FY07 Record Revenue of $73.5 Million, up 50% Year-over-Year
CAMPBELL, Calif., Feb. 13 /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 2007 fourth quarter and full year ended December 31, 2007.
Financial Highlights:
-- Q4 record revenue of $20.1 million, up 40% year-over-year and 5%
sequentially
-- Contract sales revenue excluding Dell up 33% sequentially in Q4
-- Organic revenue growth excluding Dell up 22% in FY07 year-over-year
-- Q4 Non-GAAP net income of $1.3 million, or $0.06 per diluted share
-- FY07 Non-GAAP net income of $5.2 million, up from $5.1 million for FY06
-- Cash flow from operations of $2.2 million in Q4 and $4.9 million in
FY07
Rainmaker achieved record fourth quarter net revenue of $20.1 million, representing a 40% increase over net revenue of $14.4 million in the fourth quarter of 2006, and a 5% sequential increase from net revenue of $19.1 million in the third quarter of 2007. Revenue for the 2007 full year was a record $73.5 million, a 50% increase over revenue of $48.9 million for 2006.
Excluding Dell, revenue for the 2007 full year was $51.9 million, a 71% increase over revenue excluding Dell of $30.4 million for 2006. Organic revenue growth excluding Dell in the fourth quarter was up 18% sequentially and 14% year-over-year. In the 2007 fourth quarter, Rainmaker's two largest clients were Dell and HP, with Dell representing 25% of Rainmaker's fourth quarter revenue, down from 28% in the preceding quarter and 35% in the year-ago quarter, and HP representing 12% of fourth quarter revenue.
Gross margin was 48% in the fourth quarter of 2007, compared to 51% in the fourth quarter of 2006, and 48% in the third quarter of 2007. Gross margin for 2007 was 48%, compared to 50% in 2006.
GAAP net income for the fourth quarter of 2007 was $221,000, or $0.01 per diluted share, compared to GAAP net income of $943,000, or $0.06 per diluted share, for the fourth quarter of 2006, and GAAP net income of $158,000, or $0.01 per diluted share, in the third quarter of 2007. GAAP net income for the 2007 full year was $1.5 million, or $0.08 per diluted share, compared to a GAAP net income of $3.4 million, or $0.23 per diluted share, in 2006.
Non-GAAP net income for the fourth quarter of 2007 was $1.3 million, or $0.06 per diluted share. Non-GAAP net income excludes stock based compensation of $614,000 and amortization of intangible assets from acquisitions of $913,000, net of the tax effect of these adjustments of $414,000. This compares to non-GAAP net income of $1.7 million, or $0.11 per diluted share, for the fourth quarter of 2006, and non-GAAP net income of $1.2 million, or $0.06 per diluted share, in the third quarter of 2007. Non-GAAP net income for the 2007 full year was $5.2 million, or $0.28 per diluted share, compared to non-GAAP net income of $5.1 million, or $0.35 per diluted share, for 2006. See Exhibit A for a reconciliation of GAAP net income to non-GAAP net income.
Tax expense in the fourth quarter was $138,000. Tax expense for the 2007 full year was $558,000, reflecting an effective tax rate of approximately 27.1%.
Fourth quarter 2007 diluted EPS results are based on 20.7 million weighted average shares outstanding, calculated using the treasury stock method.
Total shares outstanding at December 31, 2007 were approximately 20.3 million common shares, which includes approximately 1,023,000 unvested restricted shares. In addition, Rainmaker had 2.5 million unexercised options and warrants with a weighted average exercise price of approximately $4.93 per share.
Total cash and cash equivalents at December 31, 2007 were $37.4 million, compared with $39.5 million at September 30, 2007. Total debt at December 31, 2007 was $2.4 million. The Company generated $2.2 million in operating cash flow during the fourth quarter and invested $2.5 million in Market2Lead, Inc., and $1.9 million in capital equipment, which includes cost related to expansion of its operations in Manila, Philippines.
Recent Business Highlights
-- In January 2008, added leading software solutions company as new client
for hosted channel contract sales solution on a global scale
-- Added Fortune 500 global desktop and notebook computer manufacturer as
new client for contract sales
-- Fortune 500 global network computing client significantly expanded
agreement for lead development
-- Fortune 50 hardware client expanded agreement for lead development
-- Selected by second business unit of Fortune 50 hardware client for lead
development
-- Added leading networking solutions provider QLogic as new client for
training sales
-- Added semiconductor design software leader Magma Design Automation as
new client for training sales
Rainmaker CEO Michael Silton commented: "During the year, we successfully completed two acquisitions that increased our global scale with significant operations in Canada and the Philippines. We also internationalized and enhanced our technology solutions to better serve our more than 120 clients, including development of our innovative reseller portal solution that helps clients increase revenue from contracts sold through their channel partners. We are seeing the positive results of these efforts in the record number of new contracts we signed during the year, including new clients, cross-sells, and client expansions, which are beginning to generate increasing revenue. In the fourth quarter, our contract sales business excluding Dell grew 33% quarter-over-quarter. We are making excellent progress with our integration of Rainmaker Asia and have seen their revenue increase as we focus on increasing capacity and leveraging these operations to better serve our existing clients' needs in Asia. We achieved significant scale in 2007, and look forward to further penetrating the substantial opportunities ahead and leveraging our investments." Financial Guidance Rainmaker is providing 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 2007 fourth quarter and full year results. Those wishing to participate in the live call should dial (800) 218-0204 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 11106713 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 income consists of net 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 and amortization of purchased intangible assets. For purposes of comparability across other periods and against other companies in our industry, non-GAAP net income is adjusted by the amount of additional taxes that Rainmaker would accrue using a annualized effective tax rate applied to the non-GAAP results. The net revenue adjustment was $0 for the three months ended December 31, 2007 as there will be no future effects from Rainmaker's acquisition of ViewCentral in September 2006 and CAS Systems in January 2007. Stock compensation adjustments were $614,000 for the three months ended December 31, 2007 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 $913,000 for the three months ended December 31, 2007 and related primarily to the prior acquisitions of Sunset Direct, Launch Project, Metrics Corp, ViewCentral, CAS Systems and Qinteraction. The tax effect of these adjustments was an expense of $414,000 for the three months ended December 31, 2007. See Exhibit A for a reconciliation of GAAP net income to non-GAAP net income.
Fourth quarter EBITDA was $1.7 million. EBITDA consists of net income excluding interest income or expense, income taxes, depreciation and amortization. Interest and other income was $439,000 for the three months ended December 31, 2007 and related primarily to interest earned on cash deposits offset by interest expense on term loans. Provision for income taxes was $138,000 for the three months ended December 31, 2007. Non-cash charges for depreciation of property and equipment was $847,000 for the three months ended December 31, 2007. Non-cash charges for amortization of acquisition related intangibles were $913,000 for the three months ended December 31, 2007 and related primarily to our prior business acquisitions. See Exhibit B for a reconciliation of GAAP net income to EBITDA.
Non-GAAP net income, non-GAAP net 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 income, non-GAAP net 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 income, non-GAAP net 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, Sunset Direct and Contract Renewals Plus 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, 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.
- Financial tables to follow - RAINMAKER SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited) December 31, December 31,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $37,407 $21,996
Restricted cash 157 315
Accounts receivable, less allowance for
doubtful accounts of $285 at
December 31, 2007 and $233 at
December 31, 2006 20,625 13,547
Prepaid expenses and other current assets 3,622 1,172
Total current assets 61,811 37,030
Property and equipment, net 9,447 4,293
Intangible assets, net 7,049 5,604
Goodwill 14,539 7,006
Other noncurrent assets 2,706 325
Total assets $95,552 $54,258 LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $25,466 $22,522
Accrued compensation and benefits 2,062 1,979
Other accrued liabilities 3,447 2,368
Deferred revenue 3,541 3,457
Current portion of capital lease
obligations - 2
Current portion of notes payable 1,083 1,500
Total current liabilities 35,599 31,828
Deferred tax liability 167 43
Long term deferred revenue 401 268
Notes payable, less current portion 1,333 417
Total liabilities 37,500 32,556 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;
20,359,564 shares issued and
20,325,964 shares outstanding at
December 31, 2007, and 15,088,294
shares issued and outstanding at
December 31, 2006 19 15
Additional paid-in capital 116,391 81,265
Accumulated deficit (58,074) (59,578)
Accumulated other comprehensive loss (51) -
Treasury stock, at cost, 33,600
shares at December 31, 2007 and 0 shares
at December 31, 2006 (233) -
Total stockholders' equity 58,052 21,702 Total liabilities and
stockholders' equity $95,552 $54,258 RAINMAKER SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited) Three Months Ended Year Ended
December 31, December 31, 2007 2006 2007 2006 Net revenue $20,127 $14,365 $73,515 $48,921
Cost of services 10,448 7,070 38,114 24,385
Gross margin 9,679 7,295 35,401 24,536 Operating expenses:
Sales and marketing 1,848 1,592 6,854 4,250
Technology and development 2,734 1,874 10,738 5,990
General and administrative 3,417 1,889 11,443 7,483
Depreciation and amortization 1,760 1,016 5,711 3,299
Total operating expense 9,759 6,371 34,746 21,022 Operating income (80) 924 655 3,514
Interest and other income, net 439 133 1,407 187
Income before income tax expense 359 1,057 2,062 3,701
Income tax expense 138 114 558 298
Net income $221 $943 $1,504 $3,403 Basic income per share $0.01 $0.06 $0.09 $0.25
Diluted income per share $0.01 $0.06 $0.08 $0.23 Weighted average common shares
Basic 19,225 14,671 17,569 13,662
Diluted 20,740 15,990 18,882 14,568 RAINMAKER SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Year Ended December 31,
2007 2006 Operating activities:
Net income $1,504 $3,403
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of
property and equipment 2,646 1,831
Amortization of intangible assets 3,065 1,468
Stock-based compensation expense 1,814 207
Provision for allowances for
doubtful accounts 408 267
Amortization of discount on
notes receivable (44) -
Loss on disposal of fixed assets 41 10
Changes in operating assets
and liabilities, net of assets
acquired and liabilities assumed:
Accounts receivable (5,634) (3,184)
Prepaid expenses and
other assets (1,440) 18
Accounts payable 2,185 4,781
Accrued compensation and
benefits (310) 552
Other accrued liabilities 223 637
Deferred tax liability 363 43
Deferred revenue 47 503
Net cash provided by operating
activities 4,868 10,536
Investing activities:
Purchases of property and equipment (4,671) (1,660)
Restricted cash, net 157 271
Acquisition of business, net
of cash acquired (9,027) 365
Purchase of notes receivable and warrants (2,500) -
Net cash used in investing
activities (16,041) (1,024)
Financing activities:
Proceeds from issuance of common stock
from option exercises 1,111 1,016
Proceeds from issuance of common stock
from ESPP 76 53
Proceeds from issuance of common stock
from warrant exercises 55 190
Net proceeds from issuance of common stock
and warrants from private placement - 5,312
Tax benefit from stock option exercises 54 65
Net proceeds from follow-on offering of
common stock 27,203 -
Principal payment of notes payable (1,501) (3,500)
Principal payment of financing arrangements - (301)
Principal payment of capital lease
obligations (2) (97)
Tax payments in connection with treasury
stock surrendered (233) -
Net cash provided by
financing activities 26,763 2,738
Effect of exchange rate changes on cash (179) -
Net increase in cash and cash equivalents 15,411 12,250
Cash and cash equivalents at beginning of year 21,996 9,746
Cash and cash equivalents at end of year $37,407 $21,996
Supplemental disclosures of cash flow
information:
Cash paid for interest $208 $254
Cash paid for taxes $223 $108
Supplemental disclosures of non-cash
investing and financing activities:
Issuance of notes payable for
acquisition of assets $2,000 $-
Issuance of common stock in
business acquisitions $4,817 $5,337 RAINMAKER SYSTEMS, INC. EXHIBIT A
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME (1)
(In thousands, except per share)
(Unaudited) Three months ended Year ended
December 31, December 31,
2007 2006 2007 2006 Net income - US GAAP basis $221 $943 $1,504 $3,403
Net revenue adjustment (2) - 116 149 139
Stock compensation adjustments (3):
Cost of services 132 37 395 45
Sales and marketing 92 42 331 61
Technology and development 69 19 214 23
General and administrative 321 58 874 78
Amortization of intangible assets (4) 913 567 3,065 1,468
Tax effect of adjustment (5) (414) (91) (1,322) (147)
Net income - Non-GAAP basis $1,334 $1,691 $5,210 $5,070 Diluted weighted average shares
outstanding 20,740 15,990 18,882 14,568 Non-GAAP diluted net income per share $0.06 $0.11 $0.28 $0.35
(1) To supplement our financial results presented on a GAAP basis, we use
non-GAAP net 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 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 income is not meant to be considered in
isolation or as a substitute for GAAP net 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 twelve months ended December 31, 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 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) The income tax provision was calculated reflecting an effective tax
rate of 27.1% and 10.8% for the three months ended December 31, 2007
and 2006, respectively, and 27.1% and 8.1% in the twelve months ended
December 31, 2007 and 2006, respectively.
RAINMAKER SYSTEMS, INC. EXHIBIT B
RECONCILIATION OF NET INCOME (U.S. GAAP) TO EBITDA (1)
(In thousands)
(Unaudited) Three months ended Year ended
December 31, December 31,
2007 2006 2007 2006 Net income - US GAAP basis $221 $943 $1,504 $3,403 Add:
Provision for income taxes 138 114 558 298
Depreciation of property and
equipment 847 449 2,646 1,831
Amortization of acquisition
related intangibles 913 567 3,065 1,468
Interest and other income (439) (133) (1,407) (187)
1,459 997 4,862 3,410 EBITDA - Non GAAP basis $1,680 $1,940 $6,366 $6,813
(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. DATASOURCE: Rainmaker Systems, Inc.
CONTACT: Steve Valenzuela, Chief Financial Officer of Rainmaker Systems, Inc., +1-408-626-2439, ; or Todd Kehrli or Jim Byers, Investor Relations of MKR Group, Inc., +1-323-468-2300, , for Rainmaker Systems, Inc.
Web site: http://www.rmkr.com/
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