrangement through these third-party
application service providers that enables customers to pay a usage
fee to access our software on servers operated by the application
service providers. This enables businesses to outsource their
electronic business products and related information technology
infrastructure through an alternative pricing model, such as a monthly
fee.
PRODUCTS AND PROFESSIONAL SERVICES
Pivotal CRM Suite consists of five product suites that help companies control
the sales, marketing, service and partner processes core to their businesses.
These suites are: Pivotal Sales, Pivotal Marketing, Pivotal Service, Pivotal
Interactive Selling and Pivotal Partner Management. In addition, we also market
industry vertical products.
These product suites are comprised of our core applications including Pivotal
Sales, Pivotal Sales - Miller Heiman Edition, Pivotal Wireless for Sales,
Pivotal Sales Analytics, Pivotal Marketing, Pivotal eMarketing, Pivotal
Marketing Analytics, Pivotal Service, Pivotal Contact Center, Pivotal eService,
Pivotal Wireless for Service, Pivotal Service Analytics, Pivotal eSales, Pivotal
Configurator, Pivotal Advisor, Pivotal Quoter, Pivotal Catalog, Pivotal
ePartner, Pivotal Partner Management, and Pivotal Partner Analytics. These core
applications and other leading technology options provide an integrated,
collaborative network that helps to manage information, transactions, and
interactions for every stakeholder in the customer lifecycle.
On January 24, 2002, Pivotal released its advanced integration product called
Integration Engine, which is designed to cost-effectively integrate and
synchronize Pivotal's software with back-office and legacy systems of our
customers.
PIVOTAL PRODUCT SUITES
Our five product suites are comprised of a variety of core applications.
The Pivotal Sales Suite
Pivotal Sales provides critical customer information, opportunity management
tools, and "best practices" sales methodologies for the enterprise sales force.
The core capabilities of the Pivotal Sales product suite include:
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o Quote and Proposal Management
o Consolidated Revenue Forecast
o Territory Management
o Opportunity Management
o Team-Selling Enablement
o Best Practices Enablement
o Multi-Channel Sales Integration
o Real-Time Product Configuration
o Expense Management
o Sales Efficiency Tools
o Campaign Management
o Web-based Collaborative Services
o Up/Cross-Selling Automation
o Competitive and Industry Intelligence
Core Applications of the Pivotal Sales Suite
Pivotal Sales enables global sales organizations to sell collaboratively across
multiple regions, currencies and channels. With Pivotal Sales, organizations can
share information across sales teams, accurately forecast their business, manage
pipelines, automatically generate quotes and proposals, and easily configure
products and services that meet specific customer needs.
Pivotal Sales -- Miller Heiman Edition is an option for the Pivotal Sales
application based on the three most popular disciplines -- Strategic Selling,
Conceptual Selling, and Large Account Management -- as taught by Miller Heiman,
a leader in sales methodologies.
Pivotal Wireless for Sales enables mobile employees real-time read and write
access to critical customer data. Using wireless, hand held devices such as
web-enabled cell phones, personal digital assistants (PDAs) and two-way pagers,
mobile employees can make informed, timely decisions that result in immediate
response to opportunities and increased sales while in the field.
Pivotal Sales Analytics is an analytics package that provides sales
professionals with a Web-based tool for data mining and forecast analysis. With
the ability to analyze sales history, order history, market trends, among other
things at their fingertips, sales managers can accurately forecast across all
channels, analyze sales performance by region, identify trends in sales cycle,
and extract the knowledge and insight to drive better business decisions.
The Pivotal Marketing Suite
Pivotal Marketing gives enterprises the information and processes they need to
analyze their customers' lifecycles, identify diverse opportunities, and
maximize the most profitable relationships. Core capabilities of the Pivotal
Marketing product suite include:
o Campaign Management
o Lead Capturing and Tracking
o Centralized Data Repository
o Forecasting: Campaign Impact, Market Shifts and Customer Perception
o Customer Profiling
o Event Management
o ROI Calculation and Analysis
o Best Practices
o Data Mining
o Customer Analysis
o Direct Mail Campaign Management
o Collaborative Action Plans
Core Applications of the Pivotal Marketing Suite
Pivotal Marketing delivers a closed-loop marketing product that includes
campaign design, collaborative marketing action plans, campaign execution and
lead tracking across multiple channels (phone, direct mail, Internet and email)
for direct and partner channels.
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With Pivotal Marketing, marketing professionals maximize profitability through
one-to-one marketing strategies that deliver optimal customer acquisition,
retention, cross-selling and up-selling results.
Pivotal eMarketing extends the power of our Pivotal Marketing product to the
Internet. Pivotal eMarketing allows companies to take advantage of the
cost-effectiveness of internet-based marketing through online marketing
research, lead capturing and tracking, collateral distribution and management,
and email campaign management. Seamless integration with Pivotal Marketing
ensures that organizations can provide a consistent and personalized marketing
experience.
Pivotal Marketing Analytics is an analytics package that provides marketing
professionals with a Web-based tool for data mining and data analysis. With the
ability to analyze such things as customer profiles, purchasing history, product
preferences and market trends at their fingertips, marketing managers can better
understand their customer buying preferences, product profitability, campaign
effectiveness and have the knowledge and insight to more effectively target
prospects and drive better business decisions.
The Pivotal Service Suite
Pivotal Service provides customer service professionals with a robust solution
to efficiently capture, track, manage, escalate, and resolve customer service or
support requests. Core capabilities of the Pivotal Service product suite
include:
o Integrated Communication Platform
o Multi-Channel Interactions
o End-to-End Reporting
o Service Request Management
o Online Request Tracking and Escalation
o Service-to-Order Integration
o Personalized, 24x7 Self-Service
o Online FAQ
o IVR Self-Service
o Knowledge Base Management
o Sales/Marketing Integration
o Market-Driven Product Enhancement
o Time and Activity Management
o Productivity and Performance Monitoring and Reporting
Core Application of the Pivotal Service Suite
Pivotal Service is an Internet-based customer service application for employees
that enables companies to build customer loyalty, increase revenues and optimize
call center performance. Pivotal Service automates the capture, management and
resolution of customer service and support requests across multiple channels. It
integrates with sales and marketing functions to provide service professionals
with the tools and information they need to deliver personalized service for
improved customer satisfaction.
Pivotal Contact Center transforms Pivotal's customer's call center into a next
generation contact center that supports multiple channels of customer
interactions, including voice, email, text chat, Internet collaboration, and
fax. By managing customer interactions across all channels, service
organizations have the tools and information they need to cost-effectively
deliver excellence in customer service.
Pivotal eService helps organizations to reduce the cost of service by extending
service request management to the Internet. Pivotal eService supports inbound
email management and provides a comprehensive, self-service Website for
customers to quickly resolve their own problems through an online knowledge base
and frequently-asked-questions section (FAQ), and the ability to create and
review incidents, escalate to service experts, or register products for future
service.
Pivotal Wireless for Service enables mobile employees real-time read and write
access to critical customer data using wireless, hand held devices such as
Web-enabled cell phones, personal digital assistants (PDAs) and two-way pagers.
Based on the Pivotal Intelligent Internet Architecture, Pivotal Wireless for
Service offers a highly flexible product easily tailored to Pivotal's customer's
service employee needs, to increase productivity, immediate response to
incidents, service level agreements, increased customer satisfaction and up-sell
opportunities anytime in the field.
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Pivotal Service Analytics provides service professionals with data analysis.
With the ability to analyze customer service request data over various channels,
service managers can better understand their customers' preferences, resource
utilization, service activity and performance and have the knowledge and insight
to more effectively ensure customer satisfaction.
The Pivotal Interactive Selling Suite
Pivotal Interactive Selling is a comprehensive product suite that enables
companies to deliver a personalized online buying or selling experience for
customers and sales professionals. Pivotal Interactive Selling simplifies the
buying and selling experience of sophisticated products and services with
interactive needs analysis and intelligent guided-selling services.
Through Pivotal Interactive Selling, organizations increase sales effectiveness
across all channels via comprehensive needs analysis, product cataloging, fixed
and dynamic pricing, and configuration capabilities. Pivotal Interactive Selling
has the following core features:
o Data Repository: Product, Pricing, Sales Data
o Dynamic Proposals, Quotes, Reports, Orders
o Browser-Based Authoring Environment
o Catalog Management
o Configuration Management
o Guided Product, Pricing, Service Configuration
o Web-Based Product and Configuration Management
o Site Management
o Multi-Currency, Language
o Single Source Shipping and Tracking
o Quote and Proposal Management
o Multi-Channel Sales Management
o Integration with Supply Chain Management and Enterprise Resource
Planning Systems
Core Applications of the Pivotal Interactive Selling Suite
Pivotal eSales enables organizations to leverage the Internet as a
cost-effective selling channel. With Pivotal eSales, organizations can leverage
interactive selling integration to offer a rich and personalized online buying
experience. Customers have access to detailed product catalogs and product
information and guided needs assessment support to help configure complex
orders.
Pivotal Configurator creates modeling of products, services, or processes using
data, rules, constraints, relationships, and options. Pivotal Configurator
provides a comprehensive product that ensures complex orders and quotes are
accurate, complete, and valid. It enforces business rules while delivering
context-based messages that facilitate up-selling and cross-selling, leading to
higher value orders. Used internally to improve sales productivity and order
accuracy, or externally via a company's Website to help guide buyers through
product selection and customization, Pivotal Configurator allows customers,
employees and partners to configure products to meet customer's needs.
Pivotal eAdvisor is designed to help customers select and purchase products and
services via multiple channels. Pivotal eAdvisor helps companies to explore and
understand the unique needs of each customer and advise on the specific
recommendations that will meet those needs.
Pivotal Quoter manages the ability to automatically generate quotations and
proposals.
Pivotal Catalog manages the database and publishing of product or product
offerings, their pricing and attributes, as well as the necessary sales
encyclopedia of applicable product information.
The Pivotal Partner Management Suite
Pivotal Partner Management empowers companies to more effectively manage their
partner relationships. Pivotal Partner Management helps Pivotal's customers'
partners to become collaborative members of that customer's extended business
team to generate sales, deliver customer value, and keep customers satisfied
while reducing the costs associated with managing those
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partners. Pivotal Partner Management creates a collaborative inter-company
framework to exchange knowledge, manage relationships, and synchronize
transactions over marketing, sales, service, and commerce processes.
The complete Pivotal Partner Management application suite consists of three
components Pivotal ePartner, Partner Management, and Pivotal Partner Analytics.
Core features include:
o Partner Lifecycle Management
o Recruitment Management
o Partner Profiling
o Closed-loop Lead Management
o Sales Tools and Literature Fulfillment
o 24x7 Order Entry and Tracking
o Best Practice Action Plans
o Opportunity Management and Forecasting
o Marketing Management
o Knowledge Base Access
o Alliance Management
o Partner Performance Reporting and Analytics
o Personalized, Role-based Security
Core Applications of the Pivotal Partner Management Suite
Pivotal ePartner is a browser-based product that extends marketing, sales,
service and ordering capabilities to Pivotal's customers' business partners,
enabling them to become effective members of the customers' extended enterprise
to generate sales and deliver customer value. In addition, the Pivotal ePartner
ensures that partners are kept up-to-date by providing easy access to product
information, training, sales tools, transaction data, and performance analysis
reports.
Pivotal Partner Management is a comprehensive internal tool used to help manage
and enable partner relationships and operations. Pivotal Partner Management
enables organizations to collaboratively sell, service and market to end
customers, and measure and reward the partner community.
Pivotal Partner Analytics is an analytics package that provides channel managers
with an Internet-based tool for data mining and data analysis. With detailed
information on the performance and profitability of the partner network by
individual partner or segment, or regions, channel managers have the knowledge
and insight they need to make better business decisions.
Pivotal Industry Specific Products We provide industry vertical products aimed
at the financial services, healthcare insurance and real estate/construction
markets.
o The Pivotal CRM Suite for Investment Banking provides a web-integrated
template that facilitates the creation of a collaborative framework to
manage clients, exchange research and close transactions. We believe
that by using this product, the corporate finance, trading and
research groups engaged in investment banking become a more effective,
collaborative team, better able to identify hot leads, deliver
targeted research and close the most profitable revenue opportunities.
The advantages may include faster return on investment, increased
revenues and increased customer satisfaction. Pivotal CRM Suite for
Investment Banking delivers commonly needed, investment
banking-specific features, providing investment banks with the ability
to quickly customize, integrate and deploy a product that matches
their individual business processes.
o The Pivotal CRM Suite for Healthcare Insurance is designed to link
health insurance company employees with independent agents, employer
groups and members in a collaborative sales, marketing and service
environment. With this offering, healthcare insurance companies can
bolster sales and marketing, agency relations, underwriting, and
operations, with cross-enterprise collaboration. Using the offering,
healthcare insurers and agents can quickly respond to business
requests and inquiries in real-time, reduce administrative costs, and
increase premium revenues.
o The Pivotal CRM Suite for Real Estate/Construction provides a
web-integrated template that facilitates the creation of a
collaborative framework to manage clients, exchange research and close
transactions. The sales agents, marketers and
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management teams that drive homebuilders become a more effective,
collaborative team, better able to track leads, manage the sales
process and involve customers in the pre- and post-sales cycle. The
advantages may include increased revenues, enhanced customer
satisfaction and decreased operating costs. Pivotal CRM Suite for Real
Estate/Construction delivers commonly needed, homebuilding-specific
features, allowing homebuilders to support their individual business
processes in a customized fashion.
PRODUCT PRICING
We typically license our products on a "per processor" or "named user" basis. We
license our applications on a "flat fee" basis. All our products may be licensed
on a monthly subscription basis or as a one-time fee for perpetual licenses.
PRODUCT AWARDS
The following table lists some of the awards our company and/or products have
won:
SPONSOR DATE AWARD
------- ---- -----
Profit 100 June 2002 Ranked #2 in Profit 100 Canada's Fastest Growing Companies
Microsoft June 2002 Microsoft .Net Server Innovation Award
- Most Innovative CRM-integrated Contact Center
Implementation
Information Systems Marketing February 2002 Top 15 CRM Software Award
Deloitte & Touche November 2001 Canadian Technology Fast 50
Deloitte & Touche November 2001 Technology Fast 500
Profit 100 June 2001 Ranked #2 in Profit 100 Canada's Fastest Growing Companies
Aberdeen Group April 2001 Aberdeen List of Top Ten Significant CRM Applications for
2000
Information Systems Marketing February 2001 Top 15 CRM Software Award
Microsoft December 2000 Industry Solution Awards for 2000
- Best Integrated Customer Relationship Management/eBusiness
Solution
Deloitte & Touche November 2000 Technology Fast 500
Deloitte & Touche September 2000 Fastest Growing Canadian Technology Company
start Magazine July 2000 Hottest Companies of 2000
Microsoft July 2000 North American Packaged Application Partner of the Year
British Columbia Technology Industry June 2000 Company of the Year
Association
Information Systems Marketing February 2000 Top 15 CRM Software Award
Upside Magazine February 2000 eBusiness Winner
Microsoft February 2000 World Record for Scalability and Performance
Microsoft December 1999 Industry Solution Awards for 1999
- Best Internet Solution for Customer Service
- Best Integrated Customer Relationship Management
Information Week Magazine February 1999 IT Innovators for 1999
Information Systems Marketing February 1999 Top 15 CRM Software Award
Open Systems Advisors January 1999 Crossroads 99 A-List Award
Microsoft December 1998 Industry Solution Awards for 1998 - Best Overall Customer
Relationship Management Solution
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Information Systems Marketing December 1997 Top 15 CRM Software Award
Microsoft December 1997 Industry Solution Awards -- Best Mobile Sales Solution
Microsoft May 1997 Solutions Provider Awards -- Best Solution by a Solution
Developer
Information Systems Marketing December 1996 Top 15 CRM Software Award
PROFESSIONAL SERVICES
We provide customers with access to a combination of services to successfully
implement and effectively maintain a Customer Relationship Management and
electronic business product.
These services include:
- Business Consulting. The Pivotal Rapid Business Impact Group ensures
that our clients are positioned properly to identify, measure and
achieve business results from their Customer Relationship Management
initiative by delivering on the Pivotal Results Program. According to
analysts, more than half of Customer Relationship Management
initiatives will fail to meet measurable benefit objectives or
positively affect return on investment due to a lack of business
processes for conducting ongoing measurements. Pivotal Rapid Business
Impact Group increases the chances of Customer Relationship Management
success by working with companies to identify measurable business
objectives and provide a sensible path to reach them.
- Technical Consulting. Pivotal Technical Consulting Services Group is
dedicated to successful implementation. By working closely with client
companies to understand their business needs, this team helps to
design and deploy Customer Relationship Management systems that fits
their business objectives. The Technical Consulting Group delivers
practical expertise in project management, business analysis and
technology. This team helps companies to become self-sufficient,
sharing knowledge and transferring skills that become valuable
internal assets in the long term. Furthermore, it directly leverages
the resources of Pivotal Research and Development and Global Support
Services to increase customer satisfaction.
- Integration Services. Pivotal Integration Services Group specializes
in the smooth, efficient and cost-effective integration of Customer
Relationship Management across multiple existing systems. In recent
years, many businesses have deployed disparate systems to support
their sales, marketing and service processes of the front office, and
the accounting, manufacturing, human resources, and order processing
functions of the back office. This creates a silo effect where
valuable information is locked in separate databases and available
only in separate document formats, which use different business
processes, workflows, and communication protocols. The Pivotal
Integration Services Group provides the technology expertise necessary
to remove these silos and unify multiple systems.
- Education. Pivotal Education Services Group ensures that client
companies effectively adopt and use their Customer Relationship
Management system, delivering customized training that fits to
business needs. The result is twofold: everyday users that are
confident and knowledgeable, plus trained in-house "Customer
Relationship Management champions" that lead each company to fully
adopt, develop, administer and use the system effectively. Pivotal
Education Services has the flexibility to meet unique training
requirements, and the bandwidth to rapidly and conveniently train
large numbers of employees. Furthermore, companies choose the
education format that they feel works best for their business.
- Global Support. Pivotal Global Support Services Group protects client
companies against downtime by resolving technical issues. Companies
gain practical expertise via telephone, Web and email. In addition, a
self-serve knowledgebase points customers to the right problem
resolution. From incident management to complete documentation,
Pivotal Global Support delivers insight and practical expertise. This
team delivers cost-effective, prompt and convenient guidance for each
client company.
- Technical Account Managers. Pivotal Technical Account Managers are
tasked with: ensuring the technical success of Pivotal deployments.
They are technology advisors, working with companies to ensure
business fit over the long-term. With a comprehensive knowledge of
current and future Pivotal technologies, Technical Account Managers
help companies to efficiently invest in Customer Relationship
Management.
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Substantially all of our business consulting services and integration services
are priced on a time and materials basis and occasionally we enter into fixed
contract arrangements for implementations. Our education fees are standardized
on a per day rate. Our global support and maintenance services are sold on a per
license basis and renewed annually.
CUSTOMERS AND MARKETS
We have licensed our applications on a worldwide basis to more than 1,500
customers across a wide range of industries. Customers in North America
accounted for 53%, 67%, and 72% of our total revenues in the years ended June
30, 2002, 2001, and 2000, respectively. Customers in Canada accounted for 4%,
12%, and 11% of our total revenues in the years ended June 30, 2002, 2001 and
2000, respectively. Customers in the U.S. accounted for 49%, 55%, and 61% of
total revenues in these years. Customers in Europe, Middle East and Africa
accounted for 37%, 25% and 21% of our total revenues in the years ended June 30,
2002, 2001 and 2000, respectively. Customers in Asia Pacific and Latin America
accounted for 10%, 8% and 7% of total revenues in the years ended June 30, 2002,
2001 and 2000, respectively.
We have property and equipment in various geographic regions. Property and
equipment in the United States accounted for 23%, 16% and 22% of total property
and equipment at June 30, 2002, 2001 and 2000, respectively. Property and
equipment in Canada accounted for 46%, 65% and 64% of total property and
equipment at June 30, 2002, 2001 and 2000, respectively. Property and equipment
held outside the U.S. and Canada accounted for 31%, 19% and 14% of total
property and equipment at June 30, 2002, 2001 and 2000, respectively.
No single customer accounted for 10% or more of our consolidated revenues during
the years ended June 30, 2002, June 30, 2001 or June 30, 2000. Some of our
customers that purchased a minimum of US$100,000 of software licenses from us
prior to June 30, 2002, are set forth in the table below:
CONSULTING MANUFACTURING TECHNOLOGY
- ---------- ------------- ----------
Burntsand Inc. Foss Electric A/S Captivate Network, Inc.
KPMG SA IMI Norgren Limited Compaq Computer Corporation
KPMG Consulting AG James Hardie Industries Limited ProClarity Corporation
KPMG Peat Marwick LLP Newport Corporation Allen Systems Group, Inc.
Net-Commerce Siemens SAS Crystal Decisions Corporation
The Wynford Group Teknion Corporation Software Spectrum Inc.
Sapient Corporation Toshiba Corporation VERITAS Software Corporation
Wilo GmbH Somera Communications
FINANCIAL SERVICES Atlas Copco
- ------------------ Simkar Corporation
BoE Bank Limited Centex Homes RETAIL
CIBC World Markets ------
The Common Fund for Nonprofit TELECOMMUNICATIONS
Organizations ------------------ Wickes Building Supply Supplies Limited
Dresdner RCM Global Investors (UK) Ltd Warehouse Stationery
Farm Credit Services Alcatel e-Business Distribution GmbH
Grantham, Mayo, Van Otterloo & Co. LLC Belgacom France
The Principal Financial Group FLAG Telecom Ltd.
Raymond James Ltd Hitachi Telecom (USA), Inc.
The Bankers Bank
Bank Enteniel
OTHER SERVICES
--------------
HEALTH CARE Miller Heiman, Inc.
- ----------- Metropolitan Nashville Government and
Marriott International (Senior Living Intrawest Corporation
Services) Televerde
McKesson Corporation Total Information Systems (DAC Services)
NDC Health Information Services Metropolitan Nashville Government and
Mental Health Cooperative Inc. Davidson County
Kronos
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SALES AND MARKETING
We sell our products through a direct sales force and over 50 independent
members of the Pivotal Partner Program that resell our products. Our direct
sales force is located in the United States, Canada, the United Kingdom, France,
Germany, Australia, New Zealand, and Japan. Members of the Pivotal Partner
Program are located worldwide in North and South America, Europe, the Middle
East and Asia. The Pivotal Partner Program is comprised of consulting and
technology companies, progressive product development organizations, market
leaders, and regional consulting and sales firms that meet our criteria for
inclusion.
Our marketing efforts are directed at promoting our products and services,
creating market awareness and generating leads. Our marketing activities include
Internet business seminars, print and Internet advertising campaigns and
attendance at industry trade show events and trade conferences. We use the
Internet extensively to communicate with potential customers, existing
customers, partners and others. We also conduct comprehensive public relations
programs that establish and maintain relationships with key trade press,
business press and industry analysts. We have a customer communications team
targeted at working directly with our customers to obtain feedback and to track
ongoing customer success stories. This team also performs a series of surveys on
each customer to assess the customer's satisfaction with our products and to
anticipate any further needs of the customer.
STRATEGIC RELATIONSHIPS
Our partner strategy within Pivotal is focused on driving revenue from our
relationships - both for Pivotal and the partner organizations that are our
valued partners. Our partner strategy includes the deployment of a partner
program designed to:
(a) better serve our customers;
(b) broaden our product offering; and
(c) extend our market reach.
Pivotal's Partner Program is a comprehensive program to promote and retain
professional experts in all facets of the Customer Relationship Management
market. The Pivotal Partner Program is designed to meet the above objectives
through three separate programs focused on Consulting Alliances, Solutions
Alliances, and Market Alliances. As a result, we are able to provide companies
around the world with a comprehensive set of advanced technologies and services
for leveraging leading edge technology and best practices in their related
fields. During 2002, we launched these new programs and in the process clarified
our overall partner strategy. To that end, we also reduced the number of
partners in the Pivotal Partner Program by 50% to ensure that the relationships
are profitable and successful for both parties. We now believe we have the right
partners for our corporate strategy.
Partner Programs
Our Partner Program comprises the following three categories: Consulting
Alliances, Solution Alliances, and Market Alliances.
Consulting Alliances. Our Consulting Alliances are highly skilled services-based
organizations that implement enterprise level Pivotal products. These system
integrators typically operate in multiple geographic locations, and have
experience in working with Global 2000 companies. Consulting Alliances provide
their expertise to our customers including overall strategy, business process
design and analysis, application integration and training, return on investment
analysis and vertical market expertise. There are three levels of partners in
the Consulting Alliance Partner community: Peak; Premier; and Regional.
Solution Alliances. To further extend Pivotal's breadth of product and
technology offerings, Pivotal has developed the Solutions Alliance Partner
Program. Pivotal has established relationships with industry leaders in
technology, intelligence, applications and business services. Pivotal and these
partners develop, market, sell and deliver comprehensive Customer Relationship
Management solutions. There are three types of partner within the Solution
Alliance Partner community: Platform, Product, and PivotalHost. The Product
alliance partner community is further broken down into three categories of
partners: Original Equipment Manufacturer, Peak and Base. We also offer an
Application Service Provider solution specific to the Pivotal products provided
as a component of the PivotalHost partnership.
Market Alliances. Market Alliances provide additional market presence for both
the partner and Pivotal. This program is diverse in nature and allows numerous
types of companies to join forces with Pivotal to gain market share. Our Market
Alliance partnerships are focused on ways to increase brand awareness and drive
Pivotal products into new and existing customers through higher visibility in
the market. There are two levels of Market Alliance Partners: Peak and Base,
which each have varying responsibilities and commitments.
-13-
KEY RELATIONSHIPS
MICROSOFT
Pivotal maintains a strong product development and business partnership with
Microsoft as measured by Pivotal's business growth on the Microsoft platform.
Pivotal has been recognized by Microsoft in the past, winning four Microsoft
Industry Solution awards, and today remains one of Microsoft's top three SQL
license revenue generators, as well as a major reseller of .Net servers. Our
relationship spans sales, marketing and customer support, and includes:
- Technology Sharing - Pivotal is a recognized leader in exploiting and
adopting Microsoft's .Net initiative, and is highly involved in .Net
advanced product development. In return, Pivotal helps drive the
adoption of advanced Microsoft technologies in the marketplace,
providing credible, real-world deployments that Microsoft can leverage
to support their marketing campaigns.
- Competitive Selling - Pivotal leverages support from Microsoft's
specialized competitive sales teams and consulting services to help
win deals in the marketplace. In return, Pivotal helps Microsoft
realize its goals by selling into companies that traditionally support
IBM, Sun or Oracle products and services.
- Premier Support for Developers - In August 1997, Pivotal joined the
Premier Support for Developers pilot program and has played a key role
in helping to evolve it. Pivotal holds a two-year board position on
Premier Support's exclusive Customer Council to make recommendations
on enhancing and improving Microsoft Premier Support.
- International Partnership - Pivotal has a worldwide alliance with
Microsoft, including Microsoft's offices in Japan, Malaysia,
Singapore, Australia, Taiwan, Hong Kong, China, India, South America,
Germany, France and the UK.
While we believe that there will not be significant overlap with the present
market for our products, we may in future be faced with direct competition from
Microsoft, as it has announced its intention to launch a competing product in
the mid-market for Customer Relationship Management products. See "Risk
Factors."
INTEL
Pivotal and Intel have a global alliance that spans marketing, sales and
technology, and assists customers in overcoming information technology
challenges by delivering support, platform and communication expertise, in
addition to advanced technology access. Intel supports Pivotal's commitment to
delivering business results/impact from Customer Relationship Management, by
providing mid-sized enterprises with high-performance, fully optimized, rapidly
deployable Customer Relationship Management that offers exceptionally low total
cost of ownership.
- Advanced Technology - Intel extends Pivotal's products with access to
advanced technology, such as innovative telephony products for call
centers. In return, Pivotal increases Intel revenues through sales of
Intel server processors, computer telephony and by supporting Intel
architecture.
- Advanced Architecture - Intel validates Pivotal's technology
architecture and platform, primarily through testing and knowledge
transfer in the areas of extensibility, reliability, scalability and
availability. In return, Pivotal helps drive the adoption of advanced
Intel technologies in the marketplace. In fact, Pivotal is a major
Intel independent software vendor in the growing Customer Relationship
Management market, with the majority of Pivotal's over 1400 customers
running their business on Intel architecture.
- Broad Technology Reach - Customers benefit from the wider technology
expertise that Intel can bring in areas such as network
infrastructure. In return, Pivotal helps Intel realize their goals by
selling into companies that traditionally support Sun products and
services.
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CAP GEMINI ERNST & YOUNG
In May 2001, we signed a strategic alliance agreement with Cap Gemini Ernst &
Young, one of the largest management and information technology consulting firms
in the world. Cap Gemini Ernst &Young is a Pivotal worldwide partner that has
been recognized in the industry as both a Customer Relationship Management
thought leader and a leader in providing Customer Relationship Management
services. With a strong understanding of industry-specific best practices and
extensive breadth and depth of industry experience, Cap Gemini Ernst &Young is
Pivotal's global partner of choice.
While Pivotal leverages Cap Gemini Ernst &Young's global resource base and brand
recognition to extend our reach to a worldwide audience, Pivotal provides Cap
Gemini Ernst &Young with further access to the underserved and growing mid-size
enterprise market for Customer Relationship Management. Customers gain the
choice of engaging a reliable, experienced worldwide consultant that can
leverage Microsoft's Accelerated Development Centers to reduce delivery time and
integration risk.
As part of our strategic alliance agreement with Cap Gemini Ernst & Young, we
committed to utilize a minimum amount of Cap Gemini Ernst & Young services
during fiscal 2001 and 2002. Following our corporate restructuring, we
re-focused our business activities so that we are no longer utilizing the Cap
Gemini Ernst & Young services in the manner originally contemplated. As a
result, we incurred a restructuring charge on our fiscal 2002 financial
statements for the remaining contractual obligation.
TECHNOLOGY
Our software architecture provides a foundation for the development of new and
innovative products and allows our products to be easily adaptable, to operate
with other applications and to address the needs of users on multiple computing
devices. This software architecture also allows our products to be used over the
Internet. We have invested in the following technologies which serve as a basis
for our Customer Relationship Management products and services:
- Microsoft Technology. Our products are optimized for the Microsoft
Windows NT, Microsoft Windows 2000 and Microsoft BackOffice platforms.
Our focused development efforts have enabled us to create products
that exploit the capabilities of Microsoft's products, including SQL
Server, that are bundled and licensed with our products. We also
created a direct link between our products' databases and Microsoft
Outlook that allows our customers to use the familiar interface of
Microsoft Outlook to update their calendar, tasks and contact
information. In addition, our products use Microsoft Internet
technologies to publish information across the Internet.
- Intelligent Internet Architecture. Our products are based on such open
Internet standards such as eXtensible Markup Language (XML) and Simple
Object Access Protocol (SOAP), directly incorporating Internet
technologies within our platform architecture, and allowing our
customers to communicate securely using Internet protocols both within
and beyond the enterprise. Our products are also structured to support
multiple network environments and user access methods, such as
wireless devices and electronic mail. This allows our customers the
flexibility to implement a product for their specific environment in
an industry standard fashion, and facilitates integration with other
systems and technologies.
- Internet Commerce Platform. Pivotal Interactive Selling Suite, an
electronic sales channel for delivering a personalized, one-to-one
buying experience, implements an object-oriented database to store
complex product and selling relationships, with a scalable middle tier
supporting both declarative and procedural rule definition, rendered
via eXtensible Markup Language (XML) as a Web commerce application. We
believe that this is a powerful and cost-effective architecture and
data representation for selling complex products and managing the
rules associated with this process.
- Metadata Repository. Our software stores data in two separate
databases: the metadata database, (which contains data structure,
forms, lists, business rules and workflow), and the customer data
database. By separating the data from the metadata, the Pivotal
application can be rapidly and easily customized using graphical tools
- there is no need for source code modifications - to meet changing
organizational needs with no disruption to the rest of the system or
end users. In addition, a business can distribute custom application
changes throughout its organization in the normal data synchronization
process. We believe these benefits differentiate our product from
those of our competitors.
- Pivotal SyncStream. Our SyncStream technology captures any additions,
modifications or deletions to our application and the shared corporate
database and transmits only the net changes to the appropriate users.
This technology eases the deployment of new applications, minimizes
the connection costs associated with the synchronization of data,
transmits changes securely and enables mobile users to receive the
correct data when synchronizing.
-15-
- Distributed Database Design. Our technology is designed to support
various databases that reside on multiple servers, including both
Microsoft SQL Server and Oracle 8i. Due to our distributed database
design, data from the central database can be replicated to servers in
different locations and on various mobile remote databases (eg.
laptops), and can be updated by our SyncStream. This allows for
scalability and configuration flexibility as customers can upgrade
network hardware and software in a modular fashion with minimal loss
of performance and downtime.
- Pivotal Enterprise Manager. Our Enterprise Manager provides
centralized configuration management through a graphical user
interface. The Enterprise Manager enables system administrators to
audit and apply configuration changes to the application, manage and
test customization changes off-line and replicate custom data sets for
mobile users. From a single interface, customers can distribute an
updated system online across the entire enterprise without downtime
for users.
RESEARCH AND DEVELOPMENT
Our research and development department is divided into six functional areas:
Advanced Technology; Software Development; Documentation; Quality Assurance;
Program Management; and Product Management. As of June 30, 2002, there were 121
employees in our research and development department. Where appropriate, we
contract with third-party developers to expand the capacity of our research and
development department.
For the years ended June 30, 2002, 2001 and 2000, we spent approximately $17.0
million, $18.8 million and $8.9 million, respectively, on research and
development.
Our software development approach consists of a methodology that provides
guidelines for planning, controlling and implementing projects. Our advanced
technology team focuses on tracking and evaluating new technologies with a view
to incorporating the best technologies available into our products. Our product
management team gathers and documents market requirements and trends in a
requirements analysis. After the requirements analysis has been reviewed for
feasibility and the proposed project approved by management, a product team is
established to implement the project. Our program management team takes
responsibility for documenting a detailed product specification. The software
development team may build prototypes to assess the risks and business
requirements of a project and then concentrates on research and development
activities. Through the later stages of development we perform final testing and
quality assurance. Our program and product management teams are involved at all
stages of development so that market requirements continue to be addressed. The
program and product management teams also assist with the introduction of the
product by training our direct sales force and internal professional services
staff.
We place particular emphasis on quality assurance and testing throughout the
development process. We use version control software as well as standard test
tools, scripts and agents developed by us in order to automate our testing
processes and increase the quality of code we develop.
COMPETITION
The market for our software is intensely competitive and rapidly changing.
Competition for any given customer may involve competition as to price, features
and other factors specific to the needs of that customer. We face competition
from companies in the Customer Relationship Management software market and in
the overall enterprise business application market. Some competitors include
Siebel Systems Inc., Oracle Corporation, SAP AG, Onyx Corporation and
PeopleSoft, Inc.
Other competitors may enter the market by developing or acquiring new products
and applications.
Microsoft has entered the Customer Relationship Management market with their
Microsoft Customer Relationship Management product, which is designed for small
and mid-sized businesses. Microsoft has indicated that it will directly compete
in the Customer Relationship Management market for mid-sized enterprises. If
Microsoft becomes our competitor, it may harm or end our co-marketing and
co-selling initiatives with Microsoft. Such competition with Microsoft could
likely have a material adverse affect on our business, market share, financial
condition and results of operations.
In addition, as we develop new products, particularly applications focused on
electronic commerce or on specific industry segments, we may begin competing
with companies with whom we have not previously competed. It is also possible
that new competitors will enter the market or that our competitors will form
alliances that may enable them to rapidly increase their market share. Some of
our actual and potential competitors are larger, better established companies
that have greater technical, financial and marketing resources. Increased
competition may result in price reductions, lower gross margins or loss of our
market share, any of which could materially adversely affect our business,
financial condition and operating results.
-16-
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We rely on a combination of copyright, trade secret and trademark laws,
confidentiality procedures, contractual provisions and other similar measures to
protect our proprietary information and technology. We do not currently hold any
patents nor do we have any patent applications pending. There can be no
assurance that any copyrights or trademarks held by us will not be challenged or
determined to be invalid.
As part of our confidentiality procedures, we have a policy of entering into
non-disclosure and confidentiality agreements with our employees, consultants,
corporate alliance members, customers and prospective customers. We also enter
into license agreements with respect to our technology, documentation and other
proprietary information. These licenses are perpetual and are generally
transferable subject to obtaining our prior consent. Despite the efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain the use of our products or technology that we consider
proprietary and third parties may attempt to develop similar technology
independently. We pursue registration and protection of our trademarks primarily
in the United States, although we do seek protection elsewhere in selected key
markets. Effective protection of intellectual property rights may be unavailable
or limited in some countries. The laws of some countries do not protect our
proprietary rights to the same extent as in the United States and Canada. There
can be no assurance that protection of our proprietary rights will be adequate
or that our competitors will not independently develop similar technology.
We anticipate that companies that develop software applications will be subject
to infringement claims as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. As a result, we may become involved in these claims. Any of these
claims, with or without merit, could result in costly litigation, divert our
management's time, attention and resources, delay our product shipments or
require us to enter into royalty or license agreements. If a claim of product
infringement against us is successful, our business and operating results could
be seriously harmed.
EMPLOYEES
As of June 30, 2002 we had a total of 521 employees, excluding independent
contractors and temporary employees. Of this number, 121 people were engaged in
research and development, 165 people were engaged in sales and marketing, 149
people were engaged in professional services and 86 people were engaged in
general administration. No employees are known by us to be represented by a
collective bargaining agreement and we have never experienced a strike or work
stoppage. We consider our employee relations to be good. Our ability to achieve
our financial and operational objectives depends in large part upon our ability
to attract, retain and motivate highly qualified sales, technical and managerial
personnel. There can be no assurance that we will be able to attract and retain
such employees in the future.
IMPORTANT FACTORS THAT MAY AFFECT OUR BUSINESS, OUR RESULTS OF OPERATIONS AND
OUR SHARE PRICE.
Holders of our common shares are subject to the risks and uncertainties inherent
in our business. You should consider the following factors, as well as other
information set forth in this report, in connection with any investment in our
common shares. If any of the risks described below occurs, our business, results
of operations and financial condition could be adversely affected. In such
cases, the price of our common shares could decline, and you could lose all or
part of your investment.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements or other future events. Moreover, neither
we nor anyone else assumes responsibility for the accuracy or completeness of
forward-looking statements. You should consider our forward-looking statements
in light of the following risk factors and other information in this report. If
any of the risks described below occurs, our business, results of operations and
financial condition could differ from those projected in our forward-looking
statements. We are under no duty to update any of our forward-looking statements
after the date of this report. You should not place undue reliance on
forward-looking statements.
FACTORS RELATING TO OUR BUSINESS AND THE MARKET FOR CUSTOMER RELATIONSHIP
MANAGEMENT AND ELECTRONIC BUSINESS PRODUCTS MAKE OUR TOTAL REVENUE AND FUTURE
OPERATING RESULTS UNCERTAIN AND MAY CAUSE THEM TO FLUCTUATE FROM PERIOD TO
PERIOD.
Our operating results have varied in the past, and we expect that they may
continue to fluctuate in the future. In addition, our operating results may not
follow any past trends. Some of the factors that could affect the amount and
timing of our revenues from software licenses and related expenses and cause our
operating results to fluctuate include:
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o general economic conditions, which may affect our customers' capital
investment levels in management information systems;
o changes in the economy and foreign currency exchange rates;
o market acceptance of our products;
o the length and variability of the sales cycle for our products, which
typically ranges between two and eight months from our initial contact
with a potential customer to the signing of a license agreement;
o the size and timing of customer orders, which can be affected by
customer order deferrals in anticipation of new product introductions,
product enhancements, and customer budgeting and purchasing cycles;
o our ability to successfully expand our sales force and marketing
programs;
o increases in the cost of software and professional services;
o our ability to successfully expand our international operations;
o the introduction or enhancement of our products or our competitors'
products;
o changes in our or our competitors' pricing policies;
o activities of and acquisitions by competitors;
o our ability to develop, introduce and market new products on a timely
basis and control our costs; and
o customer satisfaction and our reputation relating to our products and
services.
One or more of the foregoing factors may cause our operating expenses to be
disproportionately high during any given period or may cause our net revenue and
operating results to fluctuate significantly. Based upon the preceding factors,
we may experience a shortfall in revenue or earnings or otherwise fail to meet
public market expectations, which could materially and adversely affect our
business, financial condition, results of operations and the market price of our
common shares.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE DUE TO SEASONAL TRENDS AND
VARIATIONS IN THE FISCAL OR QUARTERLY CYCLES OF OUR CUSTOMERS.
Our total revenue and operating results may vary significantly from quarter to
quarter. The main factors that may affect these fluctuations are: o seasonal
variations in operating results;
o variations in the fiscal or quarterly cycles of our customers;
o the discretionary nature of our customers' purchase and budget cycles;
o the size and complexity of our license transactions;
o the potential delays in recognizing revenue from license transactions;
and
o the timing of new product releases.
We have experienced, and expect to continue to experience, seasonality with
respect to product license revenues. Except for the year ended June 30, 2001, we
have historically recognized more license revenues in the fourth quarter of our
fiscal year and recognized less license revenues in the subsequent first
quarter. We believe that these fluctuations are caused in part by customer
buying patterns and the efforts of our direct sales force to meet or exceed
fiscal year-end quotas. In addition, our sales in Europe are generally lower
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during the summer months than during other periods. We expect that these
seasonal trends are likely to continue in the future. If revenues for one
quarter are lower than the revenues for the prior quarter, it may be hard to
determine whether the reason for the reduction in revenues involves seasonal
trends or other factors adversely affecting our business.
Our product revenues are not predictable with any significant degree of
certainty and future product revenues may differ from historical patterns. If
customers cancel or delay orders, it can have a material adverse impact on our
revenues and results of operations from quarter to quarter. Because our results
of operations may fluctuate from quarter to quarter, you should not assume that
you could predict results of operations in future periods based on results of
operations in past periods.
Even though our revenues are difficult to predict, we base our expense levels in
part on future revenue projections. Many of our expenses are fixed, and we
cannot quickly reduce spending if revenues are lower than expected. This could
result in significantly lower income or greater loss than we anticipate for any
given period. We will react accordingly to minimize any impact.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT HOW OUR BUSINESS
WILL DEVELOP AND FUTURE OPERATING RESULTS.
We commenced operations in January 1991. We initially focused on the development
of application software for pen computers. In September 1994, we changed our
focus to research and development of customer relationship management and
electronic business products.
We have a limited operating history and we face many of the risks and
uncertainties encountered by early-stage companies in rapidly evolving markets.
These risks and uncertainties include, but are not limited to:
o no history of profitable operations except for the quarters ended
March 30, 1998 and June 30, 1998;
o uncertain market acceptance of our products;
o our reliance on a limited number of products;
o the risks that competition, technological change or evolving customer
preferences could adversely affect sales of our products;
o our reliance on third parties to market, install, and support our
products;
o our dependence on a limited number of key personnel;
o our dependence on the adoption and success of the Microsoft .NET
platform;
o the risk that our management will not be able to effectively react to
and manage the changes to Pivotal resulting from the rapidly evolving
market;
o the risk that our management will not be able to identify or
effectively manage acquisitions we have undertaken or may undertake in
the future; and
o a general economic downturn and stock market declines affecting
technology companies.
The new and evolving nature of the customer relationship management and
electronic business market increases these risks and uncertainties. Our limited
operating history makes it difficult to predict how our business will develop
and our future operating results.
WE HAVE A HISTORY OF LOSSES, WE MAY INCUR LOSSES IN THE FUTURE AND OUR LOSSES
MAY INCREASE IF PROJECTED REVENUES ARE NOT ACHIEVED TO SUPPORT THE LEVEL OF
OPERATING EXPENSES.
We have incurred net losses in each fiscal year since inception, except for the
year ended June 30, 1998, in which we had net income of approximately $4,000. As
at June 30, 2002, we had an accumulated deficit of approximately $144 million.
We have decreased our operating expenses in recent periods and initiated
restructuring plans during the twelve months ended June 30, 2002 which we
anticipate will result in a quarterly operating cost structure of approximately
$20.5 million for the quarter ended September 30, 2002. We will continue to
examine the level of operating expenses based on projected revenues. Any planned
increases in operating
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expenses may result in larger losses in future periods if projected revenues are
not achieved. As a result, we will need to generate significantly greater
revenues than we have to date to achieve and maintain profitability. We cannot
be certain that our revenues will increase. Our business strategies may not be
successful and we may not be profitable in any future period.
WE HAVE EXPERIENCED RAPID GROWTH WHICH HAS PLACED A STRAIN ON OUR RESOURCES IN
THE PAST AND HAVE RECENTLY IMPLEMENTED RESTRUCTURING INITIATIVES TO REDUCE OUR
WORKFORCE, FACILITIES AND BUSINESS FUNCTIONS. ANY FAILURE TO EFFECTIVELY MANAGE
THE RAPID CHANGE IN SIZE OF OUR COMPANY COULD CAUSE OUR BUSINESS TO SUFFER.
In the past, we expanded our operations rapidly. The number of our employees
increased from 526 on June 30, 2000 to 714 on June 30, 2001. This expansion
placed a significant strain on our managerial, operational and financial
resources as we integrated and managed new employees, more locations,
acquisitions, more customers, suppliers and other business relationships. In
July 2001 and October 2001, we reduced our workforce to approximately 675 and
525 employees, respectively. During the year ended June 30, 2002, we initiated
corporate restructuring activities, which included a workforce reduction of
employees, representing approximately 26% of our total workforce worldwide,
consolidation of excess facilities and restructuring of certain business
functions. There have been and may continue to be substantial costs associated
with the workforce reduction related to severance and other employee-related
costs, as well as material charges for reduction of excess facilities, and our
restructuring plan may yield unanticipated consequences, such as attrition
beyond our planned reduction in workforce. This workforce reduction has placed
an increased burden on our administrative, operational and financial resources
and has resulted in increased responsibilities for each of our management
personnel. As a result, our ability to respond to unexpected challenges may be
impaired and we may be unable to take advantage of new opportunities. In
addition, many of the employees who were terminated possessed specific knowledge
or expertise, and that knowledge or expertise may prove to have been important
to our operations. In that case, their absence may create significant
difficulties. Further, the reduction in workforce may reduce employee morale and
may create concern among potential and existing employees about job security at
Pivotal, which may lead to difficulty in hiring and increased turnover in our
current workforce, and divert management's attention. In addition, this
headcount reduction may subject us to the risk of litigation, which could result
in substantial costs to Pivotal and could divert management's time and attention
away from business operations. Any failure by us to properly manage this rapid
change in workforce, facilities and business functions could impair our ability
to efficiently manage our business to maintain and develop important
relationships with members of the Pivotal Partner Program and other third
parties and to attract and service customers. It could also cause us to incur
higher operating costs and delays in the execution of our business plan or in
the reporting or tracking of our financial results.
OUR FUTURE REVENUE GROWTH COULD BE IMPAIRED IF WE ARE UNABLE TO EFFECTIVELY
STAFF AND MANAGE OUR DIRECT SALES AND SUPPORT INFRASTRUCTURE.
Our future revenue growth will depend in large part on our ability to
successfully manage our direct sales force, sales processes and sales support
infrastructure and our customer support capability. We may not be able to
recruit and train experienced direct sales, consulting and customer support
personnel. If we are unable to hire and retain highly skilled direct sales
personnel we may not be able to increase our license revenue to the extent
necessary to achieve profitability. If we are unable to hire highly trained
consulting and customer support personnel we may be unable to meet customer
demands.
ECONOMIC CONDITIONS COULD ADVERSELY AFFECT OUR REVENUE GROWTH AND ABILITY TO
FORECAST REVENUE
Our revenue growth and potential for profitability depend on the overall demand
for customer relationship management software and services. Because our sales
are primarily to corporate customers, we are also affected by general economic
and business conditions. A softening of demand for computer software caused by
the weakened economy, both domestic and international, has affected our sales
and may result in decreased revenues and growth rates. As a result of the
economic downturn, we have also experienced and may continue to experience
difficulties in collecting outstanding receivables from our customers. In
addition, the terrorist attacks on the United States in 2001, and the armed
conflict that has followed, have added or exacerbated economic, political and
other uncertainties, which could adversely affect our sales and thus our revenue
growth.
Our sales force monitors the status of proposals, such as the date when they
estimate that a transaction will close and the potential dollar amount of such
sale. We aggregate these estimates regularly in order to generate a sales
forecast and then evaluate our forecast against actual results at various times
to look for trends in our business. While this analysis provides us with
information about our potential customers and the associated revenues for
budgeting and planning purposes, these estimates may not consistently correlate
to revenues in a particular quarter or over a longer period of time. In
particular, as a result of the economic slowdown, we believe that a
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number of our potential customers may delay or cancel their purchases of our
software, consulting services or customer support services or may elect to
develop their own customer relationship management product. A variation in the
conversion of the sales proposals into contracts could adversely affect our
business and operating results. In addition, because a substantial portion of
our sales are completed at the end of the quarter, and often in the last weeks
or days of a quarter, we may be unable to adjust our cost structure in response
to a variation in the conversion of the sales proposals into contracts in a
timely manner, which could adversely affect our business and operating results.
WE DEPEND UPON MICROSOFT AND THE CONTINUED ADOPTION AND PERFORMANCE OF THE
MICROSOFT .NET PLATFORM.
We have designed our products to operate on the Microsoft .NET platform,
including Windows .NET and .NET Enterprise Servers. Microsoft .NET is a new
platform initiative of Microsoft announced in June 2000. We have spent
considerable resources developing and testing the compatibility of our products
for Microsoft .NET. As a result, with the exception of our Oracle product, we
market our products exclusively to customers who have developed their computing
systems around this platform. However, the performance of our products with
Windows .NET and the .NET Enterprise Servers has limited experience in the
marketplace
Our future financial performance will depend on the continued growth and
successful adoption of Microsoft .NET including Windows .NET and the .NET
Enterprise Servers. Microsoft .NET faces competition, particularly from
computing platforms such as Unix and the Java 2 Platform, Enterprise Edition
(J2EE), and databases from companies such as Oracle. Acceptance of Microsoft
..NET may not continue to increase in the future. The market for software
applications that run on these platforms has in the past been significantly
affected by the timing of new product releases, competitive operating systems
and enhancements to competing computing platforms. If the number of businesses
that adopt Microsoft Windows .NET fails to grow or grows more slowly than we
currently expect, or if Microsoft delays the release of new or enhanced
products, our revenues from the Pivotal CRM Suite could be adversely affected.
The performance of our products depends, to some extent, on the technical
capabilities of the Microsoft .NET platform. If this platform does not meet the
technical demands of our products, the performance or scalability of our
products could be limited and, as a result, our revenues from the Pivotal CRM
Suite could be adversely affected.
In 2001, we launched a global business development initiative with Microsoft
aimed at leading the emerging customer relationship management and electronic
business market. The success of this initiative will depend on the ability of
Pivotal and Microsoft to jointly market and sell to Global 2000 companies the
Pivotal CRM Suite combined with Microsoft .NET Enterprise Servers. However,
Microsoft's intention to deliver a product called Microsoft(R) Customer
Relationship Management that may directly compete with our products would likely
adversely affect our global business initiative with Microsoft and might result
in a termination of such relationship.
In addition, Microsoft has been faced with significant legal issues. Broad
antitrust actions initiated by federal and state regulatory authorities resulted
in a verdict against Microsoft in the U.S. District Court for the District of
Columbia. The U.S. District Court adopted the government's proposed remedy and
held that Microsoft should be divided into two companies. Microsoft appealed
this verdict to the U.S. Court of Appeals for the District of Columbia. The U.S.
Court of Appeals affirmed the U.S. District Court's findings of antitrust
violations, but overturned the ruling that Microsoft should be divided into two
companies. The U.S. Court of Appeals also removed the judge presiding over this
matter in the U.S. District Court and remanded to the U.S. District Court the
determination as to what remedies should be pursued against Microsoft. Microsoft
appealed this finding of a violation of antitrust laws to the U.S. Supreme
Court, but this appeal was denied.
In November 2001, the Justice Department and Microsoft entered into a settlement
agreement that would avoid breaking-up Microsoft as a remedy to the case. Only
nine of the 18 states involved in the antitrust actions against Microsoft,
however, agreed to be a party to such a settlement. Before the settlement can
become effective, the U.S. District Court must permit a public comment period
and, thereafter, the U.S. District Court must certify that the settlement
between the parties serves the public interest. The deadline for comments
regarding the settlement ended on January 28, 2002, and the U.S. District Court
ordered the Justice Department to summarize the comments for the U.S. District
Court and publish them all in the Federal Register within 30 days. The Justice
Department released a summary of the comments on February 27, 2002. Upon
reviewing the comments, the Justice Department and Microsoft agreed to certain
modifications to clarify aspects of the proposed settlement. The proposed
settlement contains certain prohibitions on the actions the U.S. Court of
Appeals determined were acts of monopoly maintenance, precludes other practices
that Microsoft might engage to impede threats and imposes affirmative
obligations on Microsoft, which the Justice Department believes create favorable
conditions under which competing products can be developed and deployed. The
proposed settlement was submitted to the U.S. District Court for approval on
February 27, 2002, and a decision has not yet been rendered by the U.S. District
Court.
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European Union regulators are currently investigating whether Microsoft has
violated European antitrust laws. Any outcome to these actions that weakens the
competitive position of Microsoft .NET products could adversely affect the
market for our products.
THE MARKET FOR OUR PRODUCTS IS HIGHLY COMPETITIVE AND COULD INCLUDE COMPETITION
FROM MICROSOFT.
The market for our software is intensely competitive and rapidly changing. The
past year has been one of vendor consolidation. Today, the direct competitors
are fewer in number as companies are looking for business technology products
that deliver rapid results. We face competition from companies in the Customer
Relationship Management software market and in the overall enterprise business
application market. Some of our actual and potential competitors are larger,
better-established companies and have greater technical, financial and marketing
resources. Increased competition may result in price reductions, lower gross
margins or loss of our market share, any of which could materially adversely
affect our business, financial condition and operating results. Some competitors
include Siebel Systems Inc., Oracle Corporation, SAP AG, Onyx Corporation and
PeopleSoft, Inc.
In addition, on February 26, 2002, Microsoft announced that later in 2002 it
intends to deliver a product called Microsoft(R) Customer Relationship
Management (CRM) which, according to Microsoft at that time, would be
specifically designed for the needs of small and medium-sized business
customers. We believed at that time that the target market for the Microsoft
Customer Relationship Management product was different from our target market.
However, on July 11, 2002 Microsoft further explained its overall Customer
Relationship Management business strategy and indicated that its Customer
Relationship Management product could eventually be targeted to the mid-market
of the Customer Relationship Management software market; therefore, while we
believe that there will not be significant overlap with the present market for
our products, our products could be faced with direct competition from
Microsoft, which could have a material adverse effect on our revenues and
results of operations.
In addition, as we develop new products, particularly applications focused on
electronic commerce or specific industries, we may begin competing with
companies with whom we have not previously competed. It is also possible that
new competitors will enter the market or that our competitors will form
alliances that may enable them to rapidly increase their market share.
THE MARKET FOR PIVOTAL EPOWER LIFECYCLE ENGINE - ORACLE EDITION IS UNKNOWN.
On August 14, 2001, we announced the availability of and began selling our
Pivotal ePower Lifecycle Engine - Oracle Edition whereby our product can now be
implemented using Oracle-based platforms and technologies. We do not know
whether it will result in any material revenue for us.
THE SUCCESS OF OUR STRATEGIC ALLIANCE WITH CAP GEMINI ERNST & YOUNG IS UNKNOWN.
We entered into a strategic alliance agreement with Cap Gemini Ernst & Young in
May 2001 whereby we jointly market and sell the Pivotal CRM Suite. As part of
our strategic alliance agreement with Cap Gemini Ernst & Young, we committed to
utilize a minimum amount of Cap Gemini Ernst & Young services during fiscal 2001
and 2002. Following our corporate restructuring, we re-focused our business
activities so that we are no longer utilizing the Cap Gemini Ernst & Young
services in the manner originally contemplated. As a result, we incurred a
restructuring charge on our fiscal 2002 financial statements for the remaining
contractual obligation. We do not know if this will prove to be a successful
relationship in the future or if it will result in any material revenue for
Pivotal.
THE MARKET FOR OUR PRODUCTS IS NEW AND HIGHLY UNCERTAIN AND OUR PLAN TO FOCUS ON
INTERNET-BASED APPLICATIONS AND INTEGRATE ELECTRONIC COMMERCE FEATURES ADDS TO
THIS UNCERTAINTY.
The market for customer relationship management and electronic business products
is still emerging and continued growth demand for and acceptance of the Pivotal
CRM Suite remains uncertain. Even if the market for customer relationship
management electronic business products grows, businesses may purchase our
competitors' products or develop their own. We believe that many of our
potential customers are not fully aware of the benefits of the Pivotal CRM Suite
and, as a result, these products and services may never achieve full market
acceptance.
The development of our Internet-based Pivotal CRM Suite for customer
relationship management and electronic business and our plan to integrate
additional features presents additional challenges and uncertainties. We are
uncertain how businesses will use the Internet as a means of communication and
commerce and whether a significant market will develop for Internet-based
customer relationship
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management and electronic business products such as those developed by us. The
use of the Internet is evolving rapidly and many companies are developing new
products and services that use the Internet. We do not know what forms of
products and services may emerge as alternatives to our existing products or to
any future Internet-based customer relationship management and electronic
business products we may introduce. We have spent, and will continue to spend,
considerable resources educating potential customers about our products and
Customer Relationship Management and electronic business software products.
However, even with these educational efforts, market acceptance of our products
may not increase. If the markets for our products do not grow or grow more
slowly than we currently anticipate, our revenues may not grow and may even
decline.
OUR SALES CYCLE IS UNPREDICTABLE AND THE AVERAGE SIZE OF OUR LICENSING
TRANSACTIONS VARIES WIDELY FROM QUARTER TO QUARTER, WHICH COULD HARM OUR
OPERATING RESULTS.
We believe that an enterprise's decision to purchase a customer relationship
management and electronic business product is discretionary, involves a
significant commitment of its resources and is influenced by its budget cycles.
To successfully sell licenses for our products, we typically must educate our
potential customers regarding the use and benefits of customer relationship
management and electronic business products in general and our products in
particular. This education process can require significant time and resources.
Consequently, the period between initial contact and the purchase of licenses
for our products is often long and subject to delays associated with the lengthy
budgeting, approval and competitive evaluation processes that typically
accompany significant capital expenditures.
This sales cycle is variable and subject to significant uncertainty. We have
restructured our sales process to allow some potential customers an evaluation
period during which they may evaluate our software products at no charge prior
to any decision to purchase. We believe that the new evaluation period may
further lengthen our sales cycle. We frequently must invest substantial
resources to develop a relationship with a potential customer and educate its
personnel about our products and services with no guarantee that our efforts
will be rewarded with a sale.
We may encounter reduction in our customers' project sizes, deferral of
purchasing and lack of an urgency to purchase and the overall unpredictability
of customer decision-making. In addition, we may continue to see reductions in
the size of customer orders in the final stages of negotiations as a result of
reduction in the customer's project size. The increase in sales cycle and
varying transaction sizes could harm our operating results.
OUR SUCCESS WILL DEPEND UPON THE SUCCESS OF OUR PRODUCTS.
We anticipate that a majority of our revenues and growth in the foreseeable
future will come from license and service related to sales of our integrated
product suites and standalone products, primarily consisting of Pivotal Sales
Suite, Pivotal Marketing Suite, Pivotal Service Suite, Pivotal Interactive
Selling Suite, and Pivotal Partner Management Suite, as well as industry
specific products. Accordingly, failure of our integrated product suites and
products to gain increased market acceptance and compete successfully would
adversely affect our business, results of operations and financial condition.
Our future financial performance will depend on our ability to succeed in the
continued sale of our integrated product suites, products and related services,
as well as the development of new versions and enhancements of these products.
THE SUCCESS OF OUR PRODUCTS WILL DEPEND UPON THE CONTINUED USE AND EXPANSION OF
THE INTERNET.
Increased sales of our products and any future Internet-based applications and
electronic commerce features we integrate with our current products, will depend
upon the expansion of the Internet as a leading platform for commerce and
communication. If the Internet does not continue to become a widespread
communications medium and commercial marketplace, the demand for our products
could be significantly reduced and our products and any future Internet-based
and electronic commerce features may not be commercially successful. The
Internet infrastructure may not be able to support the demands placed on it by
continued growth. The Internet could lose its viability due to delays in the
development or adoption of new equipment, standards and protocols to handle