Rainmaker Reports Third Quarter Fiscal 2010 Results

CAMPBELL, Calif., Nov. 11, 2010 /PRNewswire-FirstCall/ -- Rainmaker Systems, Inc. (Nasdaq: RMKR), a leading global provider of ecommerce solutions and telesales services that drive more revenue for clients and their channel partners, today reported financial results for the third quarter ended September 30, 2010.

Net revenue in the third quarter of 2010 was $9.4 million, compared to net revenue in the preceding quarter of $9.3 million.  Second quarter 2010 net revenue included approximately $1 million of revenue from discontinued programs.  Excluding revenue from discontinued programs, second quarter adjusted net revenue was $8.3 million.  Adjusted net revenue from continuing programs grew 14% sequentially from $8.3 million in the second quarter of 2010 to $9.4 million in the third quarter of 2010.  See Exhibit A for a reconciliation of GAAP net revenue to adjusted net revenue.

Recent Business Highlights

• Signed global unified communications solutions provider as second client for new ecommerce SaaS platform
• Signed three-year agreement for global sales services with Fortune 50 global software client
• Added global interactive provider as new client for business-to-business telesales
• Added global financial services company as new client for telesales services
• Signed software provider Splunk as new client and renewed multiple clients for SaaS ecommerce solution for training sales

Rainmaker CEO Michael Silton commented, "We are pleased with the 14 percent sequential revenue growth we generated in the third quarter from continuing programs. The global business-to-business ecommerce program that we launched on our new ecommerce SaaS platform in the second quarter for our Fortune 500 security client has been very successful and is generating incremental revenue for this client compared to their previous outsourced solution. We are also pleased to have just added a second client for this new platform. In addition we are excited about the major new program with our Fortune 500 global software client that will begin to launch later in the fourth quarter.  Under this program, we will leverage the web and telesales to drive global subscription sales to business customers for the client's cloud based services."

For comparative purposes, the following financial discussion of gross margin, net loss and non-GAAP net loss excludes the one-time nonrecurring settlement of $1.4 million received and accounted for as revenue in the third quarter of fiscal 2009.  See Exhibit A for a reconciliation of GAAP gross margin and GAAP net income (loss) to the adjusted gross margin and adjusted net loss reported below.  See Exhibit B for reconciliation of GAAP net loss to non-GAAP net loss reported below.

Gross margin in the third quarter was 34%, compared to 39% in the preceding quarter and 45% in the third quarter of 2009.

Net loss for the third quarter of 2010 was $4.0 million, or a loss of $0.20 per share, compared to a net loss for the preceding quarter of $3.6 million, or a loss of $0.18 per share, and a net loss for the third quarter of 2009 of $1.4 million, or a loss of $0.06 per share. In the third quarter of 2010, the Company implemented a number of cost reduction actions, including exiting its facility in Montreal, Canada.  Third quarter 2010 net loss includes a non-cash charge of approximately $501,000 for the write-off of facility improvements and the facility's remaining lease commitment through December 31, 2011 and approximately $200,000 in employee severance costs.  Rainmaker is working actively to sublease the Montreal facility though the end of its lease term to December 31, 2011.

Non-GAAP net loss for the third quarter of 2010 was $2.9 million, or a loss of $0.14 per share. Third quarter 2010 non-GAAP net loss excludes stock based compensation of $662,000, amortization of intangible assets from acquisitions of $163,000, a gain of $190,000 on the fair value remeasurement for a reduction in the accrued liability for the potential earnout related to the acquisition of Optima, and a $501,000 charge for the closure of our Montreal facility, and compares to a non-GAAP net loss for the preceding quarter of $2.7 million, or a loss of $0.13 per share, and a non-GAAP net loss for the third quarter of 2009 of $532,000, or a loss of $0.02 per share.

Total shares outstanding at September 30, 2010 were approximately 22.3 million common shares, which include approximately 1.7 million unvested restricted shares. In addition, Rainmaker had 1.5 million unexercised options and warrants outstanding with a weighted average exercise price of approximately $3.37 per share.  

At September 30, 2010, Rainmaker had federal tax NOLs of $59 million and California state tax NOLs of $41 million.

Total cash and cash equivalents were $13.6 million at September 30, 2010, compared to $15.4 million at June 30, 2010. Cash used in the third quarter of 2010 included approximately $600,000 for capital equipment purchases and $300,000 in debt repayments. During the third quarter, Rainmaker renewed its line of credit with Bridge Bank for an additional 14-month term through December 2011.

Financial Guidance

Rainmaker expects fiscal year 2010 revenue to be approximately $44 million, within its previously provided guidance range.  The Company expects to be cash flow positive for the fourth quarter of 2010 on an EBITDA basis excluding non-cash stock compensation expense.

Conference Call

Rainmaker Systems will host a conference call and webcast today at 1:30 p.m. Pacific Time to discuss its third quarter fiscal 2010 financial results. Those wishing to participate in the live call should dial (877) 941-2332 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 4368238 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 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 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 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.

Non-GAAP net loss was $2.9 million for the third quarter of 2010 and consists of net loss excluding equity plan-related compensation expenses, amortization of purchased intangible assets, certain non-recurring expenses, a gain for the fair value re-measurement for the potential earn-out related to the acquisition of Optima, and a charge related to exiting the Montreal facility.  Stock compensation adjustments were $662,000 for the three months ended September 30, 2010 and represent 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 $163,000 for the three months ended September 30, 2010 and related primarily to the prior acquisitions of Sunset Direct, ViewCentral, Qinteraction, Grow Commerce and Optima. A gain on the fair value re-measurement was $190,000 for the three-months ended September 30, 2010 related to a reduction in the accrued liability for the potential earnout related to the acquisition of Optima. A $501,000 charge was recorded in the three-months ended September 30, 2010 for the write-off of facility improvements and the facility's remaining lease commitment through December 31, 2011 relating to our exit from our Montreal facility.  See Exhibit B for a reconciliation of GAAP net loss to non-GAAP net loss.

EBITDA was negative $2.8 million for the third quarter of 2010.  EBITDA consists of net loss excluding interest income or expense, income taxes, depreciation & amortization, and a gain on fair value re-measurement. Provision for income taxes was $70,000 for the three months ended September 30, 2010. Non-cash charges for depreciation of property and equipment were $1.2 million for the three months ended September 30, 2010. Non-cash charges for amortization of acquisition related intangibles were $163,000 for the three months ended September 30, 2010 and related primarily to the prior acquisitions of Sunset Direct, ViewCentral, Qinteraction, Grow Commerce and Optima. A gain on the fair value re-measurement of $190,000 for the three-months ended September 30, 2010 related to a reduction in the accrued liability for the potential earnout related to the acquisition of Optima.  Interest and other expense was $6,000 for the three months ended September 30, 2010.  Adjusted EBITDA was negative $2.1 million for the three months ended September 30, 2010 and adds back to EBITDA non-cash stock based compensation expense of $662,000 incurred in the third quarter of 2010. See Exhibit C for a reconciliation of GAAP net loss to EBITDA and adjusted EBITDA.

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 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. is a leading global provider of ecommerce solutions and telesales services that drive more revenue for clients and their channel partners. Rainmaker provides subscription and service contract renewals, robust ecommerce solutions, lead development, training sales, and call center services. Rainmaker provides these services on a consistent, global basis supporting multiple currencies and language capabilities. For more information, visit 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 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, 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.

SOURCE Rainmaker Systems, Inc.