ePlus Reports Mixed Financial Results

Revenue was up for the vendor, which makes E-procurement and other enterprise software. But its leasing and software sales were down.
Enterprise software maker ePlus Inc. this week reported that its revenue for fiscal 2005 third quarter jumped 85% to $147.7 million, up from $79.8 million the same time a year ago.

But ePlus' bottom-line results were hit by reduced revenue in its leasing business, the company said. Lease revenue for the quarter fell 13% to $11.1 million, and service fees and other income declined to $2.8 million from $3.6 million for the same quarter in the prior year.

In addition, ePlus reported that its software division was affected negatively by its patent-infringement lawsuit with Ariba Inc. The ePlus suit, filed in May 2004, affected three Ariba products: Ariba Buyer, Ariba Marketplace, and Ariba Category Procurement. Earlier this month a federal court judge ordered Ariba to pay ePlus $37 million after a jury on Feb. 7 found Ariba guilty of infringement on three ePlus software patents for electronic procurement. The court determined Ariba "willfully infringed" three ePlus software patents relating to electronic procurement technology. The judge also ordered Ariba to license the technology from ePlus.

As part of the agreement, ePlus has also obtained a cross-license to all Ariba patents, patent applications, and foreign patent counterparts presently owned by Ariba, and any acquired by Ariba for three years after the settlement date. "The cross-licensing agreement means we can't theoretically go after each other for patent infringements," says Kley Parkhurst, senior VP of corporate development at ePlus.

Ariba executives say the patent settlement isn't an admission of guilt. The company's position is it did nothing wrong and the judgment is in error. Michael Schmitt, executive VP of marketing at Ariba, questions the ability of local courts to decide on technology cases similar to this. "We firmly believe Ariba would have won this case on appeal in a higher court," he says. "When we looked at the appeal process, the legal fees and the time it would take and the affect it would have on Ariba, our development cycle, customers, employees, partners, and shareholders outweighed the cost of settling now."

But Ariba doesn't want the distraction of an appeal hanging over the company. By settling now, customers won't experience disruption in service and Ariba's software-development cycles will continue. Aside from the $37 million settlement, the cost to appeal for up to two years would halt Ariba's ability to sell systems to new customers, and possibly upgrade and expand existing systems.

Ariba in October introduced software features that combine its strength in E-procurement, transaction processing, and analytics with sourcing services and technology patents related to online auctions it acquired from FreeMarkets Inc. when it shelled out more than $500 million for the company. The deal closed in June.

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