Q208 Revenue Excluding Dell of $17.1 Million, up 33% Year-over-Year and 11% Sequentially CAMPBELL, Calif., July 31
CAMPBELL, Calif., July 31 /PRNewswire-FirstCall/ -- Rainmaker Systems,
Inc. (Nasdaq: RMKR), a leading provider of sales and marketing solutions
combining hosted application software and execution services, today reported
financial results for the second quarter ended June 30, 2008.
Second Quarter Financial Highlights:
-- Revenue excluding Dell of $17.1 million, up 33% year-over-year and
11% sequentially
-- Contract sales up 17% sequentially
Rainmaker achieved second quarter net revenue of $17.8 million, compared
to net revenue of $18.0 million in the second quarter of 2007 and
$20.6 million in the first quarter of 2008. Excluding Dell, second quarter
revenue was $17.1 million, a 33% increase over revenue excluding Dell of
$12.8 million for the second quarter of 2007 and an 11% sequential increase
over revenue excluding Dell of $15.4 in the first quarter of 2008.
Gross margin was 42% in the second quarter of 2008, compared to 48% in the
second quarter of 2007, and 49% in the first quarter of 2008.
GAAP net loss for the second quarter of 2008 was $3.9 million, or a loss
of $0.20 per share, compared to GAAP net income of $570,000, or $0.03 per
diluted share, for the second quarter of 2007, and GAAP net loss of $277,000,
or a loss of $0.01 per share, in the first quarter of 2008.
Non-GAAP net loss for the second quarter of 2008 was $2.2 million, or a
loss of $0.11 per share. Non-GAAP net loss excludes stock based compensation
of $620,000, amortization of intangible assets from acquisitions of $823,000
and $303,000 in non-cash expense related to the closure of our Oakland,
California office. This compares to non-GAAP net income of $1.5 million, or
$0.08 per diluted share, for the second quarter of 2007, and non-GAAP net
income of $995,000, or $0.05 per diluted share, in the first quarter of 2008.
Tax expense in the second quarter was $114,000, reflecting franchise tax
for the state of Texas and foreign tax for Rainmaker subsidiaries.
Second quarter 2008 basic EPS results are based on 19.4 million weighted
average shares outstanding and exclude options, warrants and unvested
restricted share awards which are anti-dilutive.
Total shares outstanding at June 30, 2008 were approximately 20.5 million
common shares, which includes approximately 1.1 million unvested restricted
shares. In addition, Rainmaker had 2.8 million unexercised options and
warrants with a weighted average exercise price of approximately $4.69 per
share.
Total cash and cash equivalents at June 30, 2008 were $24.5 million,
compared with $33.6 million at March 31, 2008, with working capital at
$22.6 million, compared to $25.5 at March 31, 2008. Total debt at June 30,
2008 was $1.3 million, or about 2% of total equity.
Recent Business Highlights
-- Global security and infrastructure software client signed two year
extension of contract sales agreement
-- Selected by Global IT Management software client for year-long lead
development program
-- Fortune 50 global software client renewed agreement for contract sales
-- Global enterprise data solutions provider extended lead development
pilot program to year-long contract
-- Added leading telecommunications company as new client for lead
development
-- Added large national retail pharmacy chain as new client for lead
development
-- Added leading provider of training for the public sector as new client
for training sales
-- Added nationwide grant management training company as new client for
training sales
-- Launched Partner Portal 3.0 next generation reseller portal solution
for contract sales
-- Strengthened management team with two appointments: Head of Products
and Chief Marketing Officer
Rainmaker CEO Michael Silton commented: "We are pleased to see that our
many new contract sales programs are delivering revenue, contributing to the
strong growth in overall revenue generated in the second quarter. We also
welcomed several new clients during the quarter. During this period, we are
investing in our business to capitalize on the longer-term opportunities we
see in the marketplace, while aligning our cost structure to return to
profitability."
Financial Guidance
Rainmaker is reaffirming its previously stated fiscal year 2008 revenue
guidance of $68 million to $72 million.
Conference Call
Rainmaker Systems will host a conference call and webcast today at
1:30 p.m. Pacific Time to discuss its fiscal 2008 second quarter results.
Those wishing to participate in the live call should dial (800) 240-7305 using
the password "Rainmaker." A replay of the call will be available for one week
beginning approximately one hour after the call's conclusion by dialing
(800) 405-2236 and entering 11116584 followed by the "#" key when prompted for
a code. To access the live webcast of the call, go to the Investor Relations
section of Rainmaker's website at http://www.rmkr.com. A webcast replay of
the conference call will be available for one year on the Calls/Events page of
the Investor Relations section at http://www.rmkr.com.
Discussion of Non-GAAP Financial Measures
Rainmaker Systems' management evaluates and makes operating decisions
using various performance measures. In addition to GAAP results, Rainmaker
also considers adjusted net income and adjusted net income per share, which
are referred to as non-GAAP net income and non-GAAP net income per share, and
EBITDA. These non-GAAP measures are derived from the revenue generated by
Rainmaker's business and the costs directly related to the generation of that
revenue, such as costs of services, sales and marketing expenses, technology
expenses and general and administrative expenses, that management considers in
evaluating the Company's operating performance. Non-GAAP net income, non-GAAP
net income per share and EBITDA exclude certain expenses that management does
not consider to be related to the Company's core operating performance.
Non-GAAP net (loss)/income consists of net (loss)/income including an
adjustment intended to reflect the full amount of revenue on assumed contracts
in connection with acquisitions and excluding equity plan-related compensation
expenses, amortization of purchased intangible assets and the impact recorded
in the quarter related to closing of our Oakland office. For purposes of
comparability across other periods and against other companies in our
industry, non-GAAP net (loss)/income is adjusted by the amount of additional
taxes that Rainmaker would accrue using an annualized effective tax rate
applied to the non-GAAP results. Stock compensation adjustments were $620,000
for the three months ended June 30, 2008 and related to option award and
restricted stock awards granted since the adoption of FASB Statement No. 123R,
Share Based Payments, in January 2006. Amortization of intangible assets was
$823,000 for the three months ended June 30, 2008 and related primarily to the
prior acquisitions of Sunset Direct, Launch Project, Metrics Corp,
ViewCentral, CAS Systems and Qinteraction. Oakland facility closure costs
were $303,000 for the three months ended June 30, 2008 and related primarily
to accrual of the fair value of the remaining lease payments less estimated
sub-lease rentals and the write off of the net book value of the remaining
furniture, fixtures and equipment at this location. The tax effect of these
adjustments was $0 for the three months ended June 30, 2008. See Exhibit A
for a reconciliation of GAAP net (loss)/income to non-GAAP net (loss)/income.
Second quarter 2008 EBITDA was negative $2.0 million. EBITDA consists of
net (loss)/income excluding interest income or expense, income taxes,
depreciation and amortization. Interest and other income was $186,000 for the
three months ended June 30, 2008 and related primarily to interest earned on
cash deposits offset by interest expense on term loans. Provision for income
taxes was $114,000 for the three months ended June 30, 2008. Non-cash charges
for depreciation of property and equipment was $1,126,000 for the three months
ended June 30, 2008. Non-cash charges for amortization of acquisition related
intangibles were $823,000 for the three months ended June 30, 2008 and related
primarily to our prior business acquisitions. See Exhibit B for a
reconciliation of GAAP net (loss)/income to EBITDA.
Non-GAAP net (loss)/income, non-GAAP net (loss)/income per share and
EBITDA are supplemental measures of Rainmaker's performance that are not
required by, or presented in accordance with, GAAP. Moreover, they should not
be considered as an alternative to any performance measure derived in
accordance with GAAP, or as an alternative to cash flow from operating
activities or as a measure of liquidity. Rainmaker presents non-GAAP net
(loss)/income, non-GAAP net (loss)/income per share and EBITDA because
management considers them to be important supplemental measures of Rainmaker's
operating performance and profitability trends, and because management
believes they give investors useful information on period-to-period
performance as evaluated by management. Rainmaker believes that the use of
these non-GAAP measures provides consistency and comparability with
Rainmaker's past financial reports and also facilitates comparisons with other
companies in Rainmaker's industry, a number of which use similar non-GAAP
financial measures to supplement their GAAP results. Management has
historically used non-GAAP net (loss)/income, non-GAAP net (loss)/income per
share and EBITDA when evaluating operating performance because management
believes that the inclusion or exclusion of the items described above provides
an additional measure of the Company's core operating results and facilitates
comparisons of the Company's core operating performance against prior periods
and the Company's business model objectives. Rainmaker has chosen to provide
this information to investors to enable them to perform additional analyses of
past, present and future operating performance and as a supplemental means to
evaluation of the Company's ongoing core operations.
About Rainmaker
Rainmaker Systems, Inc. delivers sales and marketing solutions, combining
hosted application software and execution services designed to drive more
revenue for our clients. Our Revenue Delivery Platform(SM) combines
proprietary, on-demand application software and advanced analytics with
specialized sales and marketing execution services. Rainmaker clients include
large enterprises in a range of industries, including computer hardware and
software, telecommunications, and financial services industries. For more
information, visit http://www.rmkr.com or call 800-631-1545.
NOTE: Rainmaker Systems, the Rainmaker logo, and Sunset Direct are
registered with the U.S. Patent and Trademark Office. All other service marks
or trademarks are the property of their respective owners.
This press release contains forward-looking statements regarding future
events. These forward-looking statements are based on information available
to Rainmaker as of this date and they assume no obligation to update any such
forward-looking statements. These statements are not guarantees of future
performance, and actual results could differ materially from current
expectations. Among the important factors which could cause actual results to
differ materially from those in the forward-looking statements are general
market conditions, unfavorable economic conditions, our ability to execute our
business strategy, our ability to integrate acquisitions without disruption to
our business, the effectiveness of our sales team and approach, our ability to
target, analyze and forecast the revenue to be derived from a client and the
costs associated with providing services to that client, the date during the
course of a calendar year that a new client is acquired, the length of the
integration cycle for new clients and the timing of revenues and costs
associated therewith, our client concentration given that we are currently
dependent on a few significant client relationships, our ability to expand our
channel hosted contract solution and drive adoption of this solution by
resellers, potential competition in the marketplace, the ability to retain and
attract employees, market acceptance of our service programs and pricing
options, our ability to maintain our existing technology platform and to
deploy new technology, our ability to sign new clients and control expenses,
the possibility of the discontinuation and/or realignment of some client
relationships, the financial condition of our clients' businesses, and other
factors detailed in the Company's filings with the Securities and Exchange
Commission, including our filings on Forms 10-K and 10-Q.
- Financial tables to follow -
RAINMAKER SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
June 30, December 31,
2008 2007
ASSETS
Current assets:
Cash and cash equivalents $24,492 $37,407
Restricted cash 366 157
Accounts receivable, less
allowance for doubtful accounts
of $262 at June 30, 2008 and $285
at December 31, 200713,49020,625
Prepaid expenses and other current assets 3,327 3,622
Total current assets 41,67561,811
Property and equipment, net 10,703 9,447
Intangible assets, net 5,358 7,049
Goodwill15,62014,539
Other noncurrent assets 2,005 2,706
Total assets$75,361 $95,552
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $9,844 $25,466
Accrued compensation and benefits 2,222 2,062
Other accrued liabilities 2,170 3,447
Deferred revenue 3,920 3,541
Current portion of capital lease
obligations226 -
Current portion of notes payable666 1,083
Total current liabilities19,04835,599
Deferred tax liability 229 167
Long term deferred revenue 505 401
Capital lease obligations, less
current portion 240 -
Notes payable, less current portion667 1,333
Total liabilities20,68937,500
Commitments and contingencies- -
Stockholders' equity:
Preferred stock, $0.001 par value;
5,000,000 shares authorized, none
issued and outstanding - -
Common stock, $0.001 par value;
50,000,000 shares authorized;
20,524,125 shares issued and
20,456,570 shares outstanding at
June 30, 2008, and 20,359,560
shares issued and 20,325,960
shares outstanding at
December 31, 2007 1919
Additional paid-in capital 117,444 116,391
Accumulated deficit (62,274) (58,074)
Accumulated other comprehensive loss (166) (51)
Treasury stock, at cost, 67,555
shares at June 30, 2008 and
33,600 shares at December 31, 2007(351) (233)
Total stockholders' equity 54,67258,052
Total liabilities and
stockholders' equity $75,361 $95,552
RAINMAKER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 2008 2007
Net revenue$17,817 $18,042 $38,419 $34,307
Cost of services10,4229,340 21,029 17,668
Gross margin 7,3958,702 17,390 16,639
Operating expenses:
Sales and marketing 2,1831,7384,2573,428
Technology and development3,6432,7936,8955,148
General and administrative3,6152,6627,0424,860
Depreciation and amortization 1,9491,1973,7022,337
Total operating expense 11,3908,390 21,896 15,773
Operating (loss) income (3,995) 312 (4,506) 866
Interest and other income, net 186 391 530 520
(Loss) income before income
tax expense (3,809) 703 (3,976) 1,386
Income tax expense 114 133 224 261
Net (loss) income $(3,923)$570 $(4,200) $1,125
Basic (loss) income per share $(0.20) $0.03 $(0.22) $0.07
Diluted (loss) income per share $(0.20) $0.03 $(0.22) $0.06
Weighted average common shares
Basic19,367 17,401 19,347 16,040
Diluted 19,367 19,074 19,347 17,782
RAINMAKER SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
2008 2007
Operating activities:
Net (loss) income $(4,200) $1,125
Adjustment to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
Depreciation and amortization
of property and equipment2,011 1,032
Amortization of intangible assets 1,691 1,305
Stock-based compensation expense 1,024 713
Provision for allowances for
doubtful accounts 291 135
Amortization of discount on
notes receivable 124 -
Loss on disposal of fixed assets 76 -
Changes in operating assets
and liabilities, net of assets
acquired and liabilities assumed:
Accounts receivable6,844(4,378)
Prepaid expenses
and other assets868 (797)
Accounts payable (15,618)3,221
Accrued compensation
and benefits164 5
Other accrued liabilities (1,136) 257
Deferred tax liability (80) 55
Deferred revenue 483 (71)
Net cash (used in)
provided by operating
activities(7,458)2,602
Investing activities:
Purchases of property and equipment (2,801) (2,126)
Restricted cash, net (209) 71
Acquisition of business, net
of cash acquired(1,000) (1,510)
Net cash used in
investing activities (4,010) (3,565)
Financing activities:
Proceeds from issuance of
common stock from option exercises 19 294
Proceeds from issuance of
common stock from ESPP 1046
Proceeds from issuance of
common stock from warrant exercises -54
Net proceeds from follow-on
offering of common stock -27,264
Principal payment of notes payable (1,062) (750)
Principal payment of capital
lease obligations (253) (2)
Tax payments in connection with
treasury stock surrendered(118)-
Net cash (used in)
provided by financing
activities(1,404) 26,906
Effect of exchange rate changes on cash(43) (137)
Net (decrease) increase in cash and
cash equivalents (12,915) 25,806
Cash and cash equivalents at
beginning of period37,40721,996
Cash and cash equivalents at end of period $24,492 $47,802
Supplemental disclosures of cash flow
information:
Cash paid for interest $46 $116
Cash paid for taxes$276 $41
Supplemental disclosures of non-cash
investing and financing activities:
Acquisition of assets under
capital lease $719$-
Issuance of notes payable for
acquisition of assets $-$2,000
RAINMAKER SYSTEMS, INC.
EXHIBIT A
RECONCILIATION OF GAAP NET (LOSS)/INCOME TO NON-GAAP NET
(LOSS)/INCOME (1)
(In thousands, except per share)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
20082007 20082007
Net (loss)/income - GAAP basis$(3,923) $570 $(4,200) $1,125
Net revenue adjustment (2) - 56- 133
Stock compensation adjustments (3):
Cost of services85 92 12 161
Sales and marketing 61 86 81 146
Technology and development 85 46 167 84
General and administrative 389 175 764 322
Amortization of intangible assets (4) 823 6621,691 1,305
Oakland facility closure (5) 303 - 303 -
Tax effect of adjustment (6)-(211) -(404)
Net (loss)/income - Non-GAAP basis$(2,177) $1,476 $(1,182) $2,872
Diluted weighted average shares
outstanding 19,367 19,074 19,347 17,782
Non-GAAP diluted net (loss)/income
per share $(0.11) $0.08 $(0.06) $0.16
(1) To supplement our financial results presented on a GAAP basis, we use
non-GAAP net (loss)/income, which excludes certain business combination
accounting entries and expenses related to acquisitions as well as other
expenses including stock-based compensation. As we have completed six
acquisitions since January 1, 2005, we believe non-GAAP net (loss)/income
provides useful information to investors regarding the underlying business
trends and performance of the Company's ongoing operations and is useful for
period over period comparisons of such operations. Non-GAAP net (loss)/income
is not meant to be considered in isolation or as a substitute for GAAP net
(loss)/income, and should be read only in conjunction with our consolidated
financial statements prepared in accordance with GAAP.
(2) Business combination accounting rules require us to record the fair
value of contracts assumed in connection with acquisitions. The non-GAAP
adjustment is intended to reflect the full amount of revenue on assumed
contracts that would have otherwise been recorded during the three and six
months ended June 30, 2007 which are related to our acquisitions of
ViewCentral on September 15, 2006 and CAS Systems, Inc on January 25, 2007. We
believe this adjustment is useful to investors as a measure of the ongoing
performance of our business because we have historically experienced high
renewal rates on these types of contracts, although we cannot be sure that
customers will renew these contracts.
(3) Stock-based compensation: We adopted FASB Statement No. 123R, "Share
Based Payments", on January 1, 2006 under the modified prospective method.
Statement 123R requires us to record non-cash operating expenses associated
with stock option awards at their estimated fair values. Prior to our
Statement 123R adoption, we recorded stock-based compensation expenses at
intrinsic values. In accordance with the modified prospective method, our
financial statements for periods prior to January 1, 2006 have not been
restated to reflect, and do not include, the changes in methodology to expense
options at fair values in accordance with Statement 123R. Stock-based
compensation expenses will recur in future periods.
(4) We have excluded the effect of amortization of intangibles from our
non-GAAP net (loss)/income. We believe this helps investors understand a
significant reason why our GAAP operating expenses increase following
acquisitions. Investors should note that the use of intangible assets
contributed to revenue earned during the period and will contribute to future
revenue generation and should also note that these amortization expenses are
recurring.
(5) During the quarter ended June 30, 2008, we closed our Oakland office
and vacated the leased office space. In accordance with FASB Statement No.
146, "Accounting for Costs Associated with Exit or Disposal Activities", and
FAS 144, Accounting for the Impairment or Disposal of Long-lived Assets, we
recorded a liability for the fair value of the remaining lease payments less
the estimated sub-lease rentals of approximately $227,000 and wrote-off the
net book value of the remaining furniture, fixtures and equipment at this
location of approximately $76,000. This is a charge that represents the
facility costs of closing this office.
(6) The tax effect of adjustments was calculated reflecting an effective
tax rate of 0.0% and 18.9% for the three months ended June 30, 2008 and 2007,
respectively, and 0.0% and 18.8% in the six months ended June 30, 2008 and
2007, respectively.
RAINMAKER SYSTEMS, INC.
EXHIBIT B
RECONCILIATION OF NET (LOSS)/INCOME TO EBITDA (1)
(In thousands)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
20082007 20082007
Net (loss)/income - GAAP basis$(3,923) $570 $(4,200) $1,125
Add:
Provision for income taxes 114 133 224 261
Depreciation of property and
equipment 1,126 5352,011 1,032
Amortization of acquisition
related intangibles 823 6621,691 1,305
Interest and other
(income)/expense (186) (391)(530) (520)
1,877 9393,396 2,078
EBITDA - Non-GAAP basis $(2,046) $1,509$(804) $3,203
(1) To supplement our financial results presented on a GAAP basis, we use
EBITDA, which excludes certain cash and non-cash expenses. We believe EBITDA
provides useful information to investors regarding the underlying business
trends and performance of the Company's ongoing operations and are useful for
period over period comparisons of such operations. EBITDA is not meant to be
considered in isolation or as a substitute for comparable GAAP measures, and
should be read only in conjunction with our consolidated financial statements
prepared in accordance with GAAP. We regularly use EBITDA internally to manage
our business and make operating decisions.
SOURCE Rainmaker Systems, Inc.
