Rainmaker Reports Second Quarter 2011 Financial Results

CAMPBELL, Calif., Aug. 11, 2011 /PRNewswire/ -- Rainmaker Systems, Inc. (NASDAQ: RMKR), a leading global provider of B2B e-commerce solutions that drive online sales and renewal for products, subscriptions and training for clients and their channel partners, today reported financial results for its second quarter ended June 30, 2011.

Net revenue in the second quarter of 2011 was $9.1 million, a 3% sequential increase from net revenue in the preceding quarter of $8.8 million. Second quarter 2011 net revenue grew 10% year-over-year compared to adjusted net revenue of $8.3 million in the second quarter of 2010, which excludes revenue from discontinued client programs. See Exhibit A for a reconciliation of GAAP net revenue to adjusted net revenue.

Recent Business Highlights

• Signed material agreement with global software client for B2B global sales
• Signed new client for B2B e-commerce storefront for software downloads
• Signed multiple additional new clients
• Appointed former PayPal CTO, Chuck Geiger, to Board of Directors
• Completed a $4 million registered direct common stock offering
• Cash usage in the second quarter of 2011 declined 62% sequentially

Rainmaker CEO Michael Silton commented, "We are making substantial progress on many fronts. We reduced our cash usage by 62% in the second quarter and completed a $4 million common stock offering. Our cash balance now stands at approximately $12 million and our cash burn in the second quarter was just over $1 million. Based on our sales outlook, we believe we can achieve a return to positive cash flow within our current resources. We signed significant new business during the quarter and recently signed a material new agreement with a global software client and a new B2B e-commerce storefront. Our sales pipeline continues to grow and we remain focused on signing additional e-commerce clients that will contribute to accelerated revenue growth and margin improvement in 2012."

Second quarter 2011 adjusted EBITDA, which excludes non-cash stock compensation expense, was negative $1.8 million, compared to negative $1.3 million in the preceding quarter. See Exhibit B for a reconciliation of GAAP net loss to EBITDA and adjusted EBITDA.

Gross margin in the second quarter of 2011 was 33%, compared to 35% in the preceding quarter.

Net loss for the second quarter of 2011 was $3.3 million, or a loss of $0.16 per share, compared to a net loss for the preceding quarter of $3.1 million, or a loss of $0.15 per share.

Second quarter 2011 non-GAAP net loss, which excludes stock-based compensation expense of $433,000, amortization of intangible assets from acquisitions of $93,000 and a $25,000 favorable change in fair value of warrant liability, was $2.8 million, or a loss of $0.13 per share, compared to a non-GAAP net loss for the preceding quarter of $2.3 million, or a loss of $0.11 per share, which excludes stock-based compensation expense of $625,000, amortization of intangible assets from acquisitions of $117,000, charges relating to facility closures of $99,000 and a $70,000 gain on fair value re-measurement. See Exhibit C for a reconciliation of GAAP net loss to non-GAAP net loss.

Total shares outstanding at June 30, 2011 were approximately 26.7 million common shares, which include approximately 1.9 million unvested restricted shares. In addition, Rainmaker had 700,000 unexercised options outstanding with a weighted average exercise price of approximately $1.98 per share and 1.6 million unexercised warrants outstanding with a weighted average exercise price of approximately $1.38.

Total cash and cash equivalents were $11.8 million at June 30, 2011, compared to $9.4 million at March 31, 2011. Net cash proceeds from the registered direct offering were approximately $3.5 million.  Excluding the net cash proceeds from the equity offering, cash usage was $1.0 million in the second quarter of 2011, down from cash usage of $2.8 million in the first quarter of 2011.

Financial Guidance

Rainmaker is reiterating its fiscal year 2011 revenue guidance of approximately $40 million to $42 million, representing adjusted net revenue growth of 15% to 20% over 2010 adjusted net revenue.

Conference Call

Rainmaker Systems will host a conference call and webcast today at 1:30 p.m. Pacific Time to discuss its second quarter fiscal 2011 financial results. Those wishing to participate in the live call should dial (800) 762-8779 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) 406-7325 and entering 4457127 followed by the "#" key when prompted for a code. To access the live webcast of the call, go to the Investors section of Rainmaker's website at www.rainmakersystems.com. A webcast replay of the conference call will be available for one year on the Conference Calls/Events page of the Investors section at www.rainmakersystems.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 revenue, non-GAAP net loss and non-GAAP net loss per share, EBITDA and adjusted EBITDA, which excludes non-cash stock compensation expense from 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. These non-GAAP measures exclude certain revenues and expenses that management does not consider to be related to the Company's core operating performance.

Adjusted net revenue was $9.1 million for the second quarter of 2011, compared to $8.8 million in the preceding quarter and $8.3 million in the second quarter of 2010, which excludes revenue from discontinued client programs. See Exhibit A for a reconciliation of GAAP net revenue to adjusted net revenue.

EBITDA was negative $2.2 million for the second quarter of 2011. EBITDA consists of net loss excluding interest and other expense, income taxes, depreciation & amortization and certain other non-cash items. Provision for income taxes was $68,000 for the three months ended June 30, 2011. Non-cash charges for depreciation of property and equipment were $863,000 for the three months ended June 30, 2011. Non-cash charges for amortization of acquisition related intangibles were $93,000 for the three months ended June 30, 2011. Interest and other expense was $51,000 for the three months ended June 30, 2011. The change in fair value of warrant liability was $25,000 for the three months ended June 30, 2011 and related to a reduction in the fair value of the common stock warrant liability from the recent equity financing.  Adjusted EBITDA was negative $1.8 million for the three months ended June 30, 2011 and adds back to EBITDA non-cash stock based compensation expense of $433,000 incurred in the second quarter of 2011. See Exhibit B for a reconciliation of GAAP net loss to EBITDA and adjusted EBITDA.

Non-GAAP net loss was $2.8 million for the second quarter of 2011 and consists of net loss excluding stock based compensation expense amortization of purchased intangible assets and change in fair value of warrant liability. Stock based compensation expense was $433,000 for the three months ended June 30, 2011 and represents the current quarter recognition of compensation expense related to stock options and restricted stock awards granted prior to and during the quarter. Amortization of intangible assets was $93,000 for the three months ended June 30, 2011.  The change in fair value of warrant liability was $25,000 for the three months ended June 30, 2011 and related to a reduction in the fair value of the common stock warrant liability from the recent equity financing.  See Exhibit C for a reconciliation of GAAP net loss to non-GAAP net loss.

Adjusted net revenue, non-GAAP net loss, non-GAAP net loss per share, EBITDA and adjusted 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 these non-GAAP measures 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 used these non-GAAP measures 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 analysis 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. is a leading global provider of B2B e-commerce solutions that drive online sales and renewal for products, subscriptions and training for our clients and their channel partners. Rainmaker provides these solutions on a global basis supporting multiple payment methods, currencies and language capabilities. For more information, visit http://www.rainmakersystems.com or call 800-631-1545.

NOTE: Rainmaker Systems and the Rainmaker logo 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 we 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 our client concentration, as we depend on a small number of clients for a significant percentage of our revenue, the possibility of the discontinuation and/or realignment of some client relationships, general market conditions, the current difficult macro-economic environment and its impact on our business, as our clients are reducing their overall marketing spending and our clients' customers are reducing their purchase of services contracts, the high degree of uncertainty and our limited visibility due to 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 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, and the financial condition of our clients' businesses, our ability to raise additional equity or debt financing, 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 –

SOURCE Rainmaker Systems, Inc.