JIVE SOFTWARE, INC. - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Edgar Glimpses Via Acquire Media NewsEdge) You should read the following discussion and analysis of our financial condition and results of operations together with the consolidated financial statements and related notes that are included elsewhere in this Form 10-K. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" or in other parts of this Form 10-K.

Overview We provide a social business platform that improves business results by enabling a more productive and effective workforce through enhanced communications and collaboration both inside and outside the enterprise. Organizations deploy our platform to improve employee productivity, enhance revenue opportunities, lower operational costs, increase customer retention and improve strategic decision making. Our platform is offered on a subscription basis, deployable in a private or public cloud and used for internal or external communities. We generate revenues from platform license fees as well as from professional service fees for configuration, implementation and training.

We sell our comprehensive Jive Social Business Platform across two principal communities: internally for employees within the enterprise and externally for customers and partners outside the enterprise. Internally focused communities comprised 65.8% of our Jive Social Business Platform revenues in 2012. As the market for social business software within the enterprise continues to grow, we expect revenues from internally focused communities to continue to be higher than revenues generated from externally focused communities.

We offer our platform both as a public cloud service and as a private cloud solution. In March 2012, we released Jive Cloud, one of our public cloud services that is on a quarterly release cycle and is a non-customizable version of our platform. Additionally, in May 2012, we released Try Jive, a 30-day free trial version of the Jive Cloud offering. Try Jive is a sales enablement tool, targeted at departments within larger organizations with the intent of driving viral adoption organically within the enterprise. In 2012, product revenues from all public cloud deployments, including Jive Cloud, represented 62.8% of total product revenues. With the release of Jive Cloud and Try Jive, we anticipate that, over the long-term, public cloud deployments of our platform will comprise an increasing portion of our business.

Historically, we have generated the largest portion of our revenues from sales to customers within the United States. Revenues from customers in the United States accounted for 77.4% of total revenues in 2012. We are continuing to focus on expanding our sales headcount and channel partners internationally, and we anticipate the percentage of our revenues generated outside of the United States will increase in the future.

In response to our growing customer base outside of the United States, as well as the increase in public cloud deployments, we opened an internally managed data center in the Netherlands in 2012. Additionally, we plan to continue our investment in our hosting infrastructure by opening another internally managed data center in Asia in 2013 as we continue to focus on international expansion in the region.

39 -------------------------------------------------------------------------------- Table of Contents During 2012, we acquired two businesses to enhance and strengthen our platform.

On November 21, 2012, we acquired all of the outstanding shares of Producteev LLC, or Producteev, a cloud-based project and task management company. The total purchase consideration of $7 million was comprised entirely of cash. On November 5, 2012, we also acquired all of the outstanding shares of Meetings.io, a cloud-based real-time video, chat and screen sharing collaboration company.

The total purchase consideration of $3.0 million was comprised of $0.6 million in cash and 211,936 shares of our common stock with a fair value on November 5, 2012 of $2.4 million. We also issued 248,064 shares of common stock subject to repurchase to certain Meetings.io employees which vest over a three-year period contingent upon the continued employment of the recipients. The fair value of these shares on the grant date was $2.8 million, which is being recognized as stock-based compensation over the three-year vesting period.

Also in the fourth quarter of 2012, we entered into a partnership with the consultancy, PwC US, which will pair our social business platform with PwC's consulting services in order to help our customers implement and realize the benefits of our platform. We expect to continue to invest in partnership programs and other indirect sales channels in order to continue to grow our customer base.

Seasonality Our fourth quarter has historically been our strongest quarter for new billings and renewals. This pattern may be amplified over time if the number of customers with renewal dates occurring in the fourth quarter continues to increase.

Furthermore, our quarterly sales cycles are frequently weighted toward the end of the quarter, with an increased volume of sales in the last few weeks of each quarter. The year-over-year compounding effect of this seasonality in billing patterns and overall new business and renewal activity has historically resulted in the value of invoices that we generate in the fourth quarter increasing in proportion to our billings in the other three quarters of our fiscal year. We expect this trend to continue in 2013 and in future years.

Non-GAAP Key Metrics In addition to GAAP metrics such as total revenues and gross margin, we also regularly review billings, a non-GAAP measure, and the number of Jive Social Business Platform customers to evaluate our business, measure our performance, identify trends affecting our business, allocate capital and make strategic decisions.

Billings The following tables set forth a reconciliation of total revenues to billings (dollars in thousands): Year Ended December 31, Dollar 2012 2011 Change % Change Total revenues $ 113,666 $ 77,285 Deferred revenue, end of period 117,047 77,826 Less: deferred revenue, beginning of period (77,826 ) (50,195 ) Billings $ 152,887 $ 104,916 $ 47,971 45.7 % Year Ended December 31, Dollar 2011 2010 Change % Change Total revenues $ 77,285 $ 46,268 Deferred revenue, end of period 77,826 50,195 Less: deferred revenue, beginning of period (50,195 ) (24,617 ) Billings $ 104,916 $ 71,846 $ 33,070 46.0 % We monitor billings, a non-GAAP measure, in addition to other financial measures presented in accordance with GAAP to manage our business, make planning decisions, evaluate our performance and allocate resources. We believe that this non-GAAP measure offers valuable supplemental information regarding the performance of our business, and it will help investors better understand the sales volumes and performance of our business.

40-------------------------------------------------------------------------------- Table of Contents Our use of billings has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for total revenues or an analysis of our results as reported under GAAP. Some of these limitations are: • billings is not a substitute for total revenues, as billings are recognized when invoiced, while revenue is recognized ratably over the contract term; • billings can include fees paid for license terms greater than 12 months and for subscription renewals prior to the expiration of the current subscription term and, therefore, does not always closely match with the timing of delivery of support, maintenance, and hosting services and the costs associated with delivering those services; • changes to the composition of current period billings may impact the correlation of current period billings to future period revenues; • billings would not exclude any agreements that contain customer acceptance provisions or other contractual contingencies that would require deferral of revenue required under GAAP; and • other companies, including companies in our industry, may not use billings, may calculate non-GAAP measures differently or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP measures as comparative measures.

We consider billings a significant performance measure and a leading indicator of future recognized revenue based on our business model of billing for subscription licenses annually and recognizing revenue ratably over the subscription term. The billings we record in any particular period reflect sales to new customers plus subscription renewals and upsell to existing customers, and represent amounts invoiced for product subscription license fees and professional services. We typically invoice our customers for subscription fees in annual increments upon initiation of the initial contract or subsequent renewal. In addition, we also enter into arrangements with customers to purchase subscriptions for a term greater than 12 months, most typically 36 months. For subscriptions greater than 12 months, the customer has the option of being invoiced annually or paying for the full term of the subscription at the time the contract is signed. If the customer elects to pay the full multi-year amount at the time the contract is signed, the total amount billed for the entire term will be reflected in billings. If the customer elects to be invoiced annually, only the amount billed for the 12-month period will be included in billings. The portion of subscription terms under contract and not yet invoiced is considered backlog and is not reflected on our consolidated balance sheet as deferred revenue. As of December 31, 2012 and 2011, we had backlog of approximately $31.3 million and $26.7 million, respectively. Of the $31.3 million in backlog as of December 31, 2012, approximately 24% is expected to be billed and recognized as revenue within 2013.

Billings for consulting services typically occur on a bi-weekly basis as the services are delivered.

The increases in billings in the periods presented were primarily driven by increased upsell of our products to existing customers and the addition of new customers.

Jive Social Business Platform Customers We define the number of platform customers at the end of any given measurement period by counting every customer under active contract for the Jive Social Business Platform that carries a balance in our deferred revenue account at the end of that period. While a single customer may have multiple internal and external communities to support distinct departments, operating segments or geographies, we only include that customer once for purposes of this metric. The Jive Social Business Platform includes Jive Cloud. We believe the number of Jive Social Business Platform customers is a leading indicator of our future revenues, billings and upsell opportunities.

41-------------------------------------------------------------------------------- Table of Contents Our Jive Social Business Platform customer count was as follows: December 31, 2012 2011 Change % Change Jive Platform customer count 800 667 133 19.9 % December 31, 2011 2010 Change % Change Jive Platform customer count 667 590 77 13.1 % Our product revenue growth was 53.3% and 72.5%, respectively in 2012 compared to 2011 and in 2011 compared to 2010. Our product revenues have grown at a faster rate than our customer count as we have realized greater upsell with our existing customers.

Components of Results of Operations Revenues We generate revenues primarily in the form of software subscription fees and professional services for strategic consulting, configuration, implementation and other services related to our software. We offer our products with subscription terms typically ranging from 12 to 36 months. In addition to sales of our platform, our revenues include fees for sales of modules, additional users and page views. While subscription-based licenses make up the substantial majority of our product revenues, in limited instances we license our software to customers on a perpetual basis, with ongoing support and maintenance services. Revenues generated through the sale of subscription licenses also include fees for updates and maintenance. We recognize revenue from professional services ratably over the subscription term when they are bundled with a subscription license, because we do not have fair value of all the various services. These amounts, when recognized, are classified as professional services revenues on our consolidated statements of operations based on the hourly rates at which they are billed.

Cost of Revenues Cost of product revenues includes all direct costs to produce and distribute our product offerings, including data center and support personnel, depreciation and maintenance related to equipment located at our hosting service providers and in our Jive managed data centers, salaries, rent for our data centers, web hosting services expense for public cloud and Jive Cloud implementations, third-party royalty costs, benefits, amortization of acquired intangible assets and stock-based compensation.

Cost of professional services revenues includes all direct costs to provide our professional services, which primarily include salaries, benefits and stock-based compensation for our professional services personnel, as wells as consulting and outside services. We recognize expenses related to our professional services organization as they are incurred, while the majority of associated professional services revenues are recognized ratably over the subscription term.

Cost of revenues also includes allocated overhead costs for facilities and information technology. Allocated costs for facilities consist of rent and depreciation of equipment and leasehold improvements related to our facilities.

Our allocated costs for information technology include costs for compensation of our information technology personnel and the cost associated with our information technology infrastructure. Our overhead costs are allocated to all departments based on headcount.

We expect that cost of revenues may increase in the future depending on the growth rate of our new customers and billings and our need to support the implementation, hosting and support of those new customers. We also expect that cost of revenues as a percentage of total revenues could fluctuate from period to period depending on growth of our services business and any associated costs relating to the delivery of services, the timing of sales of products that have royalties associated with them, the amount and timing of amortization of intangibles from acquisitions and the timing of significant expenditures.

42-------------------------------------------------------------------------------- Table of Contents Research and Development To date, research and development expenses have been expensed as incurred. To the extent that we develop software classified as internal-use in the future, we may be required to capitalize the related development expenses. These expenses include salaries, benefits and stock-based compensation for our engineers and developers, allocated facilities costs and payments to third parties for research and development of new software. We focus our research and development efforts on developing new versions of our platform with new and expanded features and enhancing the ease of use of our platform. We believe that continued investment in our technology is important for our future growth, and, as a result, we expect research and development expenses to increase in absolute dollars although they may fluctuate as a percentage of total revenues.

Sales and Marketing Sales and marketing expenses primarily consist of salaries, incentive compensation and benefits, travel expense, marketing program fees, partner referral fees and stock-based compensation. Sales incentive compensation is recorded as earned as a component of sales and marketing expense. Sales incentive compensation is generally earned at the time a customer enters into a binding purchase agreement while associated revenue is recognized ratably over the subscription term. In addition, sales and marketing expenses include customer acquisition marketing, branding, advertising, customer events and public relations costs, as well as allocated facilities costs. We plan to continue investing heavily in sales and marketing to expand our global operations, increase revenues from current customers, build brand awareness and expand our indirect sales channel. We expect sales and marketing expenses to increase in absolute dollars and remain our largest expense in absolute dollars and as a percentage of total revenues, although they may fluctuate as a percentage of total revenues.

General and Administrative General and administrative expenses primarily consist of salaries, benefits and stock-based compensation for our executive, finance, legal, information technology, human resources and other administrative employees. In addition, general and administrative expenses include legal and accounting services, outside consulting, facilities and other supporting overhead costs not allocated to other departments. We expect that our general and administrative expenses will increase in absolute dollars as we continue to expand our business domestically and internationally and incur additional expenses associated with being a publicly traded company.

Other Expense, Net Other income (expense), net consists primarily of interest expense on our outstanding debt and foreign exchange gains and losses, as well as income related to our investments. In addition, the 2011 and 2010 periods include changes in the fair value of our Series C preferred stock warrants. The Series C preferred stock warrants were exercised late in the third quarter of 2011 and, therefore, we will not incur charges related to these warrants in subsequent periods.

Provision For (Benefit From) Income Taxes Provision for (benefit from) income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign tax jurisdictions. Since we have generated net losses, we have placed a valuation allowance against any potential future benefits for loss carryforwards and research and development and other tax credits.

Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. These principles require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, cash flow and related disclosure of contingent assets and liabilities. Our estimates include those related to revenue recognition, allowance for doubtful accounts, stock-based compensation, lives and recoverability of equipment and other long-lived assets, including goodwill, and accounting for income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

43 -------------------------------------------------------------------------------- Table of Contents We believe that of our significant accounting policies, which are described in Note 2 of Notes to Consolidated Financial Statements included in this Form 10-K, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, we believe these are the most critical to fully understand and evaluate our financial condition and results of operations.

Revenue Recognition We generate revenues in the form of product fees and related professional service fees. Product fees include subscription fees, perpetual license fees, associated support and maintenance fees and hosting fees. Professional services primarily consist of fees for configuration, training, consultation and implementation services, which are not essential to functionality. For statement of operations classification purposes, we allocate revenues to professional services based on the hourly rate billed for time and materials arrangements and based on the total fixed fee for fixed fee professional services. We recognize revenue when all of the following conditions are met: • there is persuasive evidence of an arrangement; • the product or services have been delivered to the customer; • the amount of fees to be paid by the customer is fixed or determinable; and • the collection of the related fees is reasonably assured.

Signed agreements are used as evidence of an arrangement. If a contract signed by the customer does not exist, we have historically used a purchase order as evidence of an arrangement. In cases where both a signed contract and a purchase order exist, we consider the signed contract to be the final persuasive evidence of an arrangement. Software and corresponding license keys are delivered to customers electronically. Electronic delivery occurs when we provide the customer with access to the software. We assess whether a fee is fixed or determinable at the outset of the arrangement, primarily based on the payment terms associated with the transaction. We do not generally offer extended payment terms with typical terms of payment due between 30 and 60 days from delivery of product or services. However, for professional services that are billable under a time and materials based arrangement, these fees are neither fixed nor determinable until the work is performed and the fee becomes billable to the customer. We assess collectability of the customer receivable based on a number of factors such as collection history with the customer and creditworthiness of the customer. If we determine that collectability is not reasonably assured, revenue is deferred until collectability becomes reasonably assured, generally upon receipt of cash.

We offer subscriptions of our solutions to customers most frequently on a term basis with terms typically ranging from 12 to 36 months. While term-based licenses make up the majority of our total revenues, we have occasionally licensed our solutions to customers on a perpetual basis with on-going support and maintenance services. We recognize license revenue in accordance with software industry specific guidance. Revenues related to term license fees are recognized ratably over the contract term beginning on the date the customer has access to the software license key and continuing through the end of the contract term. For term-based licenses, we do not charge separately for standard support and maintenance, and, therefore, inherent in the license fees are fees for support and maintenance services for the duration of the license term. As fees for support and maintenance are always bundled with the license over the entire term of the contract, we do not have vendor-specific objective evidence ("VSOE") of fair value for support and maintenance. Revenues generated from perpetual license sales also include support and maintenance services for an initial stated term, both the perpetual license and support and maintenance are recognized ratably over the initial stated term. We do not have VSOE of fair value for support and maintenance on perpetual licenses as we have not had sufficient consistently priced standalone sales of support and maintenance.

In situations where we have contractually committed to an individual customer specific technology, we defer all of the revenue for that customer until the technology is delivered and accepted. Once delivery occurs, we then recognize the revenue over the remaining contract term.

44-------------------------------------------------------------------------------- Table of Contents License arrangements may also include professional services, such as installation and training services, which are typically delivered early in the contract term. This combination of products and services represents a multiple-element arrangement for revenue recognition purposes. We have determined that we do not have VSOE of fair value for each element of a multiple-element sales arrangement and, accordingly, we account for fees received under that multiple-element arrangement as a single unit of accounting and recognize the fees for the entire arrangement ratably, commencing on delivery of the software, over the longer of the term of the support and maintenance or the period over which professional services are delivered.

Support and maintenance is always the last undelivered element in the arrangement and, therefore, we recognize the fixed portion of the fees ratably over the support and maintenance term. For contracts with multiple elements, we recognize the license, support and maintenance, and fixed fee professional service revenue ratably over the term of the arrangement beginning upon delivery of the software. We believe this method most closely reflects the economics of the transaction as we deliver access to the software and we begin providing support and maintenance services as of the date the software is delivered.

Professional services are offered on both our fixed fee and our time and materials hourly billing arrangements. For time and materials-based professional services that are part of a multiple-element arrangement where the fees for the professional services are not fixed or determinable upon delivery of the software, revenue is recognized ratably over the contract term as the related fees become fixed. These fees are not considered fixed at the outset of the arrangement and become fixed as the related work is performed and the fees are earned and billed. These services are typically provided early in the contract term with completion typically occurring in the first six months. As these fees become fixed, they are added to the total fee for the multiple-element arrangement and recognized ratably with all other arrangement fees over the entire contract term. When billed, a cumulative revenue catch-up is calculated as the revenue earned from the date the software was made available to the customer to the date services have been completed, with recognition continuing ratably to the end of the contract term. These amounts, when recognized in our Consolidated Statements of Operations, are classified as professional services revenues based on the hourly rates at which they are billed. If there are significant acceptance clauses associated with the license or services or uncertainty associated with our ability to perform the professional services, revenues are deferred until the acceptance is received or the uncertainty is resolved. We record amounts that have been invoiced, in accordance with the terms of the agreement, in accounts receivable and in deferred revenues or revenues, depending on whether the revenue recognition criteria have been met.

Hosting revenues are derived from providing our software solutions in a hosted environment where the customer does not take possession of the software on their premises. With the exception of Jive Cloud, customers have the option to elect to take possession of the software and install on their premises or sub-contract the hosting services through us. Such arrangements are considered software sales as the customer has the same rights to the software license regardless of their election to have us host on their behalf or install on their premises. As a result, the fees associated with license, support and hosted services are recognized as revenue ratably over the term of the arrangement. For Jive Cloud licensing arrangements, customers do not have the right to take possession of the software supporting the cloud-based application service at any time.

We occasionally sell professional services separately and recognize revenues resulting from those as professional services are performed. If there is a significant uncertainty about the project completion or receipt of payment for the consulting services, revenues are deferred until the uncertainty is resolved. If acceptance provisions exist within a professional services arrangement, revenues will be deferred until the services are accepted, the acceptance period has expired or cash is received from the customer.

Our policy is to record revenues net of any applicable sales, use or excise taxes.

Allowance for Doubtful Accounts We maintain an allowance for estimated losses resulting from the inability or refusal of our customers to make required payments. In establishing the required allowance, management considers historical losses adjusted to take into account current market conditions and the customers' financial condition, the amount of receivables in dispute, the current receivables aging and current payment patterns. We evaluate the collectability of our accounts receivable balances on a quarterly basis. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts receivable was $0.2 million and $0.1 million at December 31, 2012 and 2011, respectively. Bad debt expense was $0.2 million in 2012 and $0.1 million 2011 and 2010. If the financial conditions of our customers were to materially change or there were other circumstances that resulted in their inability to pay, the estimates of recoverability of receivables could materially change.

45-------------------------------------------------------------------------------- Table of Contents Goodwill Goodwill represents the excess of the purchase price over the estimated fair value of the net tangible and intangible assets of acquired entities. We perform a goodwill impairment test annually during the fourth quarter of our fiscal year and more frequently if an event or circumstance indicates that an impairment may have occurred. Such events or circumstances may include significant adverse changes in the general business climate, among other things. In 2012, we adopted Account Standards Update ("ASU") 2011-08, "Intangibles - Goodwill and Other: Testing Goodwill for Impairment," which allows us to make a qualitative assessment to determine whether it is more likely than not that goodwill is impaired before applying the two-step goodwill impairment test. We elected to forgo step zero, qualitative assessment, and proceed to the first step of the test for goodwill impairment. Step one of the impairment test is performed by determining the reporting unit's fair value based on estimated discounted future cash flows and considering the estimated fair market value of our common stock.

We have determined that we have one reporting unit, which represents the activities of the entire company. If the reporting unit's carrying value is less than its fair value, then the fair value is allocated to the reporting unit's assets and liabilities (including any unrecognized intangible assets) as if the fair value was the purchase price to acquire us. The excess of the fair value over the amounts assigned to our assets and liabilities is the implied fair value of the goodwill. If the carrying amount of goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.

Goodwill of $23.4 million as of December 31, 2012 relates to our acquisitions of Producteev and Meetings.io, which occurred in November 2012, our acquisition of OffiSync, which occurred in May 2011 and to our acquisition of Filtrbox, which occurred in January 2010. Our impairment tests performed in the fourth quarter of 2012, 2011 and 2010 did not indicate any impairment of goodwill as the fair value of our business substantially exceeded its carrying value in all periods presented.

Deferred Tax Asset Valuation Allowance We record deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of the assets and liabilities. Deferred tax assets are reduced by a valuation allowance when it is estimated to become more likely than not that a portion of the deferred tax assets will not be realized. Accordingly, we currently maintain a full valuation allowance against our net deferred tax assets. The valuation allowance totaled $53.4 million and $37.0 million, respectively, as of December 31, 2012 and 2011.

Uncertainty in Income Taxes We recognize the effect of income tax positions only if those positions are "more likely than not" of being sustained. Interest and penalties accrued on unrecognized tax benefits are recorded as tax expense within our consolidated financial statements. At December 31, 2012, we had total unrecognized tax benefits of $0.7 million. All unrecognized tax benefits would currently not have an impact on the effective tax rate if recognized. The interest and penalties accrued on unrecognized tax benefits were insignificant.

Stock-Based Compensation We measure and recognize compensation expense for all share-based payment awards granted to our employees and directors, including stock options and restricted stock, based on the estimated fair value of the award on the grant date. We use the Black-Scholes-Merton valuation model to estimate the fair value of stock option awards. The fair value is recognized as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award.

The determination of the grant date fair value of options using an option-pricing model is affected by our common stock fair value, as well as assumptions regarding a number of other complex and subjective variables, including our expected stock price volatility over the expected term of the options, stock option exercise and cancellation behaviors, risk-free interest rates and expected dividends.

46-------------------------------------------------------------------------------- Table of Contents If any of the assumptions used in the Black-Scholes-Merton model changes significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.

We account for stock options issued to nonemployees based on the estimated fair value of the awards using the Black-Scholes-Merton option pricing model. The measurement of stock-based compensation is subject to quarterly adjustments as the underlying equity instruments vest and the resulting change in fair value is recognized in our consolidated statement of operations during the period the related services are rendered.

Results of Operations Year Ended December 31, (Dollars in thousands, except per share amounts) 2012 2011 2010 Consolidated Statements of Operations Data(1) Revenues: Products $ 100,040 $ 65,265 $ 37,827 Professional services 13,626 12,020 8,441 Total revenues 113,666 77,285 46,268 Cost of revenues: Products 30,240 21,689 9,870 Professional services 14,625 12,596 9,836 Total cost of revenues 44,865 34,285 19,706 Gross profit: Products 69,800 43,576 27,957 Professional services (999 ) (576 ) (1,395 ) Total gross profit 68,801 43,000 26,562 Operating expenses: Research and development 39,190 31,095 18,278 Sales and marketing 60,235 44,794 28,592 General and administrative 16,444 12,795 6,746 Total operating expenses 115,869 88,684 53,616 Loss from operations (47,068 ) (45,684 ) (27,054 ) Total other income, net(2) (339 ) (8,883 ) (495 ) Loss before income taxes (47,407 ) (54,567 ) (27,549 ) Provision for (benefit from) income taxes(3) 28 (3,763 ) 91 Net loss $ (47,435 ) $ (50,804 ) $ (27,640 ) Basic and diluted net loss per common share $ (0.76 ) $ (1.95 ) $ (1.25 ) Shares used in per share calculations 62,614 26,071 22,096 (1) Stock-based compensation was included in our consolidated statements of operations data as follows (in thousands): Year Ended December 31, 2012 2011 2010 Cost of revenues $ 2,035 $ 544 $ 158 Research and development 6,250 2,644 528 Sales and marketing 4,970 3,918 823 General and administrative 4,954 3,316 1,895 Total stock-based compensation $ 18,209 $ 10,422 $ 3,404 (2) Non-cash expense recorded in other income (expense), net included $7.2 million and $0.2 million, respectively, in 2011 and 2010 related to the change in fair value of our preferred stock warrant liability. The preferred stock warrants were exercised during the third quarter of 2011 and, accordingly, we did not incur charges related to this warrant in 2012 and will not incur such charges in future periods.

(3) Benefits from income taxes in 2012 and 2011 include tax benefits of $0.3 million and $3.9 million, respectively, related to the release of valuation allowance on our deferred tax assets in connection with our acquisitions of Meetings.io, Producteev and OffiSync. See Note 11 of Notes to Consolidated Financial Statements.

47 -------------------------------------------------------------------------------- Table of Contents Revenues Certain revenue information was as follows (dollars in thousands): Year Ended December 31, Dollar 2012 2011 Change % Change Products $ 100,040 $ 65,265 $ 34,775 53.3 % Professional services 13,626 12,020 1,606 13.4 % Total revenues $ 113,666 $ 77,285 $ 36,381 47.1 % Year Ended December 31, Dollar 2011 2010 Change % Change Products $ 65,265 $ 37,827 $ 27,438 72.5 % Professional services 12,020 8,441 3,579 42.4 % Total revenues $ 77,285 $ 46,268 $ 31,017 67.0 % Products Revenues The increase in products revenues in 2012 compared to 2011 was primarily the result of an overall increase in the average annual subscription value of a customer, as a result of the realization of greater upsell on our existing customers; and increases in the aggregate number of total customers on the Jive Social Business Platform, including Jive Cloud, which grew from 667 as of December 31, 2011 to 800 as of December 31, 2012. The average new customer subscription size decreased approximately 42% in 2012 compared to 2011, primarily due to the impact of our Jive Cloud offering released in 2012.

Excluding the impact of Jive Cloud, the average new customer subscription size increased approximately 35% in 2012 compared to 2011. While Jive Cloud transactions are typically initially smaller than our traditional public and private cloud transactions, we believe Jive Cloud will contribute to significant upsell opportunities in future periods.

The increase in products revenues in 2011 compared to 2010 was primarily the result of an increase in the average annual subscription transaction size and an increase in the aggregate number of customers on the Jive Platform, which grew from 590 as of December 31, 2010 to 667 as of December 31, 2011. The increase in the average annual subscription transaction size was primarily due to the combination of the effects of upsell transactions with our existing customers and new customer additions, as we continued to focus on initiating and building more strategic and pervasive customer relationships with both our prospects and our existing customers.

Certain information regarding our revenues was as follows: Year Ended December 31, 2012 2011 2010 Dollar value of total revenues generated in the U.S. $ 88.0 million $ 60.7 million $ 36.4 million Percentage of total revenues generated in the U.S. 77.4 % 78.5 % 78.7 % Product revenues from public cloud deployments as a percentage of total product revenues 62.8 % 61.7 % 55.4 % Product revenues from private cloud deployments as a percentage of total product revenues 37.2 % 38.3 % 44.6 % Percentage of Jive Social Business Platform revenues that represented internally focused communities 65.8 % 57.3 % 45.5 % Percentage of Jive Social Business Platform revenues that represented externally focused communities 34.2 % 42.7 % 55.5 % Additionally, renewal rates, excluding upsell, remained above 90% for transactions over $50,000 in 2012, 2011 and 2010.

Professional Services Revenues In 2012 compared to 2011, professional services revenues as a percent of product revenues decreased by 4.8 percentage points as continued enhancements of the core product have decreased the amount of customization requested by customers.

This was also driven by our most recent release, Jive Cloud, a public cloud, non-customizable version of our Jive Platform.

48-------------------------------------------------------------------------------- Table of Contents The increase in professional services revenues in 2011 compared to 2010 was primarily due to increased demand for customization and unique branding related to the increase in overall products revenues. However, the percentage increase in professional services revenues was 30.1 percentage points less than the prior year period increase in products revenues due to the increased mix of products revenues generated from renewals, which typically require less professional services support.

Cost of Revenues and Gross Margin Year Ended December 31, Dollar (Dollars in thousands) 2012 2011 Change % Change Cost of revenues: products $ 30,240 $ 21,689 $ 8,551 39.4 % Products gross margin 69.8 % 66.8 % Cost of revenues: professional services $ 14,625 $ 12,596 $ 2,029 16.1 % Professional services gross margin (7.3 %) (4.8 )% Year Ended December 31, Dollar (Dollars in thousands) 2011 2010 Change % Change Cost of revenues: products $ 21,689 $ 9,870 $ 11,819 119.7 % Products gross margin 66.8 % 73.9 % Cost of revenues: professional services $ 12,596 $ 9,836 $ 2,760 28.1 % Professional services gross margin (4.8 )% (16.5 )% Cost of Revenues: Products The increase in cost of revenues for products in 2012 compared to 2011 was primarily due to the increase in products revenues and included a $3.5 million increase in salaries and benefits related to increased headcount in our operations and support personnel, a $2.2 million increase in depreciation expense related to the build-out of our Phoenix, Arizona data center, a $0.6 million increase in allocations for IT and facilities costs, a $0.8 million increase in subscription and third-party hosting services, a $1.1 million increase in third-party royalties and a $1.2 million increase in intangible asset amortization. These factors were partially offset by a decrease in third-party consulting fees of $0.8 million.

Headcount in our hosting department remained consistent during the year with 31 employees as of December 31, 2012 and 2011. Increased costs in hosting in 2012 compared to 2011 relate to the increase in mix of revenues towards our public cloud deployment models, our programs to scale our public cloud capabilities for future growth and an increase in amortization of acquired intangibles as a result of acquisitions. Additionally, headcount in our support organization grew from 32 as of December 31, 2011 to 50 as of December 31, 2012.

The increase in products gross margin was driven by efficiencies gained through utilization of our internally managed data centers as we continue to transition our existing public cloud customers from a third-party hosting service, as well as deploying our new public cloud customers directly to our managed data centers.

The increase in cost of revenues for products in 2011 compared to 2010 was primarily due to the increase in products revenues and included a $3.2 million increase in salaries and benefits, a $1.6 million increase in third-party hosting services, a $1.2 million increase in third-party royalties, a $0.8 million increase in third-party consulting fees, a $2.3 million increase in acquisition related charges and a $0.7 million increase in allocations for IT and facilities costs. Additionally, transition of our data center infrastructure to a model in which we own our data center equipment resulted in an increase in related depreciation and maintenance expense of $1.5 million.

The decline in products gross margin in 2011 compared to 2010 was attributable to our third-party data center costs and increased headcount in our hosting department due to the increase in mix of revenue towards our public cloud deployment model and scaling for future growth, and an increase in amortization of acquired intangibles.

49 -------------------------------------------------------------------------------- Table of Contents Cost of Revenues: Professional Services In 2012 compared to 2011, cost of revenues for professional services related to salaries and benefits increased $1.8 million and also increased $0.2 million related to travel and consulting costs.

The decrease in the professional services gross margin in 2012 compared to 2011 was primarily due to lower professional service revenues as a percentage of total revenues, as a result of our most recent release, Jive Cloud, which is a non-customizable version of our Jive Platform.

Additionally, we offer professional services on both fixed fee and time and materials hourly billing arrangements. For time and materials-based professional services that are part of a multiple-element arrangement where the fees for the professional services are not fixed or determinable upon delivery of the software, revenue is recognized ratably over the contract term as the related fees become fixed. We also sell professional services separately, outside of multiple-element arrangements, and recognize revenues resulting from those as professional services are delivered. Professional services revenues recognized from non-multiple-element arrangements, as a percentage of total professional services revenues, in 2012 were 9 percentage points less than in 2011, resulting in a greater percentage of the professional services revenues related to professional services performed in the current twelve-month period being recognized ratably over the contract term, which typically extends beyond the current period.

Furthermore, we experienced decreased utilization of our existing full-time professional services employees in 2012 compared to 2011.

The increase in cost of revenues for professional services in 2011 compared to 2010 was primarily due to the increase in professional services revenues, partially offset by improvements related to the improved proportion of full-time professional services employees in relation to the more expensive third-party consultants, and included a $3.0 million increase in salaries and benefits and a $0.2 million increase in allocations for IT and facilities costs, partially offset by a $0.6 million decrease in third-party consulting fees.

The increase in the professional services gross margin in 2011 compared to 2010 was primarily due to the conversion of third-party consultants to full-time employees, as well as increased utilization of our existing full-time professional services employees.

Research and Development Year Ended December 31, Dollar (Dollars in thousands) 2012 2011 Change % Change Research and development $ 39,190 $ 31,095 $ 8,095 26.0 % Percentage of total revenues 34.5 % 40.2 % Year Ended December 31, Dollar (Dollars in thousands) 2011 2010 Change % Change Research and development $ 31,095 $ 18,278 $ 12,817 70.1 % Percentage of total revenues 40.2 % 39.5 % The increase in research and development expenses in 2012 compared to 2011 was primarily due to a $9.5 million increase in salaries and benefits, a $0.7 million increase in allocations for IT and facilities and a $0.4 million increase in subscription services, professional services, and depreciation. The increase in salaries and benefits was a result of increasing our research and development headcount from 136 as of December 31, 2011 to 181 as of December 31, 2012, and includes a $3.6 million increase in stock-based compensation. The increase in 2012 was partially offset by acquisition related expenses incurred in 2011 associated with the acquisition of Proximal Labs, Inc., which included $1.6 million in bonuses, as well as $1.0 million in amortization expense related to in process research and development that was fully expensed at the time of acquisition.

50 -------------------------------------------------------------------------------- Table of Contents The increase in research and development expenses in 2011 compared to 2010 was primarily due to a $10.2 million increase in salaries and benefits, as a result of increased headcount, which included a $2.1 million increase in stock-based compensation and a $1.7 million increase in signing bonuses for new hires associated with acquisitions, a $1.0 million increase in amortization of intangibles related to the Proximal Labs acquisition, a $0.7 million increase in allocations for IT and facilities costs and a $0.8 million increase in miscellaneous costs, such as software subscriptions, depreciation, travel and consulting.

Sales and Marketing Year Ended December 31, Dollar (Dollars in thousands) 2012 2011 Change % Change Sales and marketing $ 60,235 $ 44,794 $ 15,441 34.5 % Percentage of total revenues 53.0 % 58.0 % Year Ended December 31, Dollar (Dollars in thousands) 2011 2010 Change % Change Sales and marketing $ 44,794 $ 28,592 $ 16,202 56.7 % Percentage of total revenues 58.0 % 61.8 % The increase in sales and marketing expenses in 2012 compared to 2011 was primarily due to a $9.8 million increase in salaries and benefits, and includes a $3.7 million increase in commission expense, a $1.2 million increase in travel costs, a $1.1 million increase in stock-based compensation and a $1.0 million increase in allocations for IT and facilities and subscription services, all primarily as a result of increasing our sales and marketing headcount from 127 as of December 31, 2011 to 154 as of December 31, 2012. The increase was also attributable to a $2.0 million increase in general marketing spending related to our Try Jive and Jive Live Tour marketing campaigns, as well as our annual user conference, Jive World. Additionally, a $1.4 million increase in consulting fees contributed to the change.

The increase in sales and marketing expenses in 2011 compared to 2010 was primarily due to a $12.4 million increase in salaries and benefits, which included a $3.1 million increase in stock-based compensation and a $2.9 million increase in sales commissions due to higher sales volume, a $1.2 million increase in travel costs, a $1.1 million increase in tradeshow marketing costs, a $0.9 million increase in allocations for IT and facilities costs, a $0.4 million increase in third-party commissions, and a $0.2 million increase in miscellaneous costs such as software subscriptions.

General and Administrative Year Ended December 31, Dollar (Dollars in thousands) 2012 2011 Change % Change General and administrative $ 16,444 $ 12,795 $ 3,649 28.5 % Percentage of total revenues 14.5 % 16.6 % Year Ended December 31, Dollar (Dollars in thousands) 2011 2010 Change % Change General and administrative $ 12,795 $ 6,746 $ 6,049 89.7 % Percentage of total revenues 16.6 % 14.6 % The increase in general and administrative expenses in 2012 compared to 2011 was primarily due to a $3.6 million increase in salaries and benefits, which was primarily as a result of increased headcount. The increase was also driven by stock-based compensation expense, which generated $1.6 million of the total increase in salaries and benefits. The increase was also due to a $1.9 million increase in facilities expenses, IT expenses, and other miscellaneous professional fees, offset by a $1.9 million increase in overhead allocations out of general and administrative to the other functions based on relative headcount. General and administrative headcount grew from 44 as of December 31, 2011 to 57 as of December 31, 2012.

The increase in general and administrative expenses in 2011 compared to 2010 was primarily due to a $3.1 million increase in salaries and benefits, which included a $1.4 million increase in stock-based compensation expense, a $2.3 million increase in professional fees, such as legal and audit costs, primarily in relation to our initial public offering, a $1.0 million increase in facilities costs, excluding depreciation, a $0.8 million increase in depreciation from both facilities and IT capital additions and a $1.5 million increase in other expenses for travel, consulting fees and miscellanies IT costs. These increases were partially offset by an increase of $2.6 million in overhead allocations out of general and administrative to the other functions based on relative headcount.

51 -------------------------------------------------------------------------------- Table of Contents Other Expense, net Year Ended December 31, Dollar (Dollars in thousands) 2012 2011 Change % Change Other expense, net $ 339 $ 8,883 $ (8,544 ) (96.2 )% Percentage of total revenues 0.3 % 11.5 % Year Ended December 31, Dollar (Dollars in thousands) 2011 2010 Change % Change Other expense, net $ 8,883 $ 495 $ 8,388 NM Percentage of total revenues 11.5 % 1.1 % The change in other expense, net in 2012 compared to 2011 was primarily due to the exercise of the Series C preferred stock warrants in the third quarter of 2011. Accordingly, we did not have income or expense related to these warrants in 2012. The expense related to the Series C preferred stock warrant was $7.2 million in 2011. Additionally, there was a decrease of $1.3 million related to interest expense in 2012 compared to 2011 due to the repayment of our $15 million term loan with Silicon Valley Bank in the fourth quarter of 2011.

The increase in other expense, net in 2011 compared to 2010 was primarily due to a $7.0 million increase in the change in the fair value of the Series C preferred stock warrants and a $1.5 million increase in interest expense.

Interest expense increased as a result of additional borrowing on our line of credit and additional term loans used to fund our acquisition of OffiSync and for general capital expenditures. The Series C preferred stock warrants were exercised during the third quarter of 2011 and, accordingly, we will not have any expense related to these warrants in future periods.

Provision For (Benefit From) Income Taxes Year Ended December 31, (Dollars in thousands) 2012 2011 2010 Provision for (benefit from) income taxes $ 28 $ (3,763 ) $ 91 Percentage of loss before income taxes 0.1 % 6.9 % 0.3 % In 2012, 2011 and 2010, we recorded income taxes that were principally attributable to state and foreign taxes. We currently believe that the recognition of the deferred tax assets arising from future tax benefits as a result of our losses before provision for income taxes is not more likely than not to be realized. We therefore continued to record valuation allowances against our deferred tax assets and, accordingly, benefits generated related to losses were offset by increases in the valuation allowance.

In 2012 and 2011, in connection with the multiple acquisitions, a deferred tax liability of $0.3 million and $3.9 million, respectively, was established for the book and tax basis differences related to specifically identified non-goodwill intangibles. The net liability from the acquisition created an additional source of income to utilize our deferred tax assets and, therefore, a corresponding amount of the valuation allowance was released.

Liquidity and Capital Resources Year Ended December 31, (Dollars in thousands) 2012 2011 2010 Cash flows provided by (used in) operating activities $ 3,143 $ (9,506 ) $ (7,229 ) Cash used in investing activities (137,360 ) (32,838 ) (7,582 ) Cash provided by financing activities 2,506 179,645 36,081 Increase (decrease) in cash and cash equivalents $ (131,711 ) $ 137,301 $ 21,270 We have financed our operations primarily through issuances of preferred stock, borrowings under our credit facility, cash generated from customer sales and our initial public offering ("IPO"), which closed on December 16, 2011.

52-------------------------------------------------------------------------------- Table of Contents Our principal source of liquidity at December 31, 2012 consisted of $49.0 million of cash and cash equivalents and $96.5 million of short-term marketable securities. As of December 31, 2012, $1.0 million of our cash was held in foreign bank accounts. Our principal needs for liquidity include funding our operating losses, working capital requirements, capital expenditures, debt service and acquisitions. We believe that our available resources are sufficient to fund our liquidity requirements for at least the next 12 months from December 31, 2012.

Cash Flows from Operating Activities Cash flows provided by operating activities were $3.1 million during 2012 compared to cash used by operating activities of $9.5 million in 2011. The improvement in cash flows generated from operating activities primarily resulted from changes in our operating assets and liabilities. Changes to our operating cash flows are historically impacted by the growth in our calculated billings and our ability to maintain or improve the timeframe to collect the cash from outstanding accounts receivable, or days billings outstanding, offset by funding our growth and working capital needs.

The $3.1 million of cash provided by operating activities in 2012 resulted from our net loss of $47.4 million, offset by net non-cash charges of $28.0 million and changes in our operating assets and liabilities as discussed below.

Accounts receivable, net increased $22.2 million to $54.2 million at December 31, 2012 compared to $32.0 million at December 31, 2011, primarily as a result of a $16.0 million increase in billings in the fourth quarter of 2012 compared to the fourth quarter of 2011. Additionally, we had a decrease of $2.6 million in invoices that were billed and collected in the same period at December 31, 2012 compared to December 31, 2011 and an increase in days billings outstanding to 96 days in the quarter ended December 31, 2012 compared to 82 days in the quarter ended December 31, 2011.

Accounts payable and other accrued liabilities increased $7.0 million to $16.7 million at December 31, 2012 compared to $9.7 million at December 31, 2011, primarily due to growth in our overall business and the timing of payments.

Accrued payroll and related liabilities increased $0.8 million to $7.4 million at December 31, 2012 compared to $6.6 million at December 31, 2011, primarily due to an increase in accrued commissions as a result of increased billings in the fourth quarter of 2012 compared to the fourth quarter of 2011, partially offset by a decrease in the average commission rates earned on the value associated with the out years for contracts where the term exceeded one year.

Deferred revenue increased $39.2 million to $117.0 million at December 31, 2012 compared to $77.8 million at December 31, 2011, primarily due to new business and renewal-related billings, as well as billings for multi-year commitments, in 2012.

The $9.5 million of cash used in operating activities in 2011 resulted from our net loss of $50.8 million, offset by net non-cash charges of $21.0 million and changes in our operating assets and liabilities, primarily accounts receivable, accounts payable and deferred revenue.

Cash Flows from Investing Activities Our primary investing activities have consisted of purchases of investments, purchases of property and equipment primarily related to the build out of our data centers, as well as payments for intangible assets and acquisitions. We continue to invest the proceeds from our IPO, and we made net investments of $137.4 million in 2012, which included $119.1 million in purchases of marketable securities net of maturities and sales of marketable securities, $10.6 million used for purchases of property and equipment, and $7.6 million used for acquisitions. We anticipate spending approximately $10 million to $12 million for the purchase of property and equipment in 2013, primarily for the continued expansion of our data centers.

53-------------------------------------------------------------------------------- Table of Contents Cash Flows from Financing Activities Our financing activities have consisted primarily of borrowings and repayments under out revolving credit facilities and the net proceeds from the issuance of common stock from employee option exercises. Cash provided by financing activities of $2.5 million in 2012 resulted from $6.0 million in cash receipts related to stock option exercises being offset by $2.5 million in principal payments on our term debt, as well as $1.0 million in payments for offering expenses associated with our initial public offering in December 2011, which were accrued at December 31, 2011.

Debt Arrangements Term Loan In May 2012, we entered into a secured revolving loan facility and term loan facility of up to $30.0 million and terminated the previously outstanding credit facility agreement. Revolving loans may be converted into term loans under the facility, with all outstanding term loans reducing the availability under the revolving loan facility. As of December 31, 2012, we had outstanding a $10.8 million term loan under the secured revolving loan facility and term loan facility as a result of refinancing $12 million of previously existing term loans in May 2012. Interest is accrued, at our option, at (i) an adjusted LIBOR rate, plus a margin of 2.0% or 2.25%, or (ii) the prime rate, plus a margin of 0.25% or 0.50%, in each case with such margin determined based on our adjusted quick ratio. The interest rate on this loan at December 31, 2012 was 2.06%.

Repayment began July 1, 2012, and is payable in 16 quarterly installment payments. Each of the installment payments is $0.6 million, plus accrued interest.

Contractual Payment Obligations A summary of our contractual commitments and obligations as of December 31, 2012 is as follows (in thousands): Payments Due By Period 2014 and 2016 and 2018 and Contractual Obligation Total 2013 2015 2017 beyond Term loan $ 10,800 $ 2,400 $ 4,800 $ 3,600 $ - Estimated interest on term debt 222 49 99 74 - Letter of Credit 275 275 - - - Contractual commitments 4,920 4,920 - - - Operating leases 20,273 3,866 8,137 6,288 1,982 Total $ 36,490 $ 11,510 $ 13,036 $ 9,962 $ 1,982 The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum services to be used; fixed, and minimum or variable price provisions. Obligations under contracts that we can cancel without a significant penalty are not included in the table above.

See "Liquidity and Capital Resources - Loan and Security Agreement" for a description of our payment obligations under our term loan.

The contractual commitments primarily relate to our third-party hosting service.

Obligations under operating leases primarily relates to our office spaces, and, to a lesser extent, a lease for a third-party facility that houses our data center.

The contractual obligations reported above exclude our liability of $0.7 million for unrecognized tax benefits, which are more fully discussed in Note 11, "Income Taxes," of Item 8, "Financial Statements and Supplementary Data." Off-Balance Sheet Arrangements Except as disclosed under the Contractual Payment Obligations section above, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

54-------------------------------------------------------------------------------- Table of Contents Inflation We do not believe that inflation had a material effect on our business, financial condition or results of operations in 2012, 2011 or 2010.

Recent Accounting Guidance See Note 18 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K.

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